<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO
__________.
Commission file number.................................
US UNWIRED INC.
...............................................................................
(Exact name of registrant as specified in its charter)
Louisiana 72-1457316
................................ ......................
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
One Lakeshore Drive Suite 1900
Lake Charles, LA 70629
............................................. ......................
(Address of principal executive offices) (Zip code)
(337) 436-9000
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year, if changed since last
report)
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 .... No X
....
There were 1,555,768 shares of class A common stock, $0.01 par value per share,
and 58,411,232 shares of class B common stock, $0.01 par value per share,
outstanding at March 31, 2000.
1
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<TABLE>
<CAPTION>
Part I - Financial Information
Page
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets............................... 3
Condensed Consolidated Statements of Operations..................... 4
Condensed Consolidated Statements of Cash Flows..................... 5
Notes to Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 11
Part II - OTHER INFORMATION
Item 2. Changes in Securities............................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................. 17
Item 6. Exhibits and Reports on Form 8-K .................................. 17
SIGNATURES .................................................................... 18
</TABLE>
2
<PAGE>
Part I Financial Information
Item 1. Financial Statements
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
-------- -----------
2000 1999
---- ----
(Unaudited) (Note 1)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 16,053 $ 14,695
Subscriber receivables, net 6,256 6,036
Other receivables 2,921 1,055
Inventory 4,244 6,021
Prepaid expenses 3,426 1,146
Income taxes receivables 10,035 10,296
Receivables from related parties 330 654
Receivables from officers 111 110
---------- -----------
Total current assets 43,376 40,013
Marketable securities 109,010 141,453
Property and equipment, net 138,599 106,067
Deferred financing costs, net 12,245 12,279
Licenses, net 10,559 10,462
Other assets 18,489 6,836
---------- -----------
Total assets $332,278 $317,110
========== ===========
Liabilities and stockholders' equity
------------------------------------
Current liabilities:
Accounts payable $ 15,622 $ 14,618
Accrued expenses 6,341 2,048
Current maturities of long term obligations 677 188
Net liabilities of discontinued operations 559 573
---------- -----------
Total current liabilities 23,199 17,427
Long term obligations, net of current maturities 232,740 215,892
Net liabilities of discontinued operations 546 1,341
Deferred income tax 2,091 2,407
Minority interest 2,706 1,458
Mandatory redeemable preferred stock 55,000 50,000
Stockholders' equity:
Common stock 600 600
Additional paid in capital 8,856 2,147
Accumulated other comprehensive income 617 474
Retained earnings 5,923 25,364
---------- -----------
Total stockholders' equity 15,996 28,585
---------- -----------
Total liabilities and stockholders' equity $332,278 $317,110
========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three
months ended
---------------------------
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Subscriber $ 13,765 $ 9,329
Roaming 4,336 1,813
Merchandise sales 3,054 1,250
Management fees 896 476
Other revenue 240 61
----------- ---------
Total revenue 22,291 12,929
Expense:
Cost of service 7,385 3,710
Merchandise cost of sales 6,128 2,637
Selling, general and administrative 15,236 6,078
Depreciation and amortization 7,771 3,785
----------- ---------
Total operating expense 36,520 16,210
----------- ---------
Operating loss (14,229) (3,281)
Other income (expense):
Interest income (expense) (5,656) (820)
Other 4,820 ---
----------- ---------
Total other income (expense) (836) (820)
----------- ---------
Loss before income taxes, extraordinary item, minority
interest and equity in income (losses) of affiliates (15,065) (4,101)
Income tax benefit --- (617)
----------- ---------
Loss before extraordinary item, minority interest and equity
in (income) losses of affiliates (15,065) (3,484)
Minority interest in losses of subsidiaries 655 3,104
Equity in income (losses) of affiliates 207 (1,012)
----------- ---------
Loss from continuing operations (14,203) (1,392)
Loss from discontinued operations --- (666)
Extraordinary item-early extinguishments of debt (238) ---
----------- ---------
Net loss (14,441) (2,058)
Preferred stock dividends (5,000) ---
----------- ---------
Net loss available to common shareholders $ (19,441) $ (2,058)
=========== =========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three
months ended
---------------------------
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
------------------------------------
Net cash provided by (used in) operating activities $ (8,456) $ 2,666
Cash flows from investing activities
------------------------------------
Sale of marketable securities 44,368 ---
Purchase of marketable securities (12,098) ---
Investments to unconsolidated affiliates (381) (1,204)
Distributions from unconsolidated affiliates 310 125
Payments for the purchase of equipment (15,870) (12,408)
Payments for microwave relocation costs (250) ---
Loan to unconsolidated affiliates (19) ---
Cash acquired from consolidation of previously unconsolidated affiliate --- 1,350
Discontinued operation (1,406) (3,049)
--------- --------
Net cash provided by (used in) investing activities 14,654 (15,186)
Cash flows from financing activities
------------------------------------
Debt issuance costs (126) (300)
Proceeds from long-term debt 2,555 6,771
Proceeds from preferred stock 5,000
Principal payments of long-term debt (13,831) (11)
Discontinued operations 1,562 2,300
--------- --------
Net cash provided by (used in) financing activities (4,840) 8,760
--------- --------
Net increase (decrease) in cash and cash equivalents 1,358 (3,760)
Cash and cash equivalents at beginning of period 14,695 32,475
--------- -------
Cash and cash equivalents at end of period $ 16,053 $ 28,715
========= ========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited 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
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Operating results for
the three month period ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated financial
statements contained herein should be read in conjunction with the
financial statements and notes included in the prospectus that is part of
Amendment No. 2 to US Unwired Inc.'s registration statement on Form S-1,
Registration No. 333-33964, filed on May 11, 2000 with the Securities and
Exchange Commission.
2. Description of the Organization
US Unwired Inc. ("the Company") is principally engaged in the ownership and
operation of wireless communications systems, consisting of PCS, cellular
and paging communication systems. The Company was incorporated as Mercury,
Inc. in 1967 by the principal shareholders of Cameron Communications
Corporation (Cameron) to provide complementary services to Cameron's local
and line telephone service.
Effective January 1, 2000, the Company entered into an agreement with
Meretel Communications Limited Partnership ("Meretel") to receive an 80%
ownership interest in each of the Beaumont-Port Arthur and Lufkin-
Nacogdoches Business Trading Areas ("BTAs" or "markets") in exchange for a
reduction in the Company's ownership interest in Meretel from 24.33% to
13.28%. The Company contributed these net assets to a new partnership,
Texas Unwired, a Louisiana general partnership ("Texas Unwired"), of which
the Company's majority owned subsidiary, Louisiana Unwired, LLC ("LA
Unwired"), is the managing partner and owns an 80% interest. The
contributed net assets were recorded at fair value. Additionally, this
transaction resulted in a similar reduction in the Company's guarantee of
Meretel's debt to approximately $2.5 million. In connection with these
transactions, the Company recorded gains of $2.2 million and $2.6 million
related to the exchange of the Beaumont-Port Arthur and Lufkin-Nacogdoches
markets for a reduction in the Company's ownership interest in Meretel and
the reduction of the Company's debt guarantee, respectively.
On March 22, 2000, the Company's Board of Directors adopted a plan to sell
the Company's ownership interest in LEC Unwired, LLC ("LEC Unwired"), the
Company's local exchange carrier operating segment. The Company expects to
complete the sale by the end of the third quarter of 2000. The accompanying
condensed consolidated financial statements reflect the LEC Unwired
business as a discontinued operation in compliance with APB 30. The Company
does not expect a loss from the disposal of LEC Unwired when taking into
consideration the expected gain on the disposal and the loss from
operations during the disposal period. The operating losses of LEC Unwired
for the three months ended March 31, 2000, are presented as losses from
discontinued operations.
3. Marketable Securities
6
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The following is a summary of the Company's available-for-sale marketable
securities as of March 31, 2000:
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized Estimated
Gains Losses Fair Value
---------------- ---------------- -------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Commercial paper $ 88,798 $617 --- $ 89,415
Fixed income mutual fund 19,595 --- --- 19,595
-------- ---- --- --------
$108,393 $617 --- $109,010
======== ==== === ========
</TABLE>
4. Property and Equipment
Major categories of property and equipment were:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(In thousands)
<S> <C> <C>
Land $ 1,061 $ 1,061
Buildings 4,766 2,011
Leasehold improvements 1,463 1,198
Facilities and equipment 143,144 127,587
Furniture and fixtures 12,254 1,769
Vehicles 566 417
Construction in progress 22,668 12,729
-------- --------
185,922 146,772
Less accumulated depreciation and amortization 47,323 40,705
-------- --------
$138,599 $106,067
======== ========
</TABLE>
5. Long-Term Obligations
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(In thousands)
<S> <C> <C>
Debt outstanding under senior credit facilities:
Senior subordinated discount notes $221,046 $214,045
FCC debt 1,475 1,509
Bank financing 2,790 526
Capital leases 8,106 ---
-------- --------
Total long-term obligations 233,417 216,080
Less current maturities 677 188
-------- --------
Long-term obligations, excluding current maturities $232,740 $215,892
======== ========
</TABLE>
On October 29, 1999, US Unwired issued $400 million in aggregate principal
amount of its 13 3/8% Senior Subordinated Discount Notes due November 1,
2009 ("the Notes"). The Notes were issued at a substantial discount such
that the Company received gross proceeds of approximately $209.2 million.
The Notes increase in value daily, compounded twice per year, at the rate
of 13 3/8% per year until November 1, 2004. On that date, the value of the
Notes will be equal to the face amount of the Notes and interest will begin
to accrue at the rate of 13 3/8% per year. The Company will be required to
pay the accrued interest beginning May 1, 2005, and on each November 1 and
May 1 thereafter.
7
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The Notes are a general unsecured obligation of the Company, except for the
limited security provided by a pledge agreement by LA Unwired. The Notes
rank junior to all existing and future senior debt of the Company and equal
in right of payment of any future senior subordinated indebtedness of the
Company.
The Notes are fully, unconditionally, and joint and severally guaranteed by
each of LA Unwired and Unwired Telecom Corp. ("Unwired Telecom"), a
wholly-owned subsidiary of the Company. Each of the guarantees is a general
unsecured obligation of the guarantor. Each of the guarantees ranks equally
in right of payment with the guarantor's future senior subordinated
indebtedness and is subordinated in right of payment to all existing and
future senior debt of the guarantor.
Effective October 1, 1999, the Company entered into a $130 million senior
credit facility. It provides for an $80 million reducing revolving credit
facility that matures on September 30, 2007, and a $50 million delay draw
term loan that matures on September 30, 2007. The reducing revolver will be
permanently reduced in quarterly installments beginning June 30, 2002, in
amounts that vary between $1.3 million and $6.0 million. The term loan will
be amortized in quarterly installments beginning on June 30, 2003, in
quarterly amounts that vary between $1.3 million and $3.7 million. All
loans made under the senior credit facility bear interest at variable rates
tied to the prime rate, the federal funds rate or LIBOR. At March 31, 2000,
there were no amounts outstanding under this senior credit facility.
The senior credit facility requires the Company to pay an annual commitment
fee ranging from 1.5% to 1% of the unused commitment. It is secured by a
first priority security interest in all tangible and intangible assets of
the Company (other than the corporate headquarters building), LA Unwired
and Unwired Telecom (including the owned PCS licenses, to the extent
legally permitted); a pledge by the Company and Cameron of 100% of the
ownership interest in LA Unwired; a pledge by the Company of its ownership
interest in Unwired Telecom; a pledge by LA Unwired of its ownership
interest in Texas Unwired; and an assignment by LA Unwired of its Sprint
PCS agreements and any network contract (including software rights).
Additionally, the senior credit facility is subject to certain restrictive
covenants. As of March 31, 2000, the Company was in compliance with these
restrictive covenants.
In July 1998, LEC Unwired entered into a financing arrangement with a
financial institution. The credit facility provides for borrowings up to
$18 million ($15 million in senior secured debt and $3 million in
subordinated debt) to be used for the construction of various
telecommunications networks. The arrangement includes several fixed and
variable interest rate options. The drawdown period of the facility is
thirty months from closing. Repayment of principal begins three years after
closing and ends eight years after closing, with interest payable on a
quarterly basis. At March 31, 2000, the effective interest rate for this
debt was 11.22% and the total unfunded commitment was approximately $5.6
million. The financing arrangement is collateralized by substantially all
of the assets of LEC Unwired. Additionally, the debt is subject to certain
restrictive covenants. As of December 31, 1999 and March 31, 2000, LEC
Unwired was not in compliance with certain of these restrictive covenants,
but has since obtained waivers from the lender for such covenant
violations.
In 1999, Meretel entered into lease agreements to lease cell sites for a
15-year period. As part of the agreement discussed in Note 2 above, Texas
Unwired assumed Meretel's obligations with respect to 31 of these sites in
the Beaumont-Port Arthur and Lufkin-Nacogdoches markets. During the three
months ended March 31, 2000, the Company executed one additional site
capital lease.
Future minimum annual lease payments due under these capital leases
consisted of the following at March 31, 2000 (in thousands):
2001 $ 768
2002 768
2003 768
8
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2004 768
2005 768
Thereafter 7,307
-------
11,147
Amounts representing interest (3,041)
-------
Present value of minimum lease payments (including
Current portion of $376 $ 8,106
=======
6. Stockholders' Equity
Contemporaneously with the issuance of the Notes discussed in Note 5, the
Company issued 500,000 shares of Series A senior redeemable convertible
preferred stock for $50 million. The present holder of the Series A
preferred stock and any of its affiliates who become holders may convert
the preferred stock into Class B common stock, at any time, at $4.98 per
share, and such holders have voting rights of Class B common shareholders
on an as-converted basis. Upon sale or transfer of the preferred stock by
such holders to a non-affiliate of such holders, the preferred stock
becomes convertible into Class A common stock and the transferee holders
will have voting rights of Class A common shareholders on an as-converted
basis. The Series A preferred stock has a mandatory redemption at its
stated value 91 days after the maturity of the Notes. On February 15, 2000,
the Company issued $5 million of its Series B senior redeemable convertible
preferred stock. The Series B preferred stock has similar rights to those
of the Series A preferred stock except that it is convertible into Class A
common stock at $4.98 per share and the holders of the Series B preferred
stock have the voting rights of Class A common shareholders. The Company
has used its estimated initial public offering price to value its Class A
stock solely for purposes of calculating whether the Series B preferred
stock provides the holders of such preferred stock with a beneficial
conversion feature for financial reporting purposes. As a result, the
Company has allocated $5.0 million to such beneficial conversion feature in
accordance with EITF 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingency Adjustable Conversion
Ratios." Further, as the holder can exercise the conversion at any time,
the Company recognized a preferred dividend of $5.0 million during the
three-month period ended March 31, 2000.
On April 11, 2000, the Company increased its authorized shares of common
and preferred stock and effected a 5.3304-for-1 stock split for its
outstanding common shares. All stockholders' equity balances and
disclosures in the accompanying financial statements have been
retroactively restated for the increase in authorized shares and the stock
split. The effect of the stock split was to transfer an amount equal to the
par value of the new shares issued from additional paid-in-capital to
common stock.
7. Stock Option Plan
During 1999, the Board of Directors amended the 1998 Equity Plan and
renamed it the US Unwired Inc. 1999 Equity Incentive Plan ("the 1999 Equity
Plan"). As part of this amendment, the maximum aggregate amount of common
stock with respect to which options or other awards may be granted was
increased from 8.5 million to 12.3 million. On July 16, 1999, the Company
granted stock options for a total of 3,542,584 shares under the 1999 Equity
Plan. These options have a ten-year term and vest over a four-year period.
The exercise price for 2,654,539 of these options is $4.98 per share, and
the exercise price for 888,045 of these options is $1.13 per share.
Additionally, options for another 2,267,552 shares were granted on January
1, 2000 with an exercise price of $4.98 per share. As of March 31, 2000,
all of the options were outstanding and none were exercisable.
In connection with the above mentioned July 16, 1999 grant of options to
purchase 2,654,539 shares of the Company's common stock at an exercise
price of $4.98 per share and options to purchase 888,045 shares at $1.13
per share, and the January 1, 2000 grant of options to purchase 2,267,552
shares of the Company's common stock at an exercise price of $4.98 per
share, the Company has total deferred stock compensation of $27.4 million.
For the three months ended March 31, 2000, $1.7 million has
9
<PAGE>
been recognized as stock compensation expense, as the exercise price of
these options is less than the fair value of the Company's stock
at the grant dates as estimated solely for financial reporting purposes.
8. Other Comprehensive Income
Total other comprehensive loss includes net loss and unrealized gains from
marketable equity securities that are classified as available-for-sale. The
following summarizes the Company's total other comprehensive income for the
three months ended March 31, 2000 (in thousands):
Accumulated other comprehensive income
Balance, beginning of period $474
Other comprehensive income
Unrealized gains on securities 617
Deduct:
Realized gain on sale of securities 790
Income tax effect 316
----
Balance, end of period $617
====
9. Income Taxes
The Company's effective income tax rate for the interim periods presented
is based on management's estimate of the Company's effective tax rate for
the applicable year and differs from the federal statutory income tax rate
primarily due to nondeductible permanent differences, state income taxes
and changes in the valuation allowance for deferred tax assets. For the
year ending December 31, 2000, management currently estimates that a
valuation allowance will be provided for the expected loss to be incurred.
10. Subsequent Events
In April 2000, the Company received an assessment for approximately $4.0
million related to certain sales and use taxes resulting from a routine
audit. Although management is continuing to evaluate and discuss this
assessment with the local tax authorities, management believes that any
additional sales and use taxes that may result from this assessment has
been adequately provided for in the accompanying financial statements.
In April 2000, subject to FCC approval, the Company agreed to sell its PCS
licenses for service areas not covered by the Sprint PCS management
agreements to Cameron for approximately $1.1 million of Cameron's interest
in LA Unwired, Cameron's assumption of $1.4 million of LA Unwired debt
related to the licenses, and $1.3 million in cash. LA Unwired has agreed to
use this $1.3 million of cash to purchase Command Connect, LLC's ("Command
Connect") 0.5% interest in LA Unwired.
In April 2000, Unwired Telecom agreed to sell its 50% interest in Command
Connect, including the LMDS licenses that Command Connect holds, to Cameron
for approximately $1.4 million.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion is intended to facilitate an understanding and
assessment of significant accounting changes and trends related to the financial
condition and results of operations of US Unwired Inc. ("the Company" or "we" or
"us"). This discussion should be read in conjunction with our financial
statements included in this report.
The discussion contains statements that may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward looking statements are statements about our current and future
business strategy, operations, capabilities and construction plans and schedule,
as well as financial projections, plans and objectives of management, expected
actions of third parties, and other matters. They often include the words
"believes," "belief," "expects," "plans," "anticipates," "intends," "projects"
or similar words. Forward-looking statements speak only as of the date made and
are not guarantees of future performance and may involve risks and
uncertainties. Forward-looking statements involve known and unknown risks and
other factors that could cause actual results to be materially different from
our historical results or from any future results expressed or implied by any
forward-looking statements. Some of the factors that could cause the difference
are:
. the availability at acceptable terms of sufficient funds to pay for our
business plan
. competition
. changes in labor, equipment and capital costs
. any inability to obtain required regulatory approvals
. changes in technology
. any inability to comply with the indenture that governs our senior
subordinated discount notes or with our credit agreements
. changes in management
. any ability to attract and retain qualified employees
. future acquisitions general economic and business conditions
Actual results may differ from those in the forward-looking statements as a
result of these factors, many of which are outside the control of the Company.
You should not rely too heavily on any forward-looking statement. We cannot
assure you that our forward-looking statements will prove to be correct.
Overview
Through our subsidiaries, Louisiana Unwired, LLC ("LA Unwired") and Texas
Unwired, a Louisiana general partnership ("Texas Unwired"), we currently provide
wireless personal communications services (PCS) in parts of Louisiana and Texas.
Through our subsidiaries, we are a Sprint PCS network partner and have the
exclusive right to provide PCS services under the Sprint(R) and Sprint PCS(R)
brand names in a service area comprising approximately 9.7 million residents.
Our Sprint PCS service area covers 41 Basic Trading Areas ("BTAs" or "markets")
in eastern Texas, southern Oklahoma, southern Arkansas, significant portions of
Louisiana, Alabama and Mississippi, the Florida panhandle and southern
Tennessee. Our service area is contiguous with Sprint PCS's launched markets of
Houston, Dallas, Little Rock, New Orleans, Birmingham, Tallahassee and Memphis.
We are constructing a 100% digital, 100% wireless PCS network that we expect to
complete by March 2001.
We currently offer PCS service in eleven markets: Beaumont-Port Arthur,
Longview-Marshall, Lufkin-Nacogdoches, Texarkansas and Tyler, Texas; Alexandria,
Houma-Thibodeaux, Lake Charles, Monroe and Shreveport, Louisiana; and
Montgomery, Alabama. Our network currently covers approximately 2.4 million
residents out of approximately 3.6 million total residents in those markets. We
expect to cover a total of approximately 6.1 million residents by December 2000
and 6.4 million residents by March 2001, at which point we expect to have
covered approximately 66% of the resident population in our service area. The
number of people in our service area does not represent the number of Sprint PCS
subscribers that we
11
<PAGE>
expect to have in our service area. At March 31, 2000, we had approximately
66,000 subscribers within those eleven markets and we had initiated the build
out of eleven additional markets in the Florida panhandle, Mississippi and
Alabama. This phase of our build out represents 330 owned and co-located towers.
We have begun radio frequency design, network design and cell site engineering
in the remaining markets to be built out.
In addition, the Company provides cellular and paging services in parts of
Louisiana through its wholly owned subsidiary, Unwired Telecom Corp. ("Unwired
Telecom"). As of March 31, 2000, we had approximately 58,000 cellular and 23,000
paging subscribers.
In 1995, we and our third-party partners formed Meretel Communications Limited
Partnership ("Meretel") to bid for, develop and operate PCS licenses in
specified markets. Effective January 1, 2000, Meretel transferred to us an 80%
ownership in each of its Beaumont-Port Arthur and Lufkin-Nacogdoches markets in
exchange for a reduction in the our ownership interest in Meretel from 24.33% to
13.28%. We then contributed the net assets of those markets to a new
partnership, Texas Unwired, of which LA Unwired is the managing partner and owns
an 80% interest. The contributed net assets were recorded at fair value.
Additionally, this transaction resulted in a similar reduction of our guarantee
of Meretel's debt from a maximum $4.6 million to approximately $2.5 million.
While we have terminated our management agreement with Meretel, we continue to
provide limited back-end services in transition. Texas Unwired is consolidated
for the three months ended March 31, 2000. For the year ending December 31, 1999
and for the three months ended March 31, 1999, the operating results of the
Beaumont-Port Arthur and Lufkin-Nacogdoches markets are included in Meretel,
which is included in the accompanying financial statements for these periods
using the equity method.
As of March 31, 2000, we owned 100% of Unwired Telecom, 93.4% of LA Unwired and
59.8% of LEC Unwired, LLC ("LEC Unwired"), a competitive local exchange carrier.
On March 22, 2000, we adopted a formal plan to sell our interest in LEC Unwired,
which is therefore presented as a discontinued operation. As of March 31, 2000,
LA Unwired owned 80% of Texas Unwired.
Results of Operations
You should keep in mind that our operating results for three months ended March
31, 2000 include the consolidation of Texas Unwired but our operating results
for the three months ended March 31, 1999 include the Texas Unwired assets as a
part of Meretel, which is included using the equity method. Results for LEC
Unwired are presented as a discontinued operation for both periods.
Revenues
Three months ended March 31,
2000 1999
---- ----
(In thousands)
Subscriber revenues $13,765 $ 9,329
Roaming revenues 4,336 1,813
Merchandise sales 3,054 1,250
Other revenue 1,136 537
------- -------
Total revenues $22,291 $12,929
======= =======
Subscriber revenues were $13.8 million for the three months ended March 31, 2000
as compared to $9.3 million for the three months ended March 31, 1999,
representing an increase of $4.5 million. LA Unwired's subscriber revenues
increased to $5.7 million at March 31, 2000 from $1.5 million at March 31, 1999,
representing a $4.2 million increase due to an increase in subscribers to
approximately 50,000 at March 31, 2000 from approximately 13,000 at March 31,
1999. Texas Unwired accounted for $1.8 million in revenues and had approximately
16,000 subscribers at March 31, 2000. Unwired Telecom's subscriber revenues were
$6.3 million for the
12
<PAGE>
three months ended March 31, 2000 as compared to $7.8 million for the three
months ended March 31,1999, representing a decrease of $1.5 million due to a
decrease in subscribers to 81,000 at March 31, 2000 from 92,000 at March 31,
1999.
Roaming revenues were $4.3 million for the three months ended March 31, 2000 as
compared to $1.8 million for the three months ended March 31, 1999, representing
an increase of $2.5 million. LA Unwired's roaming revenues increased to $1.8
million at March 31, 2000 from $265,000 at March 31, 1999, representing a $1.5
million increase due to an expansion in coverage to nine markets at March 31,
2000 from four markets at March 31, 1999. Texas Unwired added $496,000 in
roaming revenues with coverage in two markets. Unwired Telecom's roaming
revenues increased to $2.0 million at March 31, 2000 from $1.5 million at March
31, 1999, representing an increase of $500,000 due to higher usage in our
service area.
Merchandise sales were $3.1 million for the three months ended March 31, 2000 as
compared to $1.3 million for the three months ended March 31, 1999, representing
an increase of $1.8 million. LA Unwired's merchandise sales increased to $2.2
million from $863,000 at March 31, 1999, representing an increase of $1.3
million. This was due primarily to an increase in initial sales to 19,000 new
subscribers during the three months ended March 31, 2000 compared to 7,600 new
subscribers added during the three months ended March 31, 1999. Texas Unwired
had $547,000 in merchandise sales for the three months ended March 31, 2000 and
added approximately 4,000 new subscribers. Unwired Telecom's merchandise sales
was $300,000 for the three months ended March 31, 2000 as compared to $400,000
for the three months ended March 31, 1999, representing a decrease of $100,000.
This decrease was primarily due to higher discounts on handset sales. Unwired
Telecom added 3,100 new cellular subscribers during the three months ended March
31, 2000 compared to 3,500 new cellular subscribers during the three months
ended March 31, 1999.
Other revenues increased to $1.1 million at March 31, 2000 from $537,000 at
March 31, 1999, representing an increase of $600,000 primarily attributable to
increased management fees.
Operating Expenses
Cost of service was $7.4 million for the three months ended March 31, 2000 as
compared to $3.7 million for the three months ended March 31, 1999, representing
an increase of $3.7 million. LA Unwired's cost of service increased to $4.2
million for the three months ended March 31, 2000 from $1.4 million for the
three months ended March 31,1999, representing an increase of $2.8 million. This
increase primarily resulted from the increased number of new subscribers,
coverage area and additional lease costs incurred in eleven yet to be opened
markets in Florida, Alabama and Mississippi. Texas Unwired's cost of sales added
$1.0 million with coverage for its two markets. Unwired Telecom's cost of
service decreased to $2.2 million at March 31, 2000 from $2.4 million at March
31, 1999, representing a decrease of $200,000 which was primarily related to a
decrease in our cellular subscriber base.
Merchandise cost of sales was $6.1 million for the three months ended March 31,
2000 as compared to $2.6 million for the three months ended March 31, 1999, an
increase of $3.5 million. LA Unwired's merchandise cost of sales increased to
$4.3 million for the three months ended March 31, 2000 from $1.9 million at
March 31, 1999, representing an increase of $2.4 million. This was primarily due
to the number of new subscribers added. Texas Unwired added $1.0 million in
merchandise cost of sales that was also related to new subscriber additions.
Unwired Telecom's merchandise cost of sales increased to $800,000 at March 31,
2000 from $700,000 at March 31, 1999, representing an increase of $100,000 which
was primarily attributable to the sale of more expensive handsets and
promotional discounts.
Selling, general and administrative expenses were $13.2 million for the three
months ended March 31, 2000 as compared to $6.1 million for the three months
ended March 31, 1999, an increase of $7.1 million. Corporate selling, general
and administrative expenses were $6.4 million for the three months ended March
31, 2000 as compared to $3.1 million for the three months ended March 31, 1999,
representing an increase of $3.4 million. Approximately $1.7 million of this
increase is attributable to stock compensation expense related to our issuance
of stock options. The remaining $1.7 million is primarily headcount growth
13
<PAGE>
associated with back-end services related to our growth in PCS subscribers to
66,000 at March 31, 2000 from 13,000 at March 31, 1999 and our expansion efforts
associated with opening new markets. LA Unwired's selling, general and
administrative expenses increased to $5.2 million for the three months ended
March 31, 2000 from $1.4 million at March 31, 1999, representing an increase of
$3.8 million. This was primarily due to the costs associated with expanding our
market coverage and the consolidation of Texas Unwired. Selling, general and
administrative expenses for Unwired Telecom remained unchanged at $1.6 million.
Depreciation and amortization expense was $7.8 million for the three months
ended March 31, 2000 as compared to $3.8 million for the three months ended
March 31, 1999, representing an increase of $4.0 million. LA Unwired's
depreciation increased to $5.9 million for the three months ended March 31, 2000
from $2.4 million at March 31, 1999, representing an increase of $3.5 million.
This was primarily due to the increase in capital costs associated with building
out our markets and the consolidation of Texas Unwired. Net property and
equipment for our PCS markets increased to $115.7 million at March 31, 2000 from
$65.2 million at March 31,1999. Unwired Telecom's depreciation expense remained
unchanged at $1.2 million.
Operating Loss
The total operating loss was $14.2 million for the three months ended March 31,
2000 as compared to $3.3 million for the three months ended March 31, 1999, an
increase of $10.9 million. LA Unwired recorded an operating loss of $8.8 million
for the three months ended March 31, 2000 as compared to a $4.3 million loss for
the three months ended March 31, 1999, representing an increase of $4.5 million.
This is primarily attributable to the increased operational costs associated
with building out our markets. Unwired Telecom recorded operating income of $2.7
million for the three months ended March 31, 2000 compared to operating income
of $3.8 million for the three months ended March 31, 1999, representing a
decrease of $1.1 million, which is primarily attributable to a decrease in
cellular subscribers. The balance of the remaining change of $5.4 million is
primarily attributable to the increase in selling, general and administrative
expenses that, as discussed above, are associated with market expansion and
include approximately $1.7 million of stock compensation expense related to
stock options.
Other Income/(Expense)
Three months ended March 31,
2000 1999
---- ----
(In thousands)
Interest expense $ (7,843) $(1,240)
Interest income 2,187 420
Other 4,820 ---
-------- -------
Total other income/(expense) $ (836) $ (820)
======== =======
Interest expense was $7.8 million for the three months ended March 31, 2000 as
compared to $1.2 million for the three months ended March 31, 1999, an increase
of $6.6 million. The increase in interest expense results from the increase in
outstanding debt. Our outstanding debt was $233.4 million at March 31, 2000 as
compared to $74 million at March 31, 1999. The increase in debt primarily
resulted from our senior subordinated discount note offering in October 1999.
Interest income was $2.2 million for the three months ended March 31, 2000 as
compared to $420,000 for the three months ended March 31, 1999. The increase
resulted from investing available funds in marketable securities until the funds
are required to fund our market build out.
14
<PAGE>
Other income for the three months ended March 31, 2000 represents a gain of
approximately $2.2 million from the sale of a portion of the Company's ownership
interest in Meretel and a gain of approximately $2.6 million due to the
reduction of the Company's guarantee of Meretel debt.
Minority Interest in Subsidiaries
Minority interest in losses of affiliates was $655,000 for the three months
ended March 31, 2000 as compared to $3.1 million for the three months ended
March 31, 1999. This relates to the consolidation of LA Unwired and represents
the portion of the losses from LA Unwired allocable to minority shareholders.
The operating loss of LA Unwired is described above.
Equity in Income (Losses) of Affiliates
Equity in income of affiliates was $207,000 for the three months ended March 31,
2000 as compared to an equity loss in affiliates of $1.0 million for the three
months ended March 31, 1999, an increase of $1.2 million. This was primarily the
result of our reduction in ownership of Meretel to 13.28% for the three months
ended March 31, 2000 from 24.33% for the three months ended March 31, 1999.
Liquidity and Capital Resources
We need approximately $303.8 million to build out our PCS network and to market
and distribute our products and services from January 2000 through December
2001. We believe that the proceeds from our financings and internally generated
cash will be enough to build out our network as planned, cover anticipated
operating losses and meet our debt service requirements through December 2001.
We expect to cover approximately 66% of the population in a majority of markets
in our service area by March 2001. We plan to use this $303.8 million for
capital requirements, including capital expenditures, working capital, debt
service requirements and anticipated operating losses for the period from
January 2000 through December 2001. We will use this capital also for switches,
base stations, towers and antennae, radio frequency engineering, cell site
acquisition and construction and microwave relocation. The actual amounts
required building out our PCS network might vary materially from these
estimates. We may need more capital if we have unforeseen delays, cost overruns,
unanticipated expenses, regulatory expenses, engineering design changes and
other technological risks.
In the past, we have paid our working capital requirements, acquisitions,
capital expenditures and debt service through bank financing and retained
earnings from operations and the one-time gain from our 1998 sale of selected
cellular markets.
On October 29, 1999, we issued approximately $400 million in aggregate principal
amount of 13 3/8% senior subordinated discount notes of US Unwired and received
gross proceeds of approximately $209 million. These notes are unsecured
obligations. They bear interest at a rate of 13 3/8% per year, payable twice per
year on May 1 and November 1, beginning May 1, 2005. LA Unwired and Unwired
Telecom fully and unconditionally and jointly and severally guarantee our
obligations under the notes.
On October 1, 1999, US Unwired entered into a credit facility with Co Bank, ACB,
The Bank of New York, BNY Capital Markets, Inc., First Union Securities, Inc.,
First Union National Bank and other lenders for $130 million. At March 31, 2000,
we had full availability of $130 million under our new credit facility for the
build out of our PCS network and anticipated operating losses.
In addition, we issued $50 million of preferred stock on October 29, 1999 and $5
million of preferred stock on February 15, 2000.
On March 31, 2000, LEC Unwired had $12.4 million outstanding under two senior
credit facilities dated July 22, 1998. The first credit facility is a $15.0
million senior facility with a three year draw down period and five year
amortization. The second facility is a $3.0 million subordinated facility with a
three year draw down period and five year amortization. Both facilities mature
on July 1, 2006. On March 22, 2000, we adopted a formal plan to sell our 59.8%
ownership interest in LEC Unwired.
15
<PAGE>
On April 11, 2000, the stockholders of US Unwired approved a 5.3304 for 1 stock
split.
Cash used in operating activities was $8.5 million for the three months ended
March 31, 2000. Cash provided by investing activities was $14.7 million for the
three months ended March 31, 2000 and includes $32.3 million provided by the
purchase and sale of marketable securities offset by $15.9 million used to
purchase property and equipment. Cash used in financing activities was $4.8
million for the three months ended March 31, 2000 and included $13.8 million
used in the payment of long-term debt offset by $5.0 million in the proceeds
from preferred stock and $2.6 million in proceeds from long-term debt.
Seasonality
Like the wireless communications industry in general, our subscribers increase
in the fourth quarter due to the holiday season. A greater number of phones sold
at holiday promotional prices causes our losses on merchandise sales to
increase. Our sales and marketing expenses increase also with holiday
promotional activities. We generally have the most use and revenue per
subscriber in the summer because of an increase in revenues from fees charged to
non-US Unwired, non-Sprint PCS customers who use our network while traveling in
our service area. We believe that the increased traffic in our service area
comes from people traveling during summer vacation. We expect these trends to
continue based on historical operating results.
Impact of Year 2000 Issue on Our Operations and Financial Conditions
We use a significant number of computer systems and software programs in our
operations, including in support of our PCS network equipment and for various
administrative functions. Before the Year 2000, we discussed the nature and
progress of our plans to prepare for that year. In late 1999, we finished
testing and preparing our systems for the Year 2000 date change. As of the date
of this report, we had experienced no significant disruptions in our critical
information technology systems and non-information technology systems that
resulted from the Year 2000 date change. We believe that our systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems that resulted from the Year 2000 date change with our
products, our internal systems or the products and services of third parties. We
will continue to monitor our critical computer applications and those of our
suppliers and vendors throughout 2000 so we can promptly address any Year 2000
matters that may arise.
Quantitative and Qualitative Disclosure about Market Risk
We are not exposed to fluctuations in currency exchange rates, as all our
services are invoiced in U.S. dollars. We are exposed to the impact of interest
rate changes on our short-term cash investments, consisting of U.S. Treasury
obligations and other investments in respect of institutions with the highest
credit ratings, all of which investments mature on or before July 13, 2000.
These short-term investments carry a degree of interest rate risk. We believe
that the impact of a 1% increase or decline in current average investment rates
would not have a material impact on our investment income.
16
<PAGE>
PART II
Item 2. Changes in Securities
On February 15, 2000, US Unwired issued $5.0 million of its senior redeemable
convertible preferred stock, series B, to the following affiliates of Trust
Company of the West: TCW Leveraged Income Trust, L.P., TCW Leveraged Income
Trust II, L.P., TCW Shared Opportunity Fund II, L.P., TCW Shared Opportunity
Fund IIB, LLC, TCW Shared Opportunity Fund III, L.P., TCW/Crescent Mezzanine
Trust, TCW/Crescent Mezzanine Partners II, L.P. and Brown University Third
Century Fund. The stock was issued in a transaction not involving a public
offering in reliance on Section 4(2) of the Securities Act. The holders of this
preferred stock may convert the preferred stock into Class A common stock at any
time at a price of $4.98 per share. The Company may require the series B
preferred shareholders to convert their preferred stock after an initial public
offering of the Company's common stock if these preferred shareholders would
receive an initial rate of return of at least 20% per year based on the
Company's common stock price.
On January 1, 2000, US Unwired granted to some of its directors and officers
stock options to purchase an aggregate of 2,267,552 shares of Class A common
stock pursuant to the US Unwired Inc. 1999 Equity Incentive Plan. These stock
options were granted in transactions exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as a
transaction not involving a public offering and on Rule 701 under the Securities
Act. These options have a ten year term and vest over a four year period.
Item 4. Submission of Matters to a Vote of Security Holders
On February 7, 2000, shareholders of the Company holding 42,614,501 shares of
the Company's class B common stock and all 500,000 shares of the Company's
series A preferred stock acted by written consent in lieu of a stockholders'
meeting to adopt an amendment to the Company's Articles of Incorporation (i)
authorizing the creation of the Company's series B preferred stock and setting
forth the voting powers and the preferences and rights of that preferred stock,
(ii) modifying the rights of the Company's series A preferred stock and (iii)
clarifying the rights of a Qualified Holder, as defined in the Company's
Articles of Incorporation.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Financial data schedule
b. Reports on Form 8-K during the first quarter ended March 31, 2000
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
17
<PAGE>
May 18, 2000 US UNWIRED INC.
By:/s/ Jerry E. Vaughn
-----------------------------
Jerry E. Vaughn
Duly Authorized Officer and
Chief Financial Officer
18
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