Exhibit 99.2
FINANCIAL STATEMENTS
CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
MARCH 31, DECEMBER 31,
1999 1998
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 35,994 $ 41,839
Subscriber receivables, net 1,047 1,542
Prepaid expenses and other 606 638
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Total current assets 37,647 44,019
Plant and equipment, net 40,084 43,645
License and leased license investment, net 155,169 157,269
Assets held for sale 2,212 2,102
Investment in and loans to equity affiliates 4,315 3,884
Debt issuance costs and other assets, net 7,646 7,898
$ 247,073 $ 258,817
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 3,309 $ 5,490
Current portion of long-term debt 45 199
Current portion of BTA auction payable 392 354
Other current liabilities 1,081 1,237
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Total current liabilities 4,827 7,280
Long-term debt, less current portion 325,572 316,720
BTA auction payable, less current portion 3,365 3,505
Total liabilities 333,764 327,505
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Stockholders' deficit:
Common stock, $.001 par value; 15,000,000
shares authorized, 10,702,609 shares issued in
1999 and 1998, and 6,864,471 shares outstanding
in 1999 and 1998. 11 11
Treasury stock, at cost; 3,838,138 shares in
1999 and 1998 (1,574) (1,574)
Additional paid-in capital 154,557 154,557
Accumulated deficit (239,685) (221,682)
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Total stockholders' deficit (86,691) (68,688)
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$ 247,073 $ 258,817
========= =========
See accompanying notes to unaudited condensed consolidated
financial statements
3
CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------------
1999 1998
Revenue $ 5,940 $ 6,823
Operating expenses:
Systems operations 4,181 3,908
Selling, general and administrative 5,384 4,119
Depreciation and amortization 5,505 7,224
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Total operating expenses 15,070 15,251
Operating loss (9,130) (8,428)
Other income (expense):
Interest income 461 1,017
Equity in losses of affiliates (150) (986)
Interest expense (9,139) (8,271)
Other (45) --
----- -----
Total other expense, net (8,873) (8,240)
----- -----
Loss before income taxes (18,003) (16,668)
Income tax benefit -- --
------ ------
Net loss $ (18,003) $ (16,668)
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Weighted average basic and diluted
loss per common share $ (2.62) $ (1.56)
====== ======
Basic and diluted weighted average
shares outstanding 6,864,471 10,700,506
========= ==========
See accompanying notes to unaudited condensed consolidated
financial statements
4
CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
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Cash flows from operating activities:
Net loss $ (18,003) $ (16,668)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 5,505 7,224
Accretion on discount notes and amortization
of debt issuance costs 9,048 8,100
Non-cash interest expense on other long-term debt 91 164
Equity in losses of affiliates 150 986
Other 45 --
Changes in assets and liabilities, net of effects
of contributions:
Subscriber receivables 495 (2)
Prepaid expenses and other 32 (246)
Accounts payable, accrued expenses and other
liabilities (474) (305)
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Net cash used in operating activities (3,111) (747)
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Cash flows from investing activities:
Purchases of plant and equipment (1,004) (5,964)
Additions to license and leased license investment (342) (956)
Investment in equity affiliates (953) (998)
Investment in assets held for sale (110) --
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Net cash used in investing activities (2,409) (7,918)
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Cash flows from financing activities:
Payments on notes payable (134) (156)
Payments on BTA auction payable (191) (733)
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Net cash used in financing activities (325) (889)
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Net decrease in cash and cash equivalents $ (5,845) $ (9,554)
Cash and cash equivalents at beginning of period 41,839 74,564
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Cash and cash equivalents at end of period $ 35,994 $ 65,010
======= =======
See accompanying notes to unaudited condensed
consolidated financial statements.
5
CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
THE COMPANY. CS Wireless Systems, Inc. and its subsidiaries (the
"Company" or "CS Wireless") develop, own and operate a network of wireless
cable television systems providing subscription television and high speed
Internet access services. The Company has a portfolio of wireless cable
channel rights in various markets in the United States. The Company currently
has systems in operation in ten markets, and it owns, or holds rights to lease,
radio spectrum in its 21 primary markets and certain other markets. The
Company is approximately 94% owned by CAI Wireless Systems, Inc. ("CAI").
The subscription television industry is highly competitive. The
Company's principal subscription television competitors in each of its markets
are traditional hard-wire cable companies, direct broadcast satellite, private
cable companies and other alternate methods of distributing and receiving
television transmissions. Hard-wire cable companies generally are well-
established and known to potential customers and have significantly greater
financial and other resources than the Company. As the telecommunications
industry continues to evolve, the Company may face additional competition from
new providers of entertainment and data services. In addition, until the
Company can increase its channels offered in all of its operating markets
through the deployment of digital compression technology, the Company's
existing competitors generally continue to have more channels to offer
subscribers. There can be no assurance that the Company will be able to
compete successfully with existing or potential competitors in the subscription
television industry.
The Company has incurred significant operating losses since inception and
has negative stockholders' equity at March 31, 1999. Losses are expected for
at least the next year as the Company continues to develop its wireless
communications business. The Company has approximately $36 million in cash and
cash equivalents at March 31, 1999, and, based on its current operating plan,
believes that it has sufficient cash to fund its anticipated capital
expenditures and operating losses through at least the first quarter of 2000.
However, the growth of the Company's wireless communications business may
require substantial continuing investment to finance capital expenditures
related to the acquisition of channel rights and infrastructure development of
digital video programming, two-way frequency utilization and telephony systems.
Additionally, beginning in September 2001, the Company will be required to make
payments to the holders of its 11 3/8% Senior Discount Notes due 2006. Without
additional funding through debt or equity offerings, joint ventures, the sale
or exchange of its wireless cable channel rights or the participation of a
strategic partner, or the restructuring of its debt agreements, the Company may
not be able to meet its future debt and interest payments. There can be no
assurance that the Company will achieve positive cash flow from operations, or
consummate the sale of any wireless cable channel rights or that sufficient
debt or equity financing will be available to the Company. In addition,
subject to restrictions under its outstanding debt, the Company may pursue
other opportunities to acquire additional wireless cable channel rights and
businesses that may utilize the capital currently expected to be available for
its current markets.
CAI announced on April 26, 1999 that it executed a definitive Agreement
and Plan of Merger with MCI WorldCom, Inc. ("MCI WorldCom") providing for the
acquisition by MCI WorldCom of all of the outstanding shares of CAI. The
transaction is subject to customary conditions, including the receipt of
required regulatory approvals.
PRINCIPAL MARKETS OF THE COMPANY. On February 23, 1996, in exchange for
approximately 60% of the Company's Common Stock, CAI, directly or indirectly,
contributed to the Company the wireless cable television assets and all related
liabilities, or the stock of subsidiaries owning wireless cable television
assets associated with the wireless cable television markets of Bakersfield and
Stockton/Modesto, California; Charlotte, North Carolina; and Cleveland, Ohio.
Simultaneously, in exchange for approximately 40% of the Company's Common
Stock, cash, a short-term note and a long-term note (the "Heartland Long-Term
Note"), Heartland, directly or indirectly, contributed or sold to the Company
the wireless cable television assets and all related liabilities associated
with the wireless cable television markets of Grand Rapids, Michigan;
Minneapolis, Minnesota; Kansas City (suburbs), Missouri; Dayton, Ohio; Dallas,
Fort Worth and San Antonio, Texas; and Salt Lake City, Utah. The Company
subsequently acquired wireless cable television rights and related assets in
certain Midwest markets, including but not limited to, the Effingham and
Wellsville, Kansas; Story City, Iowa; Scottsbluff, Nebraska; Kalispell, Montana
and Rochester, Minnesota markets in connection with the Company's merger
acquisition of USA Wireless Cable, Inc. on October 11, 1996 ("USA Wireless
Acquisition"). The Company consummated on September 3, 1997 an exchange of its
wireless cable rights and related assets in Salt Lake City, Utah for wireless
cable rights and related assets in Kansas City, Missouri pursuant to an
agreement dated as of November 6, 1996 with People's Choice TV Corp.
On December 2, 1998, the Company, CAI and Heartland entered into a Master
Agreement ("Master Agreement") providing for, among other things, the
termination of Heartland's rights in, and claims against, the Company. As part
of the Master Agreement, in December 1998, CAI purchased Heartland's ownership
in the Company, or 3,836,035 shares of CS Wireless common stock, for
$1,534,000. The Company subsequently purchased those shares from CAI for the
same price. These shares are recorded as treasury stock for the periods
presented. Additionally, the Company agreed to lease certain channel rights
and sell the net operating assets of its Story City, Iowa market to Heartland
primarily in exchange for the forgiveness by Heartland of the outstanding
balance owed by the Company of $2,335,000 under the Heartland Long-Term Note
and additional cash payments by the Company to Heartland of $466,000. The
deposit, along with the carrying value of the net assets of the Story City,
Iowa market, are classified as assets held for sale at December 31, 1998 and
March 31, 1999 in the accompanying consolidated balance sheet.
(b) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(c) INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Company contain all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of March 31, 1999, and the results
of operations and cash flows for the three months ended March 31, 1999 and
1998. These results are not necessarily indicative of the results to be
expected for the full fiscal year.
(d) COMMON SHARES OUTSTANDING AND NET LOSS PER COMMON SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings Per Share," in the fourth quarter of
1997, which required companies to present basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Potentially
dilutive securities have been excluded from the diluted loss per share
computation as their inclusion would be antidilutive
(5) CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
A discussion of certain of these legal proceedings is contained in Part II,
Item 1 "Legal Proceedings" of this Form 10-Q. The Company believes that the
ultimate resolution of the legal proceedings will not have a material adverse
effect on the Company's consolidated financial position, operating results or
liquidity.