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
( QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
OR
( TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-22888
CAI WIRELESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1324691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Corporate Woods Boulevard, Albany, New York 12211
(Address and zip code of principal executive offices)
(518) 462-2632
(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 outstanding of each of registrant's class of common stock at
August 1, 1996:
CLASS OUTSTANDING SHARES
Common Stock, no par value 40,311,472
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, MARCH 31,
1996 1996
(UNAUDITED) *
ASSETS
Cash and cash equivalents $ 79,704,650 $103,263,094
Subscriber accounts receivable, less allowance for
bad debts of $899,145 for June and $1,296,282 for March 1,347,605 1,432,674
Prepaid expenses 769,096 698,482
Property and equipment, net 62,943,341 52,568,619
Wireless channel rights, net 204,828,236 205,973,840
Investment in CS Wireless Systems, Inc. 110,126,098 113,054,069
Debt service escrow 78,714,005 77,621,088
Goodwill, net 129,022,676 131,282,996
Debt finance costs, net 10,234,786 10,631,263
Other assets 2,303,082 2,268,847
Total Assets $679,993,575 $698,794,972
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 11,440,994 $ 8,244,577
Accrued expenses 19,087,573 10,186,374
Senior debt 275,000,000 275,000,000
Notes payable 40,910,895 43,434,667
Wireless channel rights obligations 33,782,650 41,025,866
Deferred income taxes 30,910,000 35,410,000
411,132,112 413,301,484
Commitments
Mandatorily redeemable preferred stock
14% Senior convertible preferred stock
(liquidation value $70,000,000) 69,055,003 69,020,002
Series A 8% redeemable convertible preferred stock
(liquidation value $577,500/$18,050,000) 577,500 18,050,000
Accrued preferred stock dividends 8,841,631 5,812,562
78,474,134 92,882,564
Shareholders' Equity
Preferred stock
Common stock, shares issued and outstanding
June 30, 1996 - 40,311,472
March 31, 1996 - 37,829,482 275,173,587 257,701,130
Accumulated deficit (84,786,258) (65,090,206)
190,387,329 192,610,924
Total Liabilities and Shareholders' Equity $679,993,575 $698,794,972
*Summarized from the Company's audited Consolidated Balance Sheet as of
that date.
See notes to condensed consolidated financial statements.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE-MONTH
PERIODS ENDED
JUNE 30, JUNE 30,
1996 1995
REVENUES $ 9,304,823 $ 3,991,867
Costs and expenses
Programming and license 3,892,596 1,664,905
Marketing 574,605 1,046,003
General and administrative 6,913,514 4,644,075
Depreciation and amortization 8,095,227 2,608,925
19,475,942 9,963,908
Operating loss (10,171,119) (5,972,041)
Other income (expense)
Equity in net loss of affiliate (3,000,000) -
Interest income 2,172,064 88,312
Other income 39,454 37,946
Interest expense (10,160,834) (1,940,278)
(10,949,316) (1,814,020)
Loss before provision for income tax
benefit and minority interest (21,120,435) (7,786,061)
Provision for income tax benefit 4,500,000 -
Loss before minority interest (16,620,435) (7,786,061)
Minority interest in loss - 279,746
Net loss (16,620,435) (7,506,315)
Preferred stock dividend (3,075,617) (352,449)
Loss applicable to common stock
shareholders $(19,696,052) $(7,858,764)
Loss per common share $ (0.51) $ (0.49)
Average common and equivalent
shares outstanding 38,859,743 15,913,911
See notes to condensed consolidated financial statements.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE-MONTH
PERIODS ENDED
JUNE 30, JUNE 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(16,620,435) $(7,506,315)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 8,095,227 2,608,925
Equity in net loss of affiliate 3,000,000 -
Deferred income tax benefit (4,500,000) -
Debt finance costs and discounts amortization 502,325 770,960
Minority interest in loss - (279,746)
Debt service escrow interest income (1,092,917) -
Changes in assets and liabilities,
net of effects from acquisitions
Subscriber accounts receivable 36,394 (400,561)
Other assets (121,094) 183,956
Accounts payable and accrued expenses 8,880,700 (14,873)
Net cash used in operating activities (1,819,800) (4,637,654)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of wireless channel rights (1,129,955) (744,634)
Purchase of property and equipment (9,999,304) (2,602,498)
Proceeds from the sale of property and equipment - 69,828
Purchase of investments - (250,000)
Proceeds from the sale of investments - 208,778
Other (268,300) (1,040,966)
Net cash used in investing activities (11,397,559) (4,359,492)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes, other debt and
warrants - 42,000,000
Payment of senior and other debt (10,329,492) (26,191,883)
Debt financing costs paid - (642,747)
Proceeds from issuance of common stock - 1,545,979
Registry and other stock issuance costs paid - (75,650)
Other (11,593) -
Net cash provided by (used in) financing
activities (10,341,085) 16,635,699
Net increase (decrease) in cash and
cash equivalents (23,558,444) 7,638,553
Cash and cash equivalents, beginning 103,263,094 1,201,932
Cash and cash equivalents, ending $ 79,704,650 $ 8,840,485
See notes to condensed consolidated financial statements
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed consolidated financial statements
include the accounts of CAI Wireless Systems, Inc. and its
wholly-owned subsidiaries (the "Company" or "CAI"). The
balance sheets presented herein reflect the acquisitions of
ACS Enterprises, Inc. and its subsidiaries ("ACS") and
Eastern Cable Networks of Washington, Inc. ("ECNW") which
were effective as of September 29, 1995. However,
consistent with the purchase method of accounting, the
statement of operations for the three-month period ended
June 30, 1995 does not include any operating activity of
ACS or ECNW. A 54% owned subsidiary, CS Wireless Systems,
Inc. ("CS"), is accounted for on the equity method.
Current summarized financial information regarding CS is
presented in Note 3 below.
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form 10-
Q and Rule 10-01 of Regulation S-X. They do not include all
information and notes required by generally accepted
accounting principles for complete financial statements.
In the opinion of the Management, all adjustments
(consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
Operating results for the three-month period ended June 30,
1996 are not necessarily indicative of the results that may
be expected for the year ending March 31, 1997.
Note 2. Shareholders' Equity.
During the three-month period ended June 30, 1996, a
total of 174,725 shares of 8% Series A Preferred Stock were
converted into 2,481,990 shares of common stock, resulting
in an increase of $17,472,457 in common stock.
Note 3. Investment in CS Wireless Systems, Inc.
The Company's equity in net loss of affiliate of
approximately $3,000,000 is based on CAI's pro-rata share
of CS Wireless Systems, Inc.'s net loss of $3,063,000 for
the three-month period ended March 31, 1996, taking into
account CAI's complete ownership prior to February 23,
1996, plus CAI's amortization of the excess of its cost
less its pro-rata share of equity acquired over a fifteen
year period as follows:
CAI's share of affiliate's net loss $2,500,000
Amortization of CAI's excess cost 500,000
Equity in net loss of affiliate $3,000,000
The summarized financial information disclosed below is
extracted from CS Wireless Systems, Inc. unaudited historical
March 31, 1996 financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
CONTINUED
Note 3. Investment in CS Wireless Systems, Inc., continued
The following is an unaudited condensed consolidated
balance sheet of CS Wireless Systems, Inc. as of March 31, 1996:
ASSETS
Cash and cash equivalents $165,072,000
Subscriber receivables, net 902,000
Prepaid expenses and other 545,000
Plant and equipment 31,196,000
Net assets held for sale 27,290,000
Wireless channel rights, net 142,237,000
Goodwill, net 39,883,000
Other assets 9,635,000
$416,760,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 5,954,000
Other liabilities 655,000
Debt 246,876,000
Deferred income taxes 16,435,000
269,920,000
STOCKHOLDERS' EQUITY
Common stock 10,000
Additional paid-in-capital 151,100,000
Accumulated deficit (4,270,000)
Total Stockholders' Equity 146,840,000
$416,760,000
The following is an unaudited condensed consolidated
statement of operations of CS Wireless Systems, Inc. for the
three months ended March 31, 1996:
Revenues $3,856,000
Operating expenses:
Systems operations 2,301,000
Selling, general and administrative 1,427,000
Depreciation and amortization 2,506,000
Total operating expenses 6,234,000
Operating loss (2,378,000)
Other income (expense):
Interest income 899,000
Interest expense (3,023,000)
Total other income (expense), net (2,124,000)
Loss before income taxes (4,502,000)
Income tax benefit 1,439,000
Net loss $(3,063,000)
6
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATIONS
As of June 30, 1996, the Company had approximately 83,800
subscribers of which approximately 50,400 subscribers are
attributable to the ACS acquisition and approximately 3,300
subscribers are attributable to the ECNW acquisition. The
remaining approximately 30,100 subscribers compared to
approximately 34,000 subscribers as of June 30, 1995. The
decrease is primarily due to the New York system decrease of
approximately 5,500 subscribers, offsetting the increases in the
other systems. The New York system is losing subscribers to
hardwire cable operators due to greater channel capacity. This
trend in New York will likely continue until CAI builds digital
transmission facilities which will provide even greater channel
capacity. The Company's recently completed digital transmission
facilities located in Boston and Norfolk/Virginia Beach are
currently being tested by NYNEX Corporation and Bell Atlantic
Corporation, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the three-month period ended June 30, 1996, CAI
expended approximately $10.0 million to purchase equipment, $1.8
million to fund operating activities, $1.1 million to acquire
wireless channel rights and $10.3 million to pay senior and
other debt, including $6.1 million against the amount due to the
Federal Communications Commission (FCC) in connection with its
MMDS license auction. During this period, CAI funded its cash
requirements out of existing cash balances. At June 30, 1996,
CAI had cash and cash equivalents of approximately $79.7 million.
Pursuant to the Company's capital expenditure plans for
fiscal 1997, CAI is committed as of June 30, 1996, through open
purchase orders, to expend approximately $13.3 million primarily
for capital expenditures associated with the development of
digital transmission facilities. In addition, during the nine-
month period ending March 31, 1997, the Company is obligated to
pay approximately $39.0 million in MMDS license auction fees, of
which CS is obligated to reimburse CAI $10.1 million for licenses
transferred to CS, and approximately $4.9 million of minimum
license fees and lease payments.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO THREE-MONTH
PERIOD ENDED JUNE 30, 1995:
CAI's total revenue was $9.3 million for the three-month
period ended June 30, 1996 ("1996 Period") as compared to $4.0
million for the three-month period ended June 30, 1995 ("1995
Period"). The ACS and ECNW acquisitions accounted for $5.8
million of such revenue increase for the 1996 Period, but was
offset by a net decrease of $0.5 million attributable to
decreased revenues of $0.8 million in the New York system
resulting from decreased subscribers, offset by increases
totaling $0.3 million resulting from growth of subscribers in the
other systems.
7
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Operating expenses, including depreciation and
amortization, of $19.5 million for the 1996 Period increased by
$9.5 million over the $10.0 million reported for the 1995 Period.
Depreciation and amortization of $8.1 million for the 1996 Period
increased by $5.5 million over the $2.6 million for the 1995
Period, which increase substantially resulted from the ACS and
ECNW acquisitions. Operating expenses, excluding depreciation
and amortization, of $11.4 million for the 1996 Period increased
by $4.0 million over the $7.4 million for the 1995 Period. The
ACS and ECNW acquisitions accounted for $5.0 million of this
increase, which was offset by a $1.0 million decrease in
operating expenses, primarily attributable to a $0.8 million
decrease in marketing costs, reflecting CAI's change from an
aggressive growth strategy in the 1995 Period to a limited growth
strategy in the 1996 Period, as the Company awaits the commercial
availability of digital wireless subscriber equipment.
CAI's operating loss was $10.2 million for the 1996 Period,
or $4.2 million more than the 1995 Period operating loss of $6.0
million. While revenue was up by $5.3 million, operating
expenses increased by $9.5 million. However, after taking into
account the depreciation and amortization increase mentioned
above, operating expenses requiring cash increased $4.0 million,
which is less than the revenue increase, resulting in a $1.3
million improvement.
CAI's 1996 Period includes a $3.0 million loss relating to
CAI's investment in CS, representing its pro-rata share of CS's
net loss for CS's three-month period ended March 31, 1996. CAI
did not acquire its investment in CS until September 29, 1995.
Interest income was $2.2 million for the 1996 Period as
compared to $0.1 million for the 1995 Period. The increase is
primarily due to interest earned on the Debt Service Escrow
established in connection with the Company's offering of 12 1/4 %
Senior Notes Due 2002 and the investment of the cash remaining
from the net proceeds of the Senior Notes offering and other
concurrent September 29, 1995 transactions.
Interest expense increased to $10.2 million for the 1996
Period from $2.0 million for the 1995 Period, a change of $8.2
million, primarily due to interest expense incurred on the Senior
Notes issued on September 29, 1995.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed herewith or
incorporated by reference as indicated:
Incorporation
by Reference Page
EXHIBIT NO. DESCRIPTION (SEE LEGEND) REFERENCE
3.1 Amended and Restated Certificate of 1-Exhibit 3.1
Incorporation of CAI
3.2 Amended and Restated Bylaws of CAI 1-Exhibit 3.2
<dagger>11.1 Schedule Regarding Computation of Loss Per
Common Share
<dagger>11.2 Schedule Regarding Computation of Fully
Diluted Loss Per Common Share
<dagger>27 Financial Data Schedule 13
LEGEND
1 Incorporated by reference to the exhibits to the Quarterly Report on Form
10-Q for September 30, 1995.
<dagger> Filed herewith
(b) Reports on Form 8-K
b1) Form 8-K dated April 25, 1996, regarding the following
item:
Item 5. OTHER EVENTS
The Company announced on April 25, 1996 that it had
constructed the first digital wireless cable television system
on the Eastern seaboard, in the Hampton Roads area of
Virginia, which includes Norfolk and Virginia Beach, and has
also completed construction of the core transmission facility
of its digital wireless cable television system in Boston,
Massachusetts, comprised of a main transmitter and booster.
b2) Form 8-K dated May 23, 1996 (filed May 30, 1996),
regarding the following item:
Item 5. OTHER EVENTS
The Company announced on May 23, 1996 that it had
begun testing in Washington of the first Internet-access
product delivered by a wireless television company, and on May
29, 1996 had announced the 1995 fourth quarter and year end
results.
b3) Form 8-K dated June 27, 1996 (filed July 3, 1996),
regarding the following item:
Item 5. OTHER EVENTS
The Company successfully transmitted digital video,
audio programming and data signals on June 27, 1996 at a
demonstration held in Rochester, New York for members of the
financial community.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SIGNATURE TITLE
DATE
/S/ JARED E. ABBRUZZESE Chairman, Chief Executive Officer August 8, 1996
JARED E. ABBRUZZESE and Director
(Principal Executive Officer)
/S/ JAMES P. ASHMAN Executive Vice President, Chief August 8, 1996
JAMES P. ASHMAN Financial Officer and Director
(Principal Financial Officer)
/S/ CRAIG J. KESSLER Vice President and Controller August 8, 1996
CRAIG J. KESSLER (Principal Accounting Officer)
10