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 MARCH 31, 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 April 30, 1999:
16,940,064
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 (unaudited)................. 2
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998
(unaudited)...................................................... 3
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 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............................. 10
Item 3. Quantitative and Qualitative Disclosures about Market Risks..... 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WIRELESS ONE, INC.
(Debtor-In-Possession)
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
Assets March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,681,171 $ 1,163,716
Subscriber receivables, net 1,056,752 1,344,803
Accrued interest and other receivables 795,497 1,022,409
Prepaid expenses 791,598 1,113,086
----------------- ----------------
Total current assets 5,325,018 4,644,014
Property and equipment, net 80,029,530 85,429,662
License and leased license investment, net 120,314,978 121,764,630
Other assets 14,172,298 15,355,282
----------------- ----------------
Total assets $ 219,841,824 $ 227,193,588
================= ================
Liabilities and Stockholders' Equity (Deficit)
Liabilities not subject to compromise:
Current liabilities:
Accounts payable $ 1,597,945 $ 1,646,290
Accrued expenses 7,717,972 6,532,544
Accrued interest 1,241,647 4,935,903
Current maturities of long-term debt 2,567,437 2,542,956
Senior Secured Notes payable - 12,500,000
Postpetition financing 18,854,986 -
----------------- ----------------
Total current liabilities 31,979,987 28,157,693
Long-term debt, less current portion 21,598,952 336,287,418
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 16,940,064 and
16,910,064 shares, respectively 169,401 169,101
Additional paid-in capital 119,771,711 119,772,011
Accumulated deficit (277,189,011) (257,192,635)
----------------- ----------------
Total stockholders' equity (deficit) (157,247,899) (137,251,523)
----------------- ----------------
Total liabilities and stockholders' $ 219,841,824 $ 227,193,588
equity (deficit) ================= ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
WIRELESS ONE, INC.
(Debtor-In-Possession)
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Revenues $ 9,292,876 $ 10,616,286
-------------- -------------
Operating expenses:
Systems operations 5,139,127 6,423,708
Selling, general, and administrative 5,939,119 5,769,745
Depreciation and amortization 9,211,966 9,629,691
-------------- -------------
Total operating expenses 20,290,212 21,823,144
-------------- -------------
Loss from operations (10,997,336) (11,206,858)
-------------- -------------
Other income (expense):
Interest expense (excluding contractual
interest in 1999 of $5,760,610) (7,439,992) (10,782,160)
Interest income 20,732 524,374
Equity in losses of affiliate (110,644) (142,750)
Gain on sale of investment - 1,000,000
-------------- -------------
Total other income (expense) (7,529,904) (9,400,536)
-------------- -------------
Loss before reorganization costs
and income taxes (18,527,240) (20,607,394)
Reorganization costs (1,469,136) -
-------------- -------------
Loss before income taxes (19,996,376) (20,607,394)
Income tax benefit - 1,300,000
-------------- -------------
Net loss (19,996,376) (19,307,394)
============== =============
Basic and diluted loss per common share $ (1.18) $ (1.14)
============== =============
Basic and diluted weighted average common
shares outstanding 16,939,731 16,910,064
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
WIRELESS ONE, INC.
(Debtor-In-Possession)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (19,996,376) $ (19,307,394)
Adjustments to reconcile net loss to net cash
used in operating activities:
Bad debt expense 367,131 463,738
Depreciation and amortization 9,211,966 9,629,691
Amortization of debt discount 3,851,529 5,345,502
Accretion of interest income - (148,315)
Deferred income tax benefit - (1,300,000)
Equity in losses of affiliate 110,644 142,750
Gain on sale of assets - (1,000,000)
Changes in assets and liabilities:
Receivables 147,832 (536,996)
Prepaid expenses 321,488 169,047
Deposits (5,744) (4,240)
Accounts payable and accrued expenses 4,952,015 4,055,907
----------------- -----------------
Net cash used in operating activities (1,039,515) (2,490,310)
----------------- -----------------
Cash flows used in investing activities:
Purchase of investments and other assets - (125,000)
Capital expenditures (2,360,550) (2,376,855)
Acquisition of license intangibles (1,632) (186,489)
Proceeds from sale of assets - 2,500,000
----------------- -----------------
Net cash used in investing activities (2,362,182) (188,344)
----------------- -----------------
Cash flows from financing activities:
Principal payments on long-term debt (80,848) (74,727)
Proceeds from issuance of notes 5,000,000 -
----------------- -----------------
Net cash provided by (used in) financing activities 4,919,152 (74,727)
----------------- -----------------
Net increase (decrease) in cash 1,517,455 (2,753,381)
Cash and cash equivalents at beginning of period 1,163,716 15,528,215
----------------- -----------------
Cash and cash equivalents at end of period $ 2,681,171 $ 12,744,834
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 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.
(d) EARNINGS PER SHARE
Earnings per share are computed in accordance with 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.
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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.
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
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 "Postpetition Financing") providing the Company with an
aggregate principal amount of financing of approximately $18.9 million.
The Postpetition Financing includes (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 million in additional financing for working capital
needs. Amounts outstanding under the Postpetition Financing bear interest
at 15% per annum, and the Postpetition Financing will terminate 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 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 Postpetition Financing), (iii) the date of the redemption of the
Postpetition Financing note by the Company or (iv) the effective date of
the Company's Plan of Reorganization under the Bankruptcy Code (the
"Plan")..
MCI Worldcom, Inc. ("MCI") recently confirmed to the Company that it
purchased the secured notes issued pursuant to the Postpetition Financing
from MLGAF and a significant (but unspecified) amount of the Old Senior
Notes. If MCI purchased Old Senior Notes that were subject to the
Bondholders Agreement, MCI is bound by the Bondholders Agreement with
respect to those Old Senior Notes. While the Company believes that MCI
purchased at least some of its Old Senior Notes from persons who were
subject to the Bondholders Agreement, MCI has not informed the Company of
the identity of the persons from whom it purchased Old Senior Notes.
On March 15, 1999, the Company filed the Plan and a proposed disclosure
statement, which reflect the terms of the Bondholders Agreement. Pursuant
to the Plan, on the effective date of the Plan (the "Effective Date"), 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, holders of common stock on a record
date to be determined (the "Record Date") will 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 is 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 will be cancelled and the holders thereof will not
receive any distribution in respect thereof. The remaining approximately
96% of the New Common Stock will be distributed to holders of Old Senior
Notes (9,552,000 shares) and to BT Alex. Brown (50,000 shares).
Accordingly, under the Plan holders of common stock will receive one
share of New Common Stock for every 42.56 shares of common stock held on
the Record Date and a New Warrant to purchase 1 share of New Common Stock
for every 13.72 shares of common stock held on the Record Date. Upon the
Effective Date, Reorganized Wireless will be authorized under the 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 will
also be available for issuance to management pursuant to the New Stock
Option Plan.
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
Since the filing of the Plan, there have been several acquisitions of
other companies in the wireless cable industry which appear to indicate
substantially higher enterprise valuations than the valuations which
formed the basis for the Plan. In addition, the Company's revised signal
coverage estimates (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview") could contribute to a
higher valuation of the Company. In light of these developments, the
Company is reviewing the appropriateness of the provisions of the Plan.
Under the Bondholders Agreement, the parties (including the Company,
subject to its fiduciary duties) have agreed to support the Plan and not
to support any other plan of reorganization. There can be no assurance
that, if the Company were to revise the Plan, such revised plan would be
approved by any constituencies whose approval may be required under the
Bankruptcy Code (including holders of the Old Senior Notes, if necessary)
or whether any such plan would be confirmed by the Bankruptcy Court. If
the Company determined to revise the Plan, there can also be no assurance
that the holders of the Company's common stock would ultimately realize a
recovery that is greater than or equal to the recovery provided under the
Plan.
By a letter to the Company dated February 25, 1999 (the "Heartland
Letter"), Heartland Wireless Communications, Inc. ("Heartland"), a holder
of approximately 20% of the Company's common stock, requested
consideration of an alternate plan of reorganization for the Company. The
Company has considered the plan proposed in the Heartland Letter and
believes that the Company's Plan is more favorable to the creditors and
stockholders of the Company.
There can be no assurance that the Company will emerge from the Chapter 11
proceeding, that the Company will be able to obtain financing upon
emergence from bankruptcy, or that the Company will generate positive
operating cash flow upon 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 additional write-down 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 $1.3 million of deferred income
tax benefit for the three months ended March 31, 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.
WIRELESS ONE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(4) LIABILITIES SUBJECT TO COMPROMISE
As more fully discussed in Note 2, under the Plan, holders of the Old
Senior Notes will receive New Common Stock and New Warrants in exchange
for cancellation of their debt. These amounts are considered eligible for
compromise under the Plan and have been reclassified as Liabilities
subject to compromise on the Company's Condensed Consolidated Balance
Sheet at March 31, 1999.
Liabilities subject to compromise are comprised of the following:
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
=================
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 MONTHS ENDED MARCH 31, 1999, COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 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 March 31, 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 March 31, 1999, the
Company had approximately 101,000 wireless and DBS video subscribers.
Subsequent to March 31, 1999, the Company, with the assistance of an
outside engineering firm, updated its heretofore reported signal coverage
estimates, which were based upon 1995 population data. The updated estimates
take into account increases since 1995 in the number of housing units within
the Company's market areas. The updated estimates also reflect recently
completed engineering analyses which have enabled the Company to establish 30
supplemental undeveloped markets in areas where the Company has acquired
exclusive rights to Multi-point Multi-channel Distribution System ("MMDS")
and Wireless Communications Service ("WCS") spectrum since 1995. As a result,
the Company now estimates that its MMDS spectrum and WCS signals cover
11,203,000 gross housing units in 111 market areas (including the Company's
share of gross housing units covered by a 50 percent owned joint venture).
Historically, companies within the wireless cable industry have also
reported the estimated number of gross housing units within their signal
coverage areas which are actually capable of receiving their signals, commonly
known as line-of-sight ("LOS") housing units. The Company believes that, due
to technological advances in the digital broadband (i.e., high capacity)
wireless access ("BWA") and wireless cable industries (such as digital
transmission and cellularization), a recent shift toward greater anticipated
use of the MMDS and WCS spectrum for digital transmissions of voice and data
(as opposed to analog transmissions of television programming), and the lack
of industry standards upon which to compare estimates of LOS housing units
(such as standard broadcast and receive antenna height, criteria for making
booster station assumptions, and type of signal - a digital signal penetrates
obstructions such as trees more readily than does an analog signal), LOS
household estimates are no longer as meaningful as are estimates of gross
housing units. Nonetheless, consistent with its historical and industry
practices, the Company has also updated and revised its LOS housing unit
estimates.
Based upon such updated data and by applying to the Company's 30 newly
identified supplemental markets signal coverage ratios from previously
identified markets with similar topographic features, the Company estimates
that 9,119,000 of such 11,203,000 gross housing units are LOS housing units.
The Company previously estimated that its MMDS and WCS spectrum signals
covered 9,240,000 gross housing units and 7,009,000 LOS housing units in 81
market areas (including the Company's pro rata share of the gross housing
units covered by a 50 percent owned joint venture).
The following table shows the Company's updated and revised signal coverage
estimates by market:
<TABLE>
<CAPTION>
GROSS LOS
HOUSING HOUSING
UNITS (1) UNITS
--------- -----
VIDEO OPERATING MARKETS:
- ------------------------
<S> <C> <C>
Bucks, AL 156,100 131,100
Demopolis, AL 17,800 17,800
Dothan, AL 111,200 100,100
Florence, AL 62,600 62,600
Gadsden, AL 203,400 103,700
Huntsville, AL 208,600 173,100
Tuscaloosa, AL 91,500 82,400
Ft.Walton Beach, FL 73,100 73,100
Gainesville, FL 149,800 146,800
Panama City, FL 118,800 99,800
Pensacola, FL 232,200 188,100
Tallahassee, FL 144,800 141,900
Albany, GA 98,400 84,600
Charing, GA 42,100 40,000
Jeffersonville, GA 212,200 167,600
Alexandria, LA 31,500 31,500
Bunkie, LA 92,400 90,600
Houma, LA 87,400 87,400
Lafayette, LA 188,900 188,900
Lake Charles, LA 115,400 113,100
Monroe, LA 116,600 107,300
Bude, MS 88,400 78,700
Delta, MS 101,400 98,400
Gulf Coast, MS 141,900 141,900
Hattiesburg, MS 126,600 102,500
Jackson, MS 220,700 198,600
Meridian, MS 78,900 52,100
Oxford, MS 66,700 56,000
Starkville, MS 85,800 71,200
Tupelo, MS 137,500 99,000
Lawrenceburg, TN 79,400 34,900
Tullahoma, TN 117,600 77,600
Brenham, TX 41,700 37,500
Bryan, TX 109,400 77,700
Freeport, TX 208,200 208,200
Milano, TX 40,900 40,900
Wharton, TX 112,900 112,900
--------- ---------
TOTAL VIDEO OPERATING MARKETS 4,312,800 3,719,600
--------- ---------
DATA-ONLY OPERATING MARKETS:
- ----------------------------
Baton Rouge, LA 273,000 273,000
Memphis, TN 453,500 453,500
--------- ---------
TOTAL DATA ONLY OPERATING MARKETS 726,500 726,500
--------- ---------
TOTAL VIDEO AND DATA OPERATING MARKETS 5,039,300 4,446,100
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
GROSS LOS
HOUSING HOUSING
UNITS(1) UNITS
-------- -------
<S> <C> <C>
NON-OPERATING MARKETS:
Auburn, AL 65,100 29,900
Bankston, AL 83,400 52,500
Birmingham, AL 318,000 295,700
Mobile, AL 74,800 50,900
Montgomery, AL 169,500 147,500
Selma, AL 37,500 30,400
Six Mile, AL 35,600 32,800
Woodville, AL 31,900 30,000
Pine Bluff, AR 85,800 64,400
Marianna, FL 62,000 57,000
Ocala, FL 307,200 205,800
Augusta, GA 212,900 123,500
Columbus, GA 169,700 137,500
Hoggards Mill, GA 24,900 16,900
Savannah, GA 211,900 207,700
Tarboro, GA{ } 100,500 100,500
Valdosta, GA 115,200 107,100
Vidalia, GA 51,800 38,800
Bowling Green, KY 143,500 73,200
Abita Springs, LA 217,300 130,400
Amite, LA 55,500 42,200
Leesville, LA 42,900 29,200
Natchitoches, LA 38,000 34,200
Ruston, LA 52,700 31,600
Tallulah, LA 25,600 25,600
Chattanooga, TN 285,000 193,800
Flippin, TN 58,200 57,000
Huntsville, TX 93,500 58,900
--------- ---------
TOTAL NON-OPERATING MARKETS 3,169,900 2,405,000
--------- ---------
</TABLE>
(1) 1999 Housing Units calculated by multiplying 1990 Units by growth factor
per CACI Marketing Systems, Inc., Arlington, VA
<TABLE>
<CAPTION>
GROSS LOS
HOUSING HOUSING
UNITS(1)(2) UNITS
----------- -------
<S> <C> <C>
50% OWNED JOINT VENTURE MARKETS
Moorehead, City, NC 42,600 31,100
Asheville, NC 134,100 53,600
Charlotte, NC 309,200 303,000
Elizabeth City, NC 35,700 16,800
Fayetteville, NC 130,700 96,700
Greenville, NC 54,200 48,800
Hickory, NC 201,900 111,000
Jacksonville, NC 69,900 74,100
Raleigh, NC 121,400 119,000
Roanoke Rapids, NC 19,900 23,100
Rockingham, NC 45,900 43,200
Rocky Mount, NC 93,600 84,200
Wilmington, NC 76,400 68,800
Winston Salem, NC 285,500 234,100
--------- ---------
TOTAL 50% OWNED JOINT VENTURE MARKETS 1,621,000 1,307,500
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
GROSS LOS
HOUSING HOUSING
UNITS(1)(2) UNITS
----------- -------
<S> <C> <C>
SUPPLEMENTAL MARKETS
Andalusia, AL 53,100 29,200
Monroeville, AL 15,100 12,700
Forrest City, AR 17,500 13,100
Monticello, AR 17,700 11,000
Chiefland, FL 15,500 15,200
Perry, FL 12,100 11,900
Port St. Joe, FL 21,300 17,900
Sylvania, GA 27,800 16,700
Dodge City, KS 65,200 65,200
Thompkinsville, KY 43,800 22,300
Buras, LA 5,100 5,100
Bruce, MS 11,300 7,200
Clarksdale, MS 38,300 37,200
Columbia, MS 19,300 12,700
Corinth, MS 35,500 22,700
Kosciusko, MS 38,600 32,000
Magee, MS 12,600 8,300
Natchez, MS 25,000 22,300
Henderson, NC 8,700 7,800
Milltown, NC 39,000 16,800
Whiteville, NC 16,300 12,200
Aiken, SC 64,100 44,900
Columbia, SC 124,900 79,900
Florence, SC 50,700 38,000
Orangeburg, SC 105,200 51,500
Sumter, SC 121,700 86,400
Crossville, TN 45,900 30,300
Jackson, TN 39,100 27,800
McKenzie, TN 56,100 39,800
Charleston, WV 225,900 162,700
---------- ---------
SUPPLEMENTAL MARKET TOTALS 1,372,400 960,800
---------- ---------
GRAND TOTALS 11,202,600 9,119,400
========== =========
</TABLE>
(1) 1999 Housing Units calculated by multiplying 1990 Units by growth factor
per CACI Marketing Systems, Inc., Arlington, VA.
(2) All Joint Venture Housing Units counted at 50% of actual.
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 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 Warp
One{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 a Senior Secured
Discretionary Note Facility (the "Senior Facility") with Merrill Lynch Global
Allocation Fund, Inc. ("MLGAF") to fund ongoing operations. As of February
11, 1999, the Company had borrowed $13.5 million in aggregate principal amount
under this facility.
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 senior 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 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 an agreement (the "Bondholders Agreement"), which
provides for the material terms of a restructuring of the Company. Pursuant
to these negotiations, on February 11, 1999 the Company 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")
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 financing
obtained by the Company since the filing of the Bankruptcy Case and a summary
of the terms of the Company's Plan of Reorganization filed under the
Bankruptcy Code on March 15, 1999 (the "Plan") 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
March 31, 1999 were $9.3 million as compared to $10.6 million for the same
period of 1998. The decrease in revenue over the comparable prior year period
was primarily due to a decline in wireless video subscribers. A $3 increase
in monthly basic wireless video service rates was effected March 1, 1999.
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 March 31, 1999 were $5.1 million as compared to $6.4 million for
the same period of 1998, a decrease of $1.3 million. This decrease was
largely attributable to the consolidation of system offices, retrenchment in
the wireless video markets and continued reductions in the workforce.
Selling, General and Administrative - SG&A expenses for the three months
ended March 31, 1999 were $5.9 million compared to $5.8 million for the same
period of 1998, an increase of $0.1 million.
Depreciation and Amortization Expense - Depreciation and amortization
expense for the quarter ended March 31, 1999 was $9.2 million versus $9.6
million for the same period of 1998, a decrease of $.4 million. The decrease
in depreciation and amortization expense during the period was due to reduced
capital spending during 1998 and 1999, the effect of an impairment write-down
in the fourth quarter of 1999 combined with the shift in emphasis to DTV.
Approximately two-thirds of capital expense on DTV installations is subsidized
through the DTV Agreements.
Interest Expense - Interest expense for the quarter ended March 31, 1999
was $7.4 million versus $10.8 million for the same period of 1998, a decrease
of $3.4 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 contractualinterest had been calculated on the Notes through March 31,
1999, the interest expense would have increased $5.8 million to $13.2 million.
Interest Income - Interest income for the quarter ended March 31, 1999
was negligible versus $.5 million for the same period of 1998, a decrease of
$.5 million. 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 develop the Company's Operating
Systems.
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
Systems, to commence construction of Operating Systems in different markets
and to finance initial operating losses.
In order to finance the expansion of its Operating Systems and the launch
of additional markets, in October 1995, the Company completed the initial
public offering of 3,450,000 shares of its common stock (the "Common Stock
Offering"). The Company received approximately $32.3 million in net proceeds
from the Common Stock Offering. Concurrently, the Company issued 150,000
units (the "1995 Unit Offering") consisting of the 1995 Senior Notes and
450,000 warrants to purchase an equal number of shares of common stock at an
exercise price of $11.55 per share. The Company placed approximately $53.2
million of the approximately $143.8 million of net proceeds realized from the
sale of the 1995 unit offering into an escrow account to cover the first three
years' interest payments on the 1995 Senior Notes as required by terms of the
indenture governing the 1995 Senior Notes.
In August 1996, the Company issued 239,252 units (the "1996 Unit
Offering") consisting of the 1996 Senior Discount Notes and 239,252 warrants
to purchase 544,059 shares of common stock at an exercise price of $16.64 per
share. The Company received $118.6 million after expenses. The proceeds were
used to fund marketing of the Company's new DTV multiple dwelling unit
products, development of the Company's BWA product, the launch of new systems
and expansion of the Company's existing markets.
On September 4, 1998, the Company entered into a Senior Facility
with MLGAF. Prior to the commencement of the Bankruptcy Case, the Company
issued $13.5 million in aggregate principal amount of notes under that
facility to MLGAF. The Senior Facility bore interest at 13% per annum and
would have matured on April 15, 1999. The Senior Facility was secured by
substantially all of the Company's assets, as well as pledges of the stock
of all of the Company's direct and indirect subsidiaries. In connection with
the issuance of the Senior Secured Notes, the Company also issued to MLGAF
seven-year detachable warrants to purchase 714,346 shares of the Company's
common stock at an exercise price of $0.722 per share. The Senior Secured
Notes were folded into the Postpetition Financing provided by MLGAF on
February 12, 1999.
For the three months ended March 31, 1999, cash used in operating
activities was $1.0 million consisting of a net loss of $20.0 million,
partially offset by non-cash depreciation and amortization of $9.2 million,
amortization of debt discount of $3.9 million, a net change in current assets
and liabilities of $5.4 million, and net non-cash expenses of $.5 million.
For the three months ended March 31, 1999, cash used in investing activities
was $2.4 million, consisting primarily of capital expenditures. Cash flows
from financing activities for the three months ended March 31, 1999 was $4.9
million consisting of proceeds from debt of $5.0 million less principal
payments on long-term debt.
For the three months ended March 31, 1998, cash used in operating
activities was $2.5 million consisting primarily of a net loss of $19.3
million, in addition to an increase in receivables and prepaid expenses of $.4
million and a $1.0 million gain on the sale of the Company's investment in
Telecorp Holding Corporation, Inc. ("Telecorp"), partially offset by
depreciation and amortization of $9.6 million, an increase in accounts payable
and accrued expenses of $4.1 million, and net non-cash expenses of $4.5
million. For the three months ended March 31, 1998, cash used in investing
activities was $.2 million, consisting primarily of capital expenditures and
payments for licenses and organization costs of approximately $2.4 million and
$.3 million, respectively. In addition, the Company received $2.5 million in
net proceeds from the sale of its investment in Telecorp. These investing
activities were principally related to the acquisition of equipment in certain
of the Company's Operating Systems, as well as the development of its new
high-speed internet product, and certain license and organization costs
related to those markets. For the three months ended March 31, 1998, cash
flows used in financing activities were $.1 million consisting of repayments
of short-term 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 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. 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 the Postpetition Financing
with MLGAF providing the Company with an aggregate principal amount of
financing of approximately $18.9 million. The Postpetition Financing includes
(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 Postpetition Financing
bear interest at 15% per annum, and the Postpetition Financing will terminate
on the earliest to occur of (i) August 12, 1999, (ii) the date the
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 Postpetition
Financing), (iii) the date of the redemption of the Postpetition Financing
note by the Company or (iv) the Effective Date. By means of the Postpetition
Financing and a recently completed sale of certain assets to a 50% owned joint
venture, the Company's cash needs under its business plan are expected to be
met through June 1999. The Company anticipates that certain additional asset
dispositions permitted under the Postpetition Financing will occur during May
and June 1999 which will provide the Company with sufficient cash up to the
August 12, 1999 due date of the Postpetition Financing. Although the Company
is actively pursuing certain additional asset sales, there can be no assurance
that the Company will be able to dispose of its assets or find additional
financing.
MCI Worldcom, Inc. ("MCI") recently confirmed to the Company that it
purchased the secured notes issued pursuant to the Postpetition Financing from
MLGAF and a significant (but unspecified) amount of the Old Senior Notes. If
MCI purchased Old Senior Notes that were subject to the Bondholders Agreement,
MCI is bound by the Bondholders Agreement with respect to those Old Senior
Notes. While the Company believes that MCI purchased at least some Old Senior
Notes from persons who were subject to the Bondholders Agreement, MCI has not
informed the Company of the identity of the persons from whom it purchased Old
Senior Notes.
On March 15, 1999, the Company filed the Plan and a proposed disclosure
statement (the "Disclosure Statement"), both of which reflect the terms of the
Bondholders Agreement. The Plan provides that 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 Plan, on the effective
date of the Plan (the "Effective Date"), 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, holders of common stock on a record date to be determined( the
"Record Date") will receive their ratable proportion of approximately 4% of
(i) 9,950,000 of the 10,000,000 shares of the new common stock of Reorganized
Wireless (the "New Common Stock") to be issued and outstanding as of the
Effective Date, and (ii)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(the "New Warrants"). All other
equity interests will be cancelled and the holders thereof will not receive
any distribution in respect thereof. The remaining approximately 96% of the
New Common Stock will be distributed to holders of Old Senior Notes (9,552,000
shares) and to BT Alex. Brown (50,000 shares). Accordingly, under the Plan
holders of common stock will receive one share of New Common Stock for every
42.56 shares of common stock held on the Record Date and a New Warrant to
purchase 1 share of New Common Stock for every 13.72 shares of common stock
held on the Record Date. Upon the Effective Date, Reorganized Wireless will
be authorized under the 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 will also be available for issuance to management pursuant to the New
Stock Option Plan.
Since the filing of the Plan, there have been several acquisitions of
other companies in the wireless cable industry which appear to indicate
substantially higher enterprise valuations than the valuations which formed
the basis for the Plan. In addition, the Company's revised signal coverage
estimates (See "Overview") could contribute to a higher valuation of the
Company. In light of these developments, the Company is reviewing the
appropriateness of the provisions of the Plan. Under the Bondholders
Agreement, the parties (including the Company, subject to its fiduciary
duties) have agreed to support the Plan and not to support any other plan of
reorganization. There can be no assurance that, if the Company were to revise
the Plan, such revised plan would be approved by any constituencies whose
approval may be required under the Bankruptcy Code (including holders of the
Old Senior Notes, if necessary) or whether any such plan would be confirmed by
the Bankruptcy Court. If the Company determined to revise the Plan, there can
also be no assurance that the holders of the Company's common stock would
ultimately realize a recovery that is greater than or equal to the recovery
provided under the Plan.
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 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 Chapter 11
proceeding, that the Company will be able to obtain 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 additional write-down 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, without limitation, the availability,
terms and conditions of additional financing that the Company will require,
Bankruptcy Court approval and any other approvals required for such financing,
any other matters requiring Bankruptcy Court or other approvals, the future
amount of the Company's negative cash flow, the future results of the
Company's operations, resolution of the Company's supply need for modems used
in the Company's high-speed Internet product, business opportunities that may
be presented to and pursued by the Company, changes in laws or regulations,
uncertainty of the Company's ability to obtain FCC authorizations,
competition, physical limitations of wireless cable transmission, changes in
general business and economic condition in the Company's operation regions and
issues arising from Year 2000 information technology matters, many of 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.
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.
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 currently
anticipates it will have assessed and remedied all critical areas of its own
operations by June 30, 1999, and that it will internally certify the readiness
of these critical areas by September 30, 1999. The Company's risk assessment
processes associated with critical suppliers and other key business partners,
include 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:
EST.COMPLETION DATE EST. CERTIFICATION DATE
Internal Assessment Completed N/A
Internal Corrections June 30, 1999 September 30, 1999
External Assessment June 30, 1999 September 30, 1999
Costs incurred to date in addressing Year 2000 issues are approximately
$.1 million. Based on current assessment and correction projects the Company
expects to spend approximately $.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.
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 January 15, 1999, the Company filed a Current Report on Form 8-K
stating under "Item 5, Other Events" that the Company had formed an unofficial
ad hoc committee of holders of its unsecured Senior Notes had been formed.
On February 11, 1999, the Company filed a Current Report or Form 8-K
stating under "Item 3. Bankruptcy of Receivership:" that the Company filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code
in the Bankruptcy Court.
On March 16, 1999, the Company filed a Current Report on Form 8-K stating
under "Item 5. Other Events" that the Company had filed a proposed disclosure
statement and plan of reorganization with the Bankruptcy Court.
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: May 17, 1999 /s/ Henry M. Burkhalter
------------------------------------
Henry M. Burkhalter
President and Chief Executive Officer
Date: May 17, 1999 /s/ Henry G. Schopfer, III
-----------------------------------
Henry G. Schopfer, III
Executive Vice President and
Chief Financial Officer
Date: May 17, 1999 /s/ William D. Gray
----------------------------------
William D. Gray
Controller
(Chief Accounting Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3.1 (i) Amended and Restated Certificate of Incorporation of the
Registrant (1)
3.1 (ii) Bylaws of the Registrant (1)
4.1 Indenture between the Registrant and United States Trust Company of
New York, as Trustee, dated October 24, 1995(2)
4.2 Warrant Agreement between Registrant and United States Trust
Company of New York, as Warrant Agent, dated October 24, 1995(2)
4.3 Escrow and Disbursement Agreement between the Registrant and
Bankers Trust Corporation, Escrow Agent, dated October 24, 1995(2)
4.4 Supplemental Indenture between the Registrant and United States
Trust Company of New York, as trustee, dated July 26, 1996(3)
4.5 Indenture between the Registrant and United States Trust Company
of New York as Trustee, dated August 12, 1996(3)
4.6 Warrant Agreement between the Registrant and United States Trust
Company of New York, as Warrant Agent, dated August 12, 1996(4)
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 (5)
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(5)
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)(6)
10.2 Form of 13.00% Senior Secured Discretionary Note(6)
10.3 Warrant Agreement between the Company and First Chicago Trust
Company of New York, as warrant agent, dated as of September 4,
1998(6)
10.4 Form of Warrant Certificate
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(6)
27.1 Financial Data Schedules(7)
FOOTNOTES
1) 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.
2) 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.
3) Incorporated herein by reference from the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1995.
4) 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.
5) Incorporated herein by reference to the Registrant's Form 8-K dated August
25, 1998.
6) Incorporated herein by reference to the Registrant's Form 8-K dated
September 4, 1998.
7) 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 FIANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,681,171
<SECURITIES> 0
<RECEIVABLES> 1,828,249
<ALLOWANCES> 771,497
<INVENTORY> 0
<CURRENT-ASSETS> 5,325,018
<PP&E> 137,729,142
<DEPRECIATION> 57,699,612
<TOTAL-ASSETS> 219,841,824
<CURRENT-LIABILITIES> 31,979,987
<BONDS> 345,109,736
<COMMON> 169,401
0
0
<OTHER-SE> 119,771,711
<TOTAL-LIABILITY-AND-EQUITY> 219,841,824
<SALES> 9,292,876
<TOTAL-REVENUES> 9,292,876
<CGS> 0
<TOTAL-COSTS> 20,290,212
<OTHER-EXPENSES> 1,559,048
<LOSS-PROVISION> 367,131
<INTEREST-EXPENSE> 7,439,992
<INCOME-PRETAX> (19,996,376)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,996,376)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,996,376)
<EPS-PRIMARY> (1.18)
<EPS-DILUTED> (1.18)
</TABLE>
