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 December 31, 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
January 31, 1997:
CLASS OUTSTANDING SHARES
Common Stock, no par value 40,540,539
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1996 1996
(UNAUDITED) *
ASSETS
Cash and cash equivalents $19,038,921 $103,263,094
Subscriber accounts receivable, less allowance for bad
debts of $1,053,000 for December and $1,296,000 for 1,137,205 1,432,674
March
Prepaid expenses 463,861 698,482
Property and equipment, net 72,518,407 52,568,619
Wireless channel rights, net 201,988,912 205,973,840
Investment in CS Wireless Systems, Inc. 99,540,261 113,054,069
Debt service escrow 63,846,061 77,621,088
Goodwill, net 124,502,036 131,282,996
Loan acquisition costs, net 9,441,832 10,631,263
Other assets 2,540,619 2,268,847
Total Assets $595,018,115 $698,794,972
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 5,627,728 $ 8,244,577
Accrued expenses 22,092,885 10,186,374
Senior debt 275,000,000 275,000,000
Notes payable 37,117,799 43,434,667
Wireless channel rights obligations 5,292,600 41,025,866
Deferred income taxes 21,910,000 35,410,000
367,041,012 413,301,484
Commitments and contingencies
Mandatorily Redeemable Preferred Stock
14% Senior convertible preferred stock
(liquidation value $70,000,000) 69,125,005 69,020,002
Series A 8% redeemable convertible preferred stock - 18,050,000
Accrued preferred stock dividends 15,260,826 5,812,562
84,385,831 92,882,564
Shareholders' Equity
Preferred stock - -
Common stock, shares issued and outstanding
March 31, 1996 - 37,829,482
December 31, 1996 - 40,540,539 275,769,414 257,701,130
Accumulated deficit (132,178,142) (65,090,206)
143,591,272 192,610,924
Total Liabilities and Shareholders' Equity $595,018,115 $698,794,972
* Summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See notes to condensed consolidated financial statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE-MONTH THREE-MONTH
PERIODS ENDED PERIODS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
REVENUES $ 27,737,756 $ 20,843,394 $ 9,249,978 $ 12,951,843
Costs and expenses
Programming and license 11,989,352 8,555,041 4,129,802 5,144,612
Marketing 1,790,734 2,874,222 564,717 1,118,087
General and administrative 22,223,561 17,755,252 7,882,671 8,717,244
Depreciation and amortization 24,729,986 17,321,653 8,179,198 11,731,767
60,733,633 46,506,168 20,756,388 26,711,710
Operating loss (32,995,877) (25,662,774) (11,506,410) (13,759,867)
Other income (expense)
Equity in net loss of affiliate (13,000,000) - (5,200,000) -
Interest income 5,220,246 3,273,243 1,181,072 3,139,019
Other income 99,005 56,207 21,608 15,580
Interest expense (30,316,613) (13,788,657) (10,012,060) (9,980,621)
(37,997,362) (10,459,207) (14,009,380) (6,826,022)
Loss before provision for income tax
benefit and minority interest (70,993,239) (36,121,981) (25,515,790) (20,585,889)
Provision for income tax benefit 13,500,000 6,000,000 4,500,000 6,000,000
Loss before minority interest (57,493,239) (30,121,981) (21,015,790) (14,585,889)
Minority interest in loss - 321,910 - -
Net loss (57,493,239) (29,800,071) (21,015,790) (14,585,889)
Preferred stock dividend (9,576,367) (3,095,286) (3,306,003) (2,352,021)
Loss applicable to common stock
shareholders $(67,069,606) $(32,895,357) $(24,321,793) $(16,937,910)
Loss per common share $ (1.68) $ (1.40) $ (0.60) $ (0.45)
Average common and equivalent
shares outstanding 39,915,020 23,517,014 40,464,356 37,829,482
See notes to condensed consolidated financial statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine-month
periods ended
December 31, December 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (57,493,239) $ (29,800,071)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 24,729,986 17,668,450
Equity in net loss of affiliate 13,000,000 -
Deferred income tax benefit (13,500,000) (6,000,000)
Loan costs and discounts amortization 1,487,172 1,357,500
Minority interest in loss - (321,910)
Debt service escrow interest income (69,315) (1,282,833)
Other - 130,814
Changes in assets and liabilities,
net of effects from acquisitions:
Subscriber accounts receivable 246,794 (517,837)
Other assets 315,663 (92,241)
Accounts payable and accrued expenses 9,646,300 748,298
Net cash used in operating activities (21,636,639) (18,109,830)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for companies, net of cash acquired - (77,943,352)
Purchase of wireless channel rights (4,642,709) (24,314,941)
Purchase of property and equipment (28,886,102) (7,513,368)
Proceeds from the sale of property and equipment 497,023 150,433
Investment in CS Wireless 363,900 -
Purchase of investments - (250,000)
Proceeds from the sale of investments 13,844,342 208,858
Loans to related parties (800,000) -
Collections from related parties 200,000 -
Other (1,205) (1,786,279)
Net cash used in investing activities (19,424,751) (111,448,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes, other debt
and warrants - 307,931,686
Payment of senior and other debt (43,139,640) (33,250,000)
Cash paid for debt service escrow - (90,638,756)
Proceeds from issuance of senior preferred stock and warrants - 70,000,000
Debt financing costs paid - (2,212,549)
Proceeds from issuance of common stock - 1,545,979
Registry and other stock issuance costs paid - (3,223,005)
Payment of related party debt - (100,000)
Other (23,143) (1,006,377)
Net cash provided by (used in) financing activities (43,162,783) 249,046,978
Net increase (decrease) in cash and cash
equivalents (84,224,173) 119,488,499
Cash and cash equivalents, beginning 103,263,094 1,201,932
Cash and cash equivalents, ending $ 19,038,921 $ 120,690,431
See notes to condensed consolidated financial statements
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 nine and three-month periods ended December 31,
1995 include the operations of ACS and ECNW from September 30, 1995.
A 52% 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 nine-
month period ended December 31, 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 nine-month period ended December 31, 1996, all of
the shares of 8% Series A Preferred Stock were converted into
2,637,742 shares of common stock, resulting in an increase of
$18,049,955 in common stock. Also during that same period, warrants
were exercised in a cashless transaction whereby 75,000 warrants were
surrendered for 73,315 shares of common stock with a charge to
accumulated deficit and a credit to common stock for $18,329, the
warrant conversion value.
Note 3. Investment in CS Wireless Systems, Inc.
The Company's equity in net loss of affiliate of approximately
$13,000,000 is based on CAI's pro-rata share of CS Wireless Systems,
Inc.'s net loss of $19,334,000 for the nine-month period ended
September 30, 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 $11,300,000
Amortization of CAI's excess cost 1,700,000
Equity in net loss of affiliate $13,000,000
The summarized financial information disclosed below is
extracted from CS Wireless Systems, Inc. unaudited historical
September 30, 1996 financial statements.
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. and Subsidiaries as of September
30, 1996:
ASSETS
Cash and cash equivalents $136,844,000
Subscriber receivables, net 2,232,000
Prepaid expenses and other 442,000
Plant and equipment, net 41,076,000
Wireless channel rights, net 172,668,000
Goodwill, net 51,746,000
Debt issuance costs and other assets, net 10,302,000
Total Assets $415,310,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 6,773,000
FCC Auction payable 8,728,000
Other liabilities 644,000
Debt 260,048,000
Deferred income taxes 8,668,000
284,861,000
STOCKHOLDERS' EQUITY
Common stock 10,000
Additional paid-in-capital 150,980,000
Accumulated deficit (20,541,000)
Total Stockholders' Equity 130,449,000
$415,310,000
The following is an unaudited condensed consolidated statement
of operations of CS Wireless Systems, Inc. and Subsidiaries for the
nine months ended September 30, 1996:
Revenues $ 15,994,000
Operating expenses:
Systems operations 9,400,000
General and administrative 9,726,000
Depreciation and amortization 13,853,000
Total operating expenses 32,979,000
Operating loss ( 16,985,000)
Other income (expense):
Interest income 4,907,000
Interest expense (17,490,000)
( 12,583,000)
Loss before income taxes (29,568,000)
Income tax benefit 10,234,000
Net loss $(19,334,000)
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this Quarterly Report on Form 10-Q,
including the exhibits hereto, relating to the Company's operating
results, and plans and objectives of management for future
operations, which are not historical fact constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Actual results of the Company may differ
materially from those in the forward-looking statements and may be
affected by a number of factors including the receipt of regulatory
approvals, the availability of new strategic partners and their
willingness to enter into arrangements with the Company, the terms of
such arrangements, the success of the Company's trials in various of
its markets and its implementation of digital technology, subscriber
equipment availability, tower space availability, absence of
interference and the ability of the Company to redeploy or sell
excess equipment, the assumptions, risks and uncertainties set forth
below in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere herein, as well as
other factors contained herein and in the Company's other securities
filings.
OPERATIONS
As of December 31, 1996, CAI Wireless Systems, Inc. and
Subsidiaries (the "Company" or "CAI") had approximately 76,400
wireless systems subscribers as compared to 119,000 subscribers
as of December 31, 1995. Approximately 33,500 subscribers for
December 31, 1995 are attributable to CS Wireless Systems, Inc.
("CS"), which became an unconsolidated subsidiary of the
Company on February 23, 1996, upon closing of the transactions
contemplated by the Participation Agreement dated December 12,
1995, among the Company, CS and Heartland Wireless
Communications, Inc. On a pro forma basis, giving effect to
the CS transaction as if such transaction had occurred on
December 31, 1995, the Company would have had as of December
31, 1995 approximately 85,500 subscribers compared to 76,400
subscribers as of December 31, 1996.
The 9,100 net decrease in subscribers is due primarily to
the New York System decrease of approximately 4,500
subscribers, the Philadelphia System decrease of approximately
3,700 subscribers and other system net decreases of
approximately 900 subscribers for the comparable periods. The
New York System is losing subscribers to hardwire cable
operators primarily due to the system's inferior channel
capacity. This trend in New York is likely to continue. The
Company has implemented a program to increase retention of
subscribers in Philadelphia and other systems through an
increase in installation fees, which the Company believes will
increase subscriber commitment, and thus, retention. This
retention policy has slowed subscriber additions. The decrease
in subscribers experienced in the other systems was primarily
due to a curtailment of marketing efforts in the nine-month
period ended December 31, 1996, in anticipation of the then
expected implementation of the BR Agreement which was suspended
as described below.
On December 12, 1996, CAI entered in a Modification Agreement
(the "Modification Agreement") with various affiliates of Bell
Atlantic Corporation and NYNEX Corporation, including NYNEX MMDS
Company, Inc. and MMDS Holdings, Inc. (together, the "BANX
Affiliates") and BANX Partnership. The Modification Agreement
suspends the Business Relationship Agreement among CAI and the BANX
Affiliates for one year, including the ability of each of the BANX
Affiliates to elect to become the marketer and provider of wireless
cable services within various markets located in their respective
operating territories using CAI's wireless delivery platform. For
the one-year suspension period, the Modification Agreement suspends
the right of the BANX Affiliates to option these markets, and,
therefore, relieves CAI of (i) its obligations to reserve its
Multichannel Multipoint Distribution Service (MMDS) spectrum for
imminent use by the BANX Affiliates as a video delivery platform and
(ii) related construction obligations. All deadlines for
construction and other obligations are tolled for one year and will
be reinstated in the event that the BR Agreement is not terminated in
accordance with its terms or the terms of the Modification Agreement.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
In addition to suspending CAI's obligations under the BR
Agreement for one year, the Modification Agreement provides CAI or
its designee the right to acquire all, but not less than all, of the
$100 million in CAI Securities (as defined below) held by BANX
Partnership and its general partners. If notice to purchase the CAI
Securities is received by BANX Partnership within the first 120 days
after December 12, 1996, the purchase price is $121,000,000; if
received in the next 120 days, the purchase price is $100,000,000,
together with accrued interest and dividends, plus $10 million, and
if notice is received in the balance of the year, the purchase price
is $100,000,000, together with accrued interest and dividends, plus
$20 million.
The BANX Partnership's $100 million investment in CAI includes
convertible debt and preferred stock and warrants (as more fully
described below, the "CAI Securities") all of which, if fully
converted and exercised, would result in the right to acquire up to
45% of the equity of CAI. In connection with the arrangement,
the average per share exercise/conversion price of the CAI Securities is
reduced from $8.19 to $5.31, on full conversion and exercise. The exercise
price is subject to readjustment in certain events.
In the event that CAI does not purchase the CAI Securities or
cannot locate a third party purchaser to do so within the first 270
days after December 12, 1996, BANX Partnership has the right to sell
the CAI Securities. If, after one year, the CAI Securities have not
been purchased by CAI or a third party, the BR Agreement is
reinstated. Upon the purchase of the CAI Securities, the BR
Agreement terminates.
In connection with the one-year suspension, CAI expects to
expand the markets for which it is currently seeking regulatory
approval for flexible use of its MMDS spectrum. To date, CAI has
begun exploring mixed use of the spectrum for video, voice and data,
including a commercial trial of a high speed Internet access service
in Rochester, NY, where FCC has granted authority for a market trial
of up to 500 customers. In addition, CAI has been granted authority
to conduct a commercial market trial of up to 1,000 subscribers for
high speed Internet access service in its New York City market. Most
recently, CAI received permanent authority for two-way flexible use
of five channels for 16 sites located around the Boston market. This
authority represents the first of its kind awarded to an MMDS
operator.
The Company's digital video transport systems in Boston and
Virginia Beach are two of the first state-of-the-art digital MMDS
systems. CAI believes that 75% or better line-of-sight (LOS) targets
can be obtained with minor modifications to these systems, including
relocation of boosters and adjustments to the height of certain
antennas. CAI has a definitive timetable to roll-out digital video
and internet services in Boston during the summer of 1997, subject to
the contractual availability of certain equipment and satellite use
authorizations. CAI does not have a present timetable during which it
may deploy a digital video service in Virginia Beach and may re-deploy
portions of the equipment in Boston to other markets. There can be no
assurance that such services will be deployed.
There can be no assurance that the Company will be granted
permanent authority with respect to any of its pending applications
or market trials, that any of the tests currently being conducted or
contemplated by the Company will be successful or that the commercial
deployment, if any, of any new products will be possible on a
widespread basis or commercially successful. The Company intends to
expand its applications for such use of its MMDS spectrum in other
markets and to seek strategic relationships with companies in aligned
industries in these markets, although there can be no assurance that
such applications will be granted or that such relationships will
materialize.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
The Company is vacating certain of its booster transmitter
locations in Boston. In connection with such action, the Company is
removing certain transmission and other portable equipment from such
locations and abandoning certain leasehold improvements. Excess
equipment will be held for other CAI markets to be built out where
permitted pursuant to duly received regulatory approval or made
available for sale. There can be no assurance that the Company will
apply for and receive any and all regulatory approvals necessary for
the build out of other CAI markets. CAI anticipates that it will
incur a loss, not expected to exceed $1 million, through the
abandonment of leasehold improvements, lease terminations,
installation costs and removal costs, however, there can be no
assurance that such loss will not exceed $1 million.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended December 31, 1996, CAI
expended approximately $28.9 million to purchase equipment, $21.6
million to fund operating activities, $4.6 million to acquire
wireless channel rights and $43.1 million to pay senior and other
debt including $32.9 million against the amount due on the FCC MMDS
License auctions. During this period, CAI funded its cash
requirements out of existing cash balances. At December 31, 1996,
CAI had cash and cash equivalents of approximately $19.0 million.
Pursuant to the Company's capital expenditure plans for fiscal
1997, CAI is committed as of December 31, 1996 through open purchase
orders to expend approximately $7.1 million primarily for capital
expenditures associated with the development of digital transmission
facilities. In addition, during the three-month period ending March
31, 1997, the Company is obligated to pay approximately $2.2 million
in MMDS license auction fees, of which CS is obligated to reimburse
CAI $0.7 million for licenses transferred to CS, and approximately
$1.6 million of minimum license fees and lease payments.
The Company's operating plans, including digital video, two-way
voice and data, Internet and Intranet access services and testing,
will require additional funds during the first quarter of fiscal year
1998. Such additional funds may take the form of debt or equity
securities issuances, borrowings under loan arrangements or sales of
assets including channel rights or wireless cable systems. CAI's
ability to engage in financings, asset sales or acquisition
transactions is limited by the contractual arrangements entered into
with BANX Partnership, and significant transactions likely will
require its prior consent. In addition, the Company's 12 1/4 %
Senior Notes due 2002 (the "Senior Notes") impose similar
restrictions on the incurrence of additional debt and on the ability
to effect asset sales. Currently, the Company is actively seeking to
obtain $25 million to $50 million of interim collateralized financing
by April 1997 and to secure longer term financing through obtaining a
new strategic partner(s) to replace the BANX Partnership. Although
certain qualified parties have expressed strong interest in providing
interim financing to the Company, CAI has not yet reached a
definitive agreement with any such qualified party. There can be no
assurance that any additional financings will be available to the
Company on satisfactory terms and conditions, if at all. Failure to
obtain additional financings or consummate asset sales will have a
material adverse effect on the Company.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTINUED
RESULTS OF OPERATIONS
The following tables illustrate the changes discussed below in
the management's discussion of the results of operations.
OPERATING REVENUES (in millions of dollars)
NINE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31,
1996 1995 CHANGE 1996 1995 CHANGE
Same systems $10.3 $11.5 $(1.2) $ 3.4 $ 3.7 $(0.3)
Acquired systems (FY 96) n/a n/a - 5.8 6.0 (0.2)
Total same systems 10.3 11.5 (1.2) 9.2 9.7 (0.5)
Acquisitions & disposals:
Acquired Systems (FY 96) 17.4 6.0 11.4 n/a n/a -
Disposed Systems (FY 96) - 3.3 (3.3) - 3.3 (3.3)
Total operating revenues $27.7 $20.8 $6.9 $ 9.2 $13.0 $(3.8)
OPERATING EXPENSES (in millions of dollars)
NINE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31,
1996 1995 CHANGE 1996 1995 CHANGE
S>
Same systems $20.4 $24.2 $(3.8) $ 6.7 $ 7.6 $(0.9)
Acquired systems (FY 96) n/a n/a - 8.5 8.7 (0.2)
Corporate operations 14.5 8.5 6.0 5.6 5.3 0.3
Total same operations 34.9 32.7 2.2 20.8 21.6 (0.8)
Acquisitions & disposals:
Acquired Systems (FY 96) 25.8 8.7 17.1 n/a n/a -
Disposed Systems (FY 96) - 5.1 (5.1) - 5.1 (5.1)
Total operating expenses $60.7 $46.5 $14.2 $20.8 $26.7 $(5.9)
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS
ENDED DECEMBER 31, 1995
CAI's revenue increased $6.9 million ($27.7 million FY
1997; $20.8 million FY 1996) in the nine-month period ended
December 31, 1996 over the same period in the prior year. The
increase resulted primarily from the acquisition of ACS
Enterprises, Inc. ("ACS"), with operating systems in
Philadelphia, Cleveland, and Bakersfield, and the acquisition
of Eastern Cable Networks of Washington, Inc. ("ECNW"), with
an operating system in Washington D.C. Both acquisitions were
made on September 29, 1995. Revenue from operations that were
owned throughout both nine-month periods ("Same Systems")
decreased $1.2 million ($10.3 million FY 1997; $11.5 million
FY 1996) in the nine-month period ended December 31, 1996 from
the same period in the prior year, primarily due to the
decrease in the number of subscribers mentioned above. During
December 1996, CAI instituted a $2 per subscriber rate
increase that is expected to increase the average revenue per
subscriber; however, this may cause additional net losses of
subscribers.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTINUED
Operating expenses were $60.7 million and $46.5 million
for the nine months ended December 31, 1996 and 1995,
respectively. The $14.2 million increase is attributable
primarily to increases in (1) system operations of acquired
systems (ACS and ECNW) of $7.7 million ($15.9 million FY 1997;
$8.2 million FY 1996), excluding depreciation and
amortization, due to nine months of operations of the
Philadelphia and Washington systems in FY 1997 versus only
three months of the Philadelphia, Washington, Cleveland, and
Bakersfield systems in FY 1996; (2) general and administrative
corporate operations of $1.9 million ($5.7 million FY 1997;
$3.8 million FY 1996) primarily due to increased staffing and
effort to maintain a larger operation, developing digital
markets, and developing other potential uses of the wireless
channel rights; and (3) depreciation and amortization of $7.4
million ($24.7 million FY 1997; $17.3 million FY 1996)
primarily due to the acquisition of ACS and ECNW fixed assets,
wireless channel rights, and goodwill; offset by a decrease in
marketing costs of the Same Systems of $1.5 million ($.6
million FY 1997; $2.1 million FY 1996) due to a concentrated
effort to reduce marketing costs and limit subscriber growth
in light of the then anticipated implementation of the BR
Agreement with BANX.
CAI has a $13.0 million equity in net loss of affiliate
in the nine months ended December 31, 1996, relating to its
52% investment in CS. In the prior year, CAI's operating
systems contributed to CS on February 23, 1996 were fully
consolidated in the operating results of CAI's third fiscal
quarter of FY 1996.
Interest income increased $1.9 million ($5.2 million FY
1997; $3.3 million FY 1996) for the nine-month period ended
December 31, 1996 compared to the same period in the prior
year. The increase is primarily due to interest earned on the
Debt Service Escrow established in connection with The
Company's offering of 12.25% 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 income has steadily decreased since
the Debt Service Escrow and investments have been used to fund
debt service, project costs, capital purchases, and operating
deficits.
Interest expense increased $16.5 million ($30.3 million
FY 1997; $13.8 million FY 1996) for the nine-month period
ended December 31, 1996 compared to the same period in the
prior year. The increase is primarily due to interest expense
incurred on the Senior Notes issued on September 29, 1995.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTINUED
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS
ENDED DECEMBER 31, 1995
CAI's revenue decreased $3.8 million ($9.2 million FY
1997; $13.8 million FY 1996) in the three-month period ended
December 31, 1996 over the same period in the prior year. The
decrease resulted primarily from the spin off of operating
systems in Cleveland and Bakersfield to CS. Same Systems
decreased $.5 million ($9.2 million FY 1997; $9.7 million FY
1996) in the three-month period ended December 31, 1996 from
the same period in the prior year, primarily due to the
decrease in the number of subscribers mentioned above.
Operating expenses were $20.8 million and $26.7 million
for the three months ended December 31, 1996 and 1995,
respectively. The $5.9 million decrease is attributable
primarily to the spin off of operating systems to CS
representing $5.1 million of expenses in the three-month
period ended December 31, 1995.
CAI has a $5.2 million equity in net loss of affiliate
in the three months ended December 31, 1996, relating to its
52% investment in CS. In the prior year, CAI's operating
systems contributed to CS on February 23, 1996 were fully
consolidated in the operating results of CAI's third fiscal
quarter ending December 31, 1995.
Interest income decreased $2.0 million ($1.2 million FY
1997; $3.2 million FY 1996) for the three-month period ended
December 31, 1996 compared to the same period in the prior
year. The decrease is primarily due to CAI owning fewer
assets earning interest since the Debt Service Escrow and
investments have been used to fund debt service, project
costs, capital purchases, and operating deficits.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the quarter ended December 31, 1996 and later
periods, the Company was named in four class action lawsuits,
each alleging various violations of the federal securities
laws. The lawsuits were filed in the United States District
Court for the Northern District of New York. The complaints
name the Company, certain directors of CAI, as well as a
significant shareholder in the Company and its members as
defendants.
Plaintiffs in each of the lawsuits allege that
defendants violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, during various Class Periods
beginning on May 23, 1996 and ending on various dates, the
latest of which being December 13, 1996. Plaintiffs claims
arise out of alleged material misstatements and omissions in
the Company's public disclosures during the various Class
Periods, which produced a scheme to inflate the price of CAI
securities enabling the individual defendants to sell CAI
securities at such inflated prices.
Plaintiffs are seeking to be declared a plaintiff class
action, unspecified damages and fees and expenses.
The Company has denied the allegations in each of the
Complaints, does not believe that the lawsuits have merit and
intends to vigorously defend the actions.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of CAI Wireless
Systems, Inc. was held on October 16, 1996, for the purpose of
electing a Board of Directors, approving a new 1996 Outside
Directors' Stock Option Plan, and approving certain amendments
to the Company's 1993 Stock Option and Incentive Plan.
(b) All of management's nominees for directors as listed
in the proxy statement were elected with the following vote:
Shares
Voted Shares
"For" "Withheld"
Jared E. Abbruzzese 28,839,707 1,003,588
John J. Prisco 28,839,807 1,003,488
George M. Williams 28,839,807 1,003,488
James P. Ashman 28,839,807 1,003,488
Arthur C. Belanger 28,839,707 1,003,588
Harold A. Bouton 28,839,807 1,003,488
David M. Tallcott 28,791,707 1,051,588
Alan Sonnenberg 28,839,807 1,003,488
Robert D. Happ 28,839,807 1,003,488
(c) The other matters voted upon were as follows:
The 1996 Outside Directors' Stock Option Plan was
approved with the following vote:
Votes For: 27,280,367
Votes Against: 2,404,621
Abstentions: 62,507
Broker non-votes: 95,800
The Amendments to the Company's 1993 Stock Option and
Incentive Plan were approved with the following vote:
Votes For: 22,531,807
Votes Against: 7,115,671
Abstentions: 100,017
Broker non-votes: 95,800
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
Incorporation of CAI 1-Exhibit 3.1
3.2 Amended and Restated Bylaws of CAI 1-Exhibit 3.2
<dagger>10. Modification Agreement dated December 12, 18-27
1996, among the Registrant and various
affiliates of Bell Atlantic Corporation and
NYNEX Corporation
<dagger>11.1 Schedule Regarding Computation of Loss 28
Per Common Share
<dagger>11.2 Schedule Regarding Computation of Fully 29
Diluted Loss Per Common Share
<dagger>27. Financial Data Schedule 30
99.1 Media Release - CAI announces 1996 second 2-Exhibit 99.1
quarter and six-month results.
99.2 Media Release - CAI responds to class action 3-Exhibit 99.1
lawsuit.
99.3 Media Release - CAI responds to recent news. 3-Exhibit 99.2
99.4 Media Release - CAI receives first FCC market 3-Exhibit 99.3
trial approval to use wireless cable
spectrum for two-way services
LEGEND
1 Incorporated by reference to the exhibits to the Quarterly Report on
Form 10-Q for September 30, 1995.
2 Incorporated by reference to the exhibits to the Current Report on
Form 8-K dated November 6,1996.
3 Incorporated by reference to the exhibits to the Current Report on
Form 8-K dated November 25, 1996.
<dagger> Filed herewith.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K CONTINUED
b) Reports on Form 8-K
b1) Form 8-K dated November 5, 1996 (filed November 6, 1996), regarding
the following item:
Item 5. OTHER EVENTS
The Company announces 1996 second quarter and six-month
results on November 5, 1996 (see exhibit 99.1).
b2) Form 8-K dated November 25, 1996 (filed January 3, 1997),
regarding the following item:
Item 5. OTHER EVENTS
CAI Wireless Systems, Inc. (CAI) entered into a
Modification Agreement dated December 12, 1996 with
affiliates of Bell Atlantic Corporation and NYNEX
Corporation (the "RBOCs") pursuant to which the Business
Relationship Agreement among the parties has been suspended
for one year and CAI or its designee has been granted
an option to purchase the $100 million RBOC investment in
CAI (see Exhibit 10.).
CAI announced that it has retained J. P. Morgan Securities
Inc. and Smith Barney Inc. to act as financial advisors to CAI
in connection with exploring strategic alternatives for the
Company.
CAI has been named in a class action lawsuit alleging various
violations of the federal securities laws.
In addition, the Company issued three news releases at various
times. see exhibits 99.1 (news release on November 25, 1996),
99.2 (news release on December 6, 1996), and 99.3 (news
release on December 16, 1996).
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 February 5, 1997
JARED E. ABBRUZZESE and Director (Principal Executive
Officer)
/S/ JAMES P. ASHMAN Executive Vice President, Chief February 5, 1997
JAMES P. ASHMAM Financial Officer and Director
(Principal Financial Officer)
/S/ CRAIG J. KESSLER Vice President and Controller February 5, 1997
CRAIG J. KESSLER (Principal Accounting Officer)