<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 000-22003
US UNWIRED INC.
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(Exact name of registrant as specified in its charter)
Louisiana 72-1457316
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(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
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(Registrant's telephone number, including area code)
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(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 [X] No [_]
There were 10,796,297 shares of class A common stock, $0.01 par value per share,
and 68,212,934 shares of class B common stock, $0.01 par value per share,
outstanding at August 1, 2000.
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Part I - Financial Information Page
____
Item 1. Financial Statements
Condensed Consolidated Balance Sheets........................... 3
Condensed Consolidated Statement of Operations.................. 4
Condensed Consolidated Statement of Cash Flows.................. 5
Notes to Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 10
Part II - OTHER INFORMATION
Item 2. Changes in Securities........................................... 18
Item 4. Submission of Matters to a Vote of Security Holders............. 19
Item 6. Exhibits and Reports on Form 8-K................................ 19
SIGNATURES................................................................ 19
2
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<TABLE>
<CAPTION>
Part I Financial Information
Item 1. Financial Statements
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
---------- ------------
2000 1999
-------- --------
(Unaudited) (Note 1)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,617 $ 14,695
Subscriber receivables, net 6,589 6,036
Other receivables 1,222 1,055
Inventory 4,028 6,021
Prepaid expenses 4,984 1,146
Income taxes receivables 2,434 10,296
Receivables from related parties 604 654
Receivables from officers 104 110
-------- --------
Total current assets 38,582 40,013
Marketable securities 166,106 141,453
Property and equipment, net 175,059 106,067
Deferred financing costs, net 12,035 12,279
Licenses, net 9,143 10,462
Other assets 17,442 6,836
-------- --------
Total assets $418,367 $317,110
======== ========
Liabilities and stockholders' equity
------------------------------------
Current liabilities:
Accounts payable $ 19,175 $ 14,618
Accrued expenses 9,050 2,048
Current maturities of long term obligations 664 188
Net liabilities of discontinued operations --- 573
-------- --------
Total current liabilities 28,889 17,427
Long term obligations, net of current maturities 239,611 215,892
Net liabilities of discontinued operations --- 1,341
Deferred income tax 2,092 2,407
Minority interest 537 1,458
Mandatory redeemable preferred stock --- 50,000
Stockholders' equity:
Common stock 790 600
Additional paid in capital 145,433 2,147
Accumulated other comprehensive income 1,089 474
Retained earnings (deficit) (74) 25,364
-------- --------
Total stockholders' equity 147,238 28,585
-------- --------
Total liabilities and stockholders' equity $418,367 $317,110
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Subscriber $ 16,398 $10,062 $ 30,163 $19,391
Roaming 5,492 2,639 9,828 4,452
Merchandise sales 2,195 1,179 5,249 2,429
Management fees 1,262 506 2,158 982
Other revenue 230 90 470 151
-------- ------- -------- -------
Total revenue 25,577 14,476 47,868 27,405
Expense:
Cost of service 10,047 4,439 17,432 8,149
Merchandise cost of sales 4,466 2,107 10,594 4,744
General and administrative 8,693 4,153 18,244 8,059
Sales and marketing 6,515 2,607 12,200 4,779
Depreciation and amortization 9,099 4,148 16,870 7,933
-------- ------- -------- -------
Total operating expense 38,820 17,454 75,340 33,664
-------- ------- -------- -------
Operating loss (13,243) (2,978) (27,472) (6,259)
Other income (expense):
Interest income (expense) (5,857) (1,028) (11,513) (1,848)
Other --- --- --- ---
Gain on sale of certain markets --- --- 4,820 ---
-------- ------- -------- -------
Total other income (expense) (5,857) (1,028) (6,693) (1,848)
-------- ------- -------- -------
Loss before income taxes, extraordinary item, minority
interest and equity in income (losses) of affiliates (19,100) (4,006) (34,165) (8,107)
Income tax benefit (4,322) (1,047) (4,322) (1,664)
-------- ------- -------- -------
Loss before extraordinary item, minority interest and equity
in (income) losses of affiliates (14,778) (2,959) (29,843) (6,443)
Minority interest in losses of subsidiaries 77 3,166 732 6,270
Equity in income (losses) of affiliates 349 (1,358) 556 (2,370)
-------- ------- -------- -------
Loss from continuing operations (14,352) (1,151) (28,555) (2,543)
Discontinued operations
Gain on disposal of discontinued operations 6,483 --- 6,483 ---
Income (loss) from discontinued operations --- (1,061) --- (1,727)
------- ------- ------- -------
6,483 (1,061) 6,483 (1,727)
-------- ------- -------- -------
Loss before extraordinary items (7,869) (2,212) (22,072) (4,270)
Extraordinary item-early extinguishment of debt --- (477) (238) (477)
-------- ------- -------- -------
Net loss (7,869) (2,689) (22,310) (4,747)
Preferred stock dividends --- --- (5,000) ---
-------- ------- -------- -------
Net loss available to common shareholders $ (7,869) $(2,689) $(27,310) $(4,747)
======== ======= ======== =======
Basic and diluted earnings (loss) per share:
Continuing operations $(0.21) $ (0.02) $(0.52) $ (0.04)
Discontinued operations 0.10 (0.02) 0.10 (0.03)
Extraordinary loss --- (0.01) --- (0.01)
------- ------- ------- -------
$(0.11) $ (0.05) $(0.42) $ (0.08)
======= ======= ======= =======
Weighted average outstanding common shares 69,065 59,967 64,491 59,967
======== ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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<TABLE>
<CAPTION>
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
For the six months ended
--------------------------------
June 30, June 30,
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities
------------------------------------
Net cash provided by operating activities $ 5,957 $ 97
Cash flows from investing activities
------------------------------------
Sale of marketable securities 92,868 ---
Purchase of marketable securities (117,222) ---
Investments to unconsolidated affiliates (381) (1,953)
Distributions from unconsolidated affiliates 391 186
Payments for the purchase of equipment (62,533) (29,180)
Payments for microwave relocation costs (767) ---
Cash acquired from consolidation of previously unconsolidated affiliate --- 1,350
Net proceeds from sale of discontinued operation 11,522 ---
Discontinued operation (1,406) (3,049)
--------- --------
Net cash used in investing activities (77,528) (32,646)
Cash flows from financing activities
------------------------------------
Debt issuance costs (241) (3,286)
Equity issuance costs (7,379) ---
Proceeds from long-term debt 2,555 21,819
Proceeds from preferred stock 5,000 ---
Proceeds from equity offering 88,000 ---
Principal payments of long-term debt (14,005) (22)
Discontinued operations 1,563 2,300
--------- --------
Net cash provided by financing activities 75,493 20,811
--------- --------
Net increase (decrease) in cash and cash equivalents 3,922 (11,738)
Cash and cash equivalents at beginning of period 14,695 32,475
--------- --------
Cash and cash equivalents at end of period $ 18,617 $ 20,737
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. Basis of Presentation
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
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 and six month periods ended June 30, 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 condensed consolidated
financial statements contained herein should be read in conjunction with the
financial statements and notes included in the prospectus that is part of US
Unwired Inc.'s registration statement on Form S-1, Registration No. 333-
33964, first filed on April 4, 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 personal
communications systems ("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 land 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 with
Meretel, 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 its debt guarantee, respectively.
Effective May 31, 2000, the Company sold its ownership interest in LEC
Unwired, LLC ("LEC Unwired"), the Company's competitive local exchange
carrier operating segment, for approximately $11.5 million. The Company
recognized a gain of approximately $6.5 million, net of income taxes of $4.3
million, on the transaction. The accompanying condensed consolidated
financial statements reflect LEC Unwired as a discontinued operation in
compliance with APB 30.
3. Marketable Securities
The following is a summary of the Company's available-for-sale marketable
securities as of June 30, 2000:
6
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<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Commercial paper $157,328 $1,089 --- $158,417
Fixed income mutual fund 7,689 --- --- 7,689
-------- ------ ------- --------
$165,017 $1.089 --- $166,106
======== ====== ======= ========
</TABLE>
4. Property and Equipment
Major categories of property and equipment were:
June 30, December 31,
2000 1999
-------- --------
(In thousands)
Land $ 1,061 $ 1,061
Buildings and leasehold improvements 6,588 3,209
Facilities and equipment 182,767 127,587
Office equipment 13,930 2,186
Construction in progress 25,987 12,729
-------- --------
230,333 146,772
Less accumulated depreciation and amortization 55,274 40,705
-------- --------
$175,059 $106,067
======== ========
5. Long-Term Obligations
Long-term obligations consisted of the following:
June 30, December 31,
2000 1999
-------- --------
(In thousands)
Debt outstanding under senior credit facilities:
Senior subordinated discount notes $228,359 $214,045
FCC debt 1,144 1,509
Bank and other financing 2,746 526
Capital leases 8,026 ----
-------- --------
Total long-term obligations 240,275 216,080
Less current maturities 664 188
-------- --------
Long-term obligations, excluding current maturities $239,611 $215,892
======== ========
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.
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 LA Unwired and Unwired Telecom Corp. ("Unwired Telecom"), a wholly owned
subsidiary. Each of the guarantees is a general unsecured obligation of the
guarantor. Each of the guarantees ranks equally in right of payment
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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 June 30, 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 June 30, 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 provided 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 included several fixed and variable interest rate options. On
June 22, 2000, as part of the sales agreement of LEC Unwired, the Company
paid off the credit facility. With this payment, the Company was released of
all obligations under the security and loan documents.
In 1999, Meretel entered into agreements to lease towers 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 towers in the
Beaumont-Port Arthur and Lufkin-Nacogdoches markets. During the six months
ended June 30, 2000, the Company executed one additional tower capital lease.
Future minimum annual lease payments due under these capital leases consisted
of the following at June 30, 2000:
(In thousands)
------------
2001 $ 768
2002 768
2003 768
2004 768
2005 768
Thereafter 7,427
-------
11,267
Amounts representing interest (3,241)
-------
Present value of minimum lease payments (including
current portion of $381 $ 8,026
=======
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 holder of the Series A preferred stock
and any of its affiliates who become holders had the right to convert the
8
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preferred stock into Class B common stock at any time, at $4.98 per share,
and such holders had the voting rights of Class B common shareholders on an
as-converted basis. Upon sale or transfer of the Series A preferred stock by
such holders to a non-affiliate of such holders, the preferred becomes
convertible into Class A common stock and the transferee holders would have
voting rights of Class A common shareholders on an as-converted basis. The
Series A preferred stock had 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 had similar rights to those of the Series
A preferred stock except that it was convertible into Class A common stock at
$4.98 per share and the holders of the Series B preferred stock would had the
voting rights of Class A common shareholders. The Company used its estimated
initial public offering price to value its Class A stock solely for purposes
of calculating whether the Series B preferred stock provided the holders of
such preferred stock with a beneficial conversion feature for financial
reporting purposes. As a result, the Company 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 could 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.
On April 4, 2000, the Company filed a registration statement on Form S-1
(file No. 333-33964) with the Securities and Exchange Commission for the sale
to the public of 8,000,000 shares of its class A common stock ("the Stock
Offering"). The registration statement became effective on May 17, 2000, and
8,000,000 shares were issued on May 23, 2000 at the price of $11.00 per share
before commissions. The underwriters had the option to purchase up to an
additional 1.2 million shares from selling stockholders at the same price of
$11.00 per share. The underwriters exercised a portion of their over
allotment option, and on June 12, 2000, purchased 236,700 shares. The Company
received net proceeds of $80.6 million after commissions of $6.2 million and
expenses of $1.2 million.
Simultaneous with the closing of the Stock Offering, 50,000 shares of Series
B senior redeemable convertible preferred stock were converted to 1,003,838
shares of Class A common stock and 500,000 shares of Series A senior
redeemable convertible preferred stock was converted into 10,038,417 shares
of Class B 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 $1.13 per share, and the exercise
price for 888,045 of these options is $4.98 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 June 30, 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 $1.13 per share and options to purchase 888,045 shares at $4.98 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 $20.6 million. For the six month
period ended June 30, 2000, $2.9 million has
9
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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 for financial reporting purposes.
8. Other Comprehensive Loss
The total other comprehensive loss was $6.8 million for the three months
ended June 30, 2000, $2.7 million for the three months ended June 30, 1999,
$26.2 million for the six months ended June 30, 2000 and $4.7 million for
the six months ended June 30, 1999. The total other comprehensive loss
includes net loss available to shareholders plus any unrealized gains from
marketable equity securities that are classified as available-for-sale. The
total other comprehensive loss for the six month period ended June 30, 2000
also includes a preferred stock dividend of $5.0 million.
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 event
In April 2000, the Company received an assessment for approximately $4.9
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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",
"us" or "our"). This discussion should be read in conjunction with our financial
statements included in this report and with the financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations that are included in the prospectus referred to in Note 1.
Statements herein include forward-looking statements about our current and
future business, operations and other matters. They often include the words
"believes," "expects," "plans," "anticipates," "intends," "projects" or similar
words. These statements speak only as of the date made, are not guarantees of
future performance, and involve known and unknown risks and other factors that
could cause actual results to be materially different from any future results
expressed or implied by them. Some of these factors, many of which are outside
our control, include: our dependence on our affiliation with Sprint PCS,
availability of infrastructure and subscriber equipment, availability at
acceptable terms of sufficient funds to pay for our business plan, competition,
changes in labor, equipment and capital costs, ability to obtain required
regulatory approvals, market and technology changes, ability to comply with our
credit agreements, changes in management, ability to attract and retain
qualified employees, future acquisitions, and general economic and business
conditions. One should not rely too heavily on any forward-looking statement.
For a detailed discussion of these and other cautionary statements and factors,
see the Company's filings with the SEC, especially in the "risk factors" section
of its Form S-1 and in subsequent filings with the SEC.
Overview
10
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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 Louisiana, Texas, Alabama,
Florida, Arkansas and Mississippi. 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
substantially complete by March 2001.
We have launched our PCS service in nine new markets since March 31, 2000 and at
June 30, 2000 offered PCS service in twenty markets in Louisiana, Texas,
Alabama, Florida, Arkansas and Mississippi. Since March 31, 2000 we have
increased our network coverage by over 1.2 million residents, and at June 30,
2000, our network covered approximately 3.4 million residents out of
approximately 5.9 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
expect to have in our service area. At June 30, 2000, we had approximately
77,000 subscribers within the twenty markets, and we are continuing to build out
markets in the Florida panhandle, Mississippi, Arkansas and Alabama. This phase
of our build out represents 439 operational owned and co-located towers. We have
completed 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 June 30, 2000, we had approximately 55,000 cellular and 22,000
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 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. We
terminated our management agreement with Meretel and entered into a new
agreement to provide limited billing and customer care services. Texas Unwired
is consolidated for the three and six month periods ended June 30, 2000. For the
year ended December 31, 1999 and for the three and six month periods ended June
30, 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 June 30, we owned 100% of Unwired Telecom and 93.9% of LA Unwired. As of
June 30, 2000, LA Unwired owned 80% of Texas Unwired.
Effective May 31, 2000, we sold our ownership interest in LEC Unwired, LLC ("LEC
Unwired"), the Company's competitive local exchange carrier segment, for
approximately $11.5 million and recorded a gain of approximately $6.5 million,
net of income taxes of $4.3 million, on the transaction. LEC Unwired is
presented as a discontinued operation in our financial statements for the year
ended December 31, 1999 and for the three and six month periods ended June 30,
2000 and 1999.
Results of Operations
11
<PAGE>
Three and Six Month Periods Ended June 30, 2000 Compared to Three Month and Six
Month Periods Ended June 30, 1999
You should keep in mind that our operating results for the three and six month
periods ended June 30, 2000 include the consolidation of Texas Unwired but our
operating results for the three and six month periods ended June 30, 1999
include the operations of Texas Unwired as a part of Meretel, which is included
using the equity method.
<TABLE>
<CAPTION>
Revenues
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
------- ------- ------- -------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Subscriber revenues $16,398 $10,062 $30,163 $19,391
Roaming revenues 5,492 2,639 9,828 4,452
Merchandise sales 2,195 1,179 5,249 2,429
Other revenues 1,492 596 2,628 1,133
------- ------- ------- -------
Total revenues $25,577 $14,476 $47,868 $27,405
======= ======= ======= =======
</TABLE>
Subscriber revenues
Subscriber revenues were $16.4 million for the three month period ended June 30,
2000 as compared to $10.1 million for the three month period ended June 30,
1999, representing an increase of $6.3 million. PCS subscriber revenues were
$10.4 million for the three month period ended June 30, 2000 as compared to $2.2
million for the three month period ended June 30, 1999, representing an increase
of $8.2 million and was primarily the result of an increase in PCS subscribers
to 77,000 at June 30, 2000 from 18,000 at June 30, 1999. We added 11,000 new PCS
subscribers during the three month period ended June 30, 2000 as compared to
5,000 new PCS subscribers during the three month period ended June 30, 1999.
Cellular and paging subscriber revenues were $6.0 million for the three month
period ended June 30, 2000 as compared to $7.9 million for the three month
period ended June 30, 1999, representing a $1.9 million decrease and was
primarily the result of a decrease to 77,000 cellular and paging subscribers at
June 30, 2000 from 89,000 cellular and paging subscribers at June 30, 1999.
Subscriber revenues were $30.2 million for the six month period ended June 30,
2000 as compared to $19.4 million for the six month period ended June 30, 1999,
representing an increase of $10.8 million. PCS subscriber revenues were $17.9
million for the six month period ended June 30, 2000 as compared to $3.8 million
for the six month period ended June 30, 1999, representing an increase of $14.1
million and was primarily the result of an increase in our overall PCS
subscribers to 77,000 at June 30, 2000 from 18,000 at June 30, 1999. We added
43,000 new PCS subscribers during the six month period ended June 30, 2000 that
included 13,000 new PCS subscribers through the acquisition of certain markets
as compared to 13,000 during the six month period ended June 30, 1999. Cellular
and paging subscriber revenues were $12.3 million for the six month period ended
June 30, 2000 as compared to $15.6 million for the six month period ended June
30, 1999, representing a $3.3 million decrease and was primarily the result of a
decrease to 77,000 cellular and paging subscribers at June 30, 2000 from 89,000
cellular and paging subscribers at June 30, 1999.
Roaming revenues
Roaming revenues were $5.5 million for the three month period ended June 30,
2000 as compared to $2.6 million for the three month period ended June 30, 1999,
representing an increase of $2.9 million. PCS roaming revenues were $3.5
million for the three month period ended June 30, 2000 as compared to $.9
million for the three month period ended June 30, 1999, representing an increase
of $2.6 million and was primarily the result of a higher volume of Sprint(R)
subscribers traveling through our markets and the expansion of our network
coverage. We added nine PCS markets to our coverage area during the three month
period ended June 30, 2000 and operated 20 PCS markets at June 30, 2000 as
compared to six PCS markets at June 30, 1999. Cellular roaming revenues were
$2.0 million for the three month period ended
12
<PAGE>
June 30, 2000 as compared to $1.7 million for the three month period ended June
30, 1999, representing an increase of $.3 million and was primarily the result
of higher usage in our service area.
Roaming revenues were $9.8 million for the six month period ended June 30, 2000
as compared to $4.5 million for the six month period ended June 30, 1999,
representing an increase of $5.3 million. PCS roaming revenues were $5.9 million
for the six month period ended June 30, 2000 as compared to $1.1 million for the
six month period ended June 30, 1999, representing an increase of $4.8 million
and was primarily the result of a higher volume of Sprint(R) subscribers
traveling through our markets and the expansion of our network coverage. We
added 14 PCS markets to our coverage area during the six month period ended June
30, 2000 and operated 20 PCS markets at June 30, 2000 as compared to six PCS
markets at June 30, 1999. Cellular roaming revenues were $3.9 million for the
six month period ended June 30, 2000 as compared to $3.4 million for the six
month period ended June 30, 1999, representing an increase of $.5 million and
was primarily the result of higher usage in our service area.
Merchandise sales
Merchandise sales were $2.2 million for the three month period ended June 30,
2000 as compared to $1.2 million for the three month period ended June 30, 1999,
representing an increase of $1.0 million. PCS merchandise sales were $1.9
million for the three month period ended June 30, 2000 as compared to $.9
million for the three month period ended June 30, 1999, representing an increase
of $1.0 million and were due primarily to an increase in initial sales to new
PCS subscribers. We recorded initial sales to 17,000 new PCS subscribers during
the three month period ended June 30, 2000 as compared to initial sales to 7,000
new PCS subscribers during the three month period ended June 30, 1999. Cellular
and paging merchandise sales were unchanged at $.3 million for the three month
period ended June 30, 2000 and the three month period ended June 30, 1999.
Merchandise sales were $5.2 million for the six month period ended June 30, 2000
as compared to $2.4 million for the six month period ended June 30, 1999,
representing an increase of $2.8 million. PCS merchandise sales were $4.7
million for the six month period ended June 30, 2000 as compared to $1.7 million
for the six month period ended June 30, 1999, representing an increase of $3.0
million and were due primarily to an increase in initial sales to new PCS
subscribers. We recorded initial sales to 39,000 new PCS subscribers during the
six month period ended June 30, 2000 as compared to initial sales to 15,000 new
PCS subscribers during the six month period ended June 30, 1999. Cellular and
paging merchandise sales were $.5 million for the six month period ended June
30, 2000 as compared to $.7 million for the six month period ended June 30,
1999, representing a decrease of $.2 million and was primarily related to a
decrease in our cellular and paging subscriber base.
Other revenues
Other revenues were $1.5 million for the three month period ended June 30, 2000
as compared to $.6 million for the three month period ended June 30, 1999,
representing an increase of $.9 million and $2.6 million for the six month
period ended June 30, 2000 as compared to $1.1 million for the six month period
ended June 30, 1999, representing an increase of $1.5 million and were primarily
attributable to increased management fees charged to Meretel for limited billing
and customer care services.
Operating Expenses
Cost of service
Cost of service was $10.0 million for the three month period ended June 30, 2000
as compared to $4.4 million for the three month period ended June 30, 1999,
representing an increase of $5.6 million. PCS cost of service was $7.8 million
for the three month period ended June 30, 2000 as compared to $2.1 million for
the three month period ended June 30, 1999, representing an increase of $5.7
million, which primarily related to increased circuit costs and cell site leases
for the increase in new PCS subscribers, coverage area and for the market
expansion in Texas, Florida, Alabama, Arkansas and Mississippi as described
above. Cellular cost of service was $2.2 million for the three month period
ended June 30, 2000 as compared to
13
<PAGE>
$2.3 million for the three month period ended June 30, 1999, representing a
decrease of $.1 million and was primarily related to a decrease in our cellular
and paging subscriber base.
Cost of service was $17.4 million for the six month period ended June 30, 2000
as compared to $8.1 million for the six month period ended June 30, 1999,
representing an increase of $9.3 million. PCS cost of service for LA Unwired was
$13.0 million for the six month period ended June 30, 2000 as compared to $3.5
million for the six month period ended June 30, 1999, representing an increase
of $9.5 million which primarily related to increased circuit costs and cell site
leases for the increased number of new PCS subscribers and coverage area and for
the market expansion in Texas, Florida, Alabama, Arkansas and Mississippi as
described above. Cellular cost of service was $4.4 million for the six month
period ended June 30, 2000 as compared to $4.6 million for the six month period
ended June 30, 1999, representing a decrease of $.2 million and was primarily
related to a decrease in our cellular and paging subscriber base.
Merchandise cost of sales
Merchandise cost of sales was $4.5 million for the three month period ended
June 30, 2000 as compared to $2.1 million for the three month period ended
June 30, 1999, representing an increase of $2.4 million. PCS merchandise cost of
sales was $4.0 million for the three month period ended June 30, 2000 as
compared to $1.5 million for the three month period ended June 30, 1999,
representing an increase of $2.5 million and was primarily due to the number of
new PCS subscribers added. We recorded initial sales to 17,000 new PCS
subscribers during the three month period ended June 30, 2000 as compared to
initial sales to 7,000 new PCS subscribers during the three month period ended
June 30, 1999. Cellular and paging merchandise cost of sales was $.5 million for
the three month period ended June 30, 2000 as compared to $.6 million for the
three month period ended June 30, 1999, representing a decrease of $.1 million,
which was primarily related to the decrease in the subscriber base.
Merchandise cost of sales was $10.6 million for the six month period ended June
30, 2000 as compared to $4.7 million for the six month period ended June 30,
1999, representing an increase of $5.9 million. PCS merchandise cost of sales
was $9.3 million for the six month period ended June 30, 2000 as compared to
$3.5 million for the six month period ended June 30, 1999, representing an
increase of $5.8 million and was primarily due to the number of new PCS
subscribers added. We recorded initial sales to 39,000 new PCS subscribers
during the six month period ended June 30, 2000 compared to initial sales to
15,000 new PCS subscribers during the six month period ended June 30, 1999.
Cellular and paging merchandise cost of sales was $1.3 million for the six month
period ended June 30, 2000 as compared to $1.2 million for the six month period
ended June 30, 1999, representing an increase of $.1 million and was primarily
related to the sale of more expensive handsets and promotional discounts during
the three months ended March 31, 2000.
General and administrative expenses
General and administrative expenses were $8.7 million for the three month period
ended June 30, 2000 as compared to $4.2 million for the three month period ended
June 30, 1999, representing an increase of $4.5 million and was partially due to
the recognition of $1.1 in stock compensation expense related to the issuance of
stock options. The remaining $3.4 million was primarily related to the hiring
of additional employees and increased billing costs as the average number of PCS
subscribers increased to 71,000 for the three month period ended June 30, 2000
from an average number of 16,000 PCS subscribers for the three month period
ended June 30, 1999 and overall market expansion increased to 20 PCS markets at
June 30, 2000 from six PCS markets at June 30, 1999. Additionally, we serviced
an average 79,000 cellular and paging subscribers during the three months ended
June 30, 2000 as compared to an average 90,000 during the three months ended
June 30, 1999.
General and administrative expenses were $18.2 million for the six month period
ended June 30, 2000 as compared to $8.1 million for the six month period ended
June 30, 1999, representing an increase of $10.1 million and was partially due
to the recognition of $2.9 in stock compensation expense related to the issuance
of stock options. The remaining $7.2 million is primarily related to the hiring
of additional employees and increased billing costs as the average number of PCS
subscribers increased to 55,000 for the six month period ended June 30, 2000
from an average number of 12,000 PCS subscribers for the six
14
<PAGE>
month period ended June 30, 1999 and overall market expansion has increased to
20 PCS markets at June 30, 2000 from six PCS markets at June 30, 1999.
Additionally, we serviced an average 80,000 cellular and paging subscribers
during the six months ended June 30, 2000 as compared to an average 91,000
during the six months ended June 30, 1999.
Selling and marketing expenses
Selling and marketing expenses were $6.5 million for the three month period
ended June 30, 2000 as compared to $2.6 million for the three month period ended
June 30, 1999, representing an increase of $3.9 million. PCS selling and
marketing expenses were $5.2 million for the three month period ended June 30,
2000 as compared to $1.5 million for the three month period ended June 30, 1999,
representing an increase of $3.7 million and primarily relates to advertising,
direct selling headcount and commissions paid to local and national third party
retailers contracted to sell our product. Average PCS subscribers increased to
71,000 for the three month period ended June 30, 2000 from an average 16,000 PCS
subscribers for the three month period ended June 30, 1999; network coverage
increased to 20 PCS markets at June 30, 2000 from six PCS markets at June 30,
1999;and, nine additional PCS retail outlets were open at June 30, 2000 compared
to June 30, 1999. Cellular and paging selling and marketing expenses were $1.3
million for the three month period ended June 30, 2000 as compared to $1.1
million for the three month period ended June 30, 1999, representing an increase
of $.2 million and was related to the deployment of customer care
representatives to our retail outlets in an effort to help retain our cellular
subscriber base.
Selling and marketing expenses were $12.2 million for the six month period ended
June 30, 2000 as compared to $4.8 million for the six month period ended June
30, 1999, representing an increase of $7.4 million. PCS selling and marketing
expenses were $9.8 million for the six month period ended June 30, 2000 as
compared to $2.7 million for the six month period ended June 30, 1999,
representing an increase of $7.1 million and primarily relates to advertising,
direct selling headcount and commissions paid to local and national third party
retailers contracted to sell our product. Average subscribers increased to
55,000 for the six month period ended June 30, 2000 from 12,000 for the six
month period ended June 30, 1999; network coverage increased to 20 PCS markets
at June 30, 2000 from six PCS markets at June 30, 1999; and, nine additional PCS
retail outlets were open at June 30, 2000 compared to June 30, 1999. Cellular
and paging selling and marketing expenses were $2.4 million for the six month
period ended June 30, 2000 as compared to $2.1 million for the six month period
ended June 30, 1999, representing an increase of $.3 million and was related to
the deployment of customer care representatives to our retail outlets in an
effort to help retain our cellular subscriber base.
Depreciation and amortization expense
Depreciation and amortization expense was $9.1 million for the three month
period ended June 30, 2000 as compared to $4.1 million for the three month
period ended June 30, 1999, representing an increase of $5.0 million, and $16.9
million for the six month period ended June 30, 2000 as compared to $7.9 million
for the six month period ended June 30, 1999, representing an increase of $9.0
million. These increases were primarily due to increased capital spending to
build out our PCS markets. Net property and equipment for our PCS markets
increased to $153.4 million at June 30, 2000 from $70.1 million at June 30,
1999. Depreciation and amortization expense for our cellular and paging
operations was unchanged at $1.1 million for the three month period ended June
30, 2000 and the three month period ended June 30, 1999 and was $2.3 million for
the six month period ended June 30, 2000 and the six month period ended June 30,
1999.
Operating Loss
The operating loss was $13.2 million for the three month period ended June 30,
2000 as compared to $3.0 million for the three month period ended June 30, 1999,
representing an increase of $10.2 million. The operating loss for our PCS
operations was $9.2 million for the three month period ended June 30, 2000 as
compared to $3.9 million for the three month period ended June 30, 1999,
representing an increase of $5.3 million and was primarily due to the increased
operational costs associated with building out our PCS
15
<PAGE>
markets. The operating income for our cellular operations was $2.4 million for
the three month period ended June 30, 2000 as compared to $4.2 for the three
month period ended June 30, 1999, representing a decrease of $1.8 million and
was primarily related to the decrease in subscribers. The balance of the
remaining change of $3.1 million was primarily attributable to the increase in
selling, general and administrative expenses that, as discussed above, is
associated with subscriber growth and market expansion and includes
approximately $1.1 million of stock compensation expense related to stock
options.
The operating loss was $27.5 million for the six month period ended June 30,
2000 as compared to $6.3 million for the six month period ended June 30, 1999,
representing an increase of $21.2 million. The operating loss for our PCS
operations was $18.1 million for the six month period ended June 30, 2000 as
compared to $8.4 million for the six month period ended June 30, 1999,
representing an increase of $9.7 million and was primarily due to the increased
operational costs associated with building out our PCS markets. The operating
income for our cellular operations was $5.1million for the six month period
ended June 30, 2000 as compared to $8.3 for the six month period ended June 30,
1999, representing a decrease of $3.2 million and is related to the decrease in
subscribers. The balance of the remaining change of $8.3 million is primarily
attributable to the increase in selling, general and administrative expenses
that, as discussed above, are associated with subscriber growth and market
expansion and include approximately $2.9 million of stock compensation expense
related to stock options.
Other Income/(Expense)
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30,
2000 1999 2000 1999
------- ------- -------- -------
( In thousands) ( In thousands)
<S> <C> <C> <C> <C>
Interest expense $(7,991) $(1,579) $(15,835) $(2,819)
Interest income 2,134 551 4,322 971
Other --- --- 4,820 ---
------- ------- -------- -------
Total other income/(expense) $(5,857) $(1,028) $ (6,693) $(1,848)
======= ======= ======== =======
</TABLE>
Interest expense was $8.0 million for the three month period ended June 30, 2000
as compared to $1.6 million for the three month period ended June 30, 1999,
representing an increase of $6.4 million. The increase in interest expense
resulted from the increase in outstanding debt. Our outstanding debt was $240.3
million at June 30, 2000 as compared to $89.0 million at June 30, 1999. The
increase in debt primarily resulted from our senior subordinated discount note
offering in October 1999.
Interest expense was $15.8 million for the six month period ended June 30, 2000
as compared to $2.8 million for the six month period ended June 30, 1999,
representing an increase of $13.0 million. The increase in interest expense
resulted from the increase in outstanding debt. Our outstanding debt was $240.3
million at June 30, 2000 as compared to $89.0 million at June 30, 1999. The
increase in debt primarily resulted from our senior subordinated discount note
offering in October 1999.
Interest income was $2.1 million for the three month period ended June 30, 2000
as compared to $.6 million for the three month period ended June 30, 1999,
representing an increase of $1.5 million, and $4.3 million for the six month
period ended June 30, 2000 as compared to $1.0 million for the six month period
ended June 30, 1999, representing an increase of $3.3 million. The increase
resulted from investing available funds in marketable securities until the funds
are required to for our market build out.
Other income was $4.8 million for the six month period ended June 30, 2000 as
compared to $0 for the six month period ended June 30, 1999, representing an
increase of $4.8 million. In the three month period ended March 31, 2000, we
recognized 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
16
<PAGE>
Minority interest in losses of affiliates was $.1 million for the three month
period ended June 30, 2000 as compared to $3.2 million for the three month
period ended June 30, 1999, representing a decrease of $3.1 million, and $.7
million for the six month period ended June 30, 2000 as compared to $6.3 million
for the six month period ended June 30, 1999, representing an decrease of $5.6
million. This decrease related to the consolidation of LA Unwired and represents
the portion of the losses from LA Unwired allocable to minority shareholders.
Equity in Income (Losses) of Affiliates
Equity in income of affiliates was $.3 million for the three month period ended
June 30, 2000 as compared to an equity losses in affiliates of $1.4 million for
the three month period ended June 30, 1999, representing an increase of $1.7
million, and equity income in affiliates was $.6 million for the six month
period ended June 30, 2000 as compared to equity losses in affiliates of $2.4
million for the six month period ended June 30, 1999, representing an increase
of $3.0 million. This increase was primarily the result of our reduction in
ownership of Meretel to 13.28% for the six month period ended June 30, 2000 from
24.33% for the six month period ended June 30, 1999.
Discontinued Operations
Effective May 31, 2000, we sold our ownership interest in LEC Unwired, LLC ("LEC
Unwired"), the Company's competitive local exchange carrier segment, for
approximately $11.5 million and recognized a gain of approximately $6.5 million,
net of income taxes of $4.3 million, on the transaction. The losses of $1.1
million for the three months ended June 30, 1999 and $1.7 million for the six
months ended June 30, 1999 represent the losses of LEC Unwired.
Liquidity and Capital Resources
On October 1, 1999, US Unwired entered into a credit facility with CoBank; 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 June 30, 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.
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.
In addition, we issued $50 million of preferred stock on October 29, 1999 and $5
million of preferred stock on February 15, 2000.
On April 4, 2000, the Company filed a registration statement on Form S-1 (file
No. 333-33964) with the Securities and Exchange Commission for the sale to the
public of 8,000,000 shares of its class A common stock ("the Stock Offering").
The registration statement became effective on May 17, 2000, and 8,000,000
shares were issued on May 23, 2000 at the price of $11.00 per share before
commissions. The underwriters had the option to purchase up to an additional 1.2
million shares from selling stockholders at the same price of $11.00 per share.
The underwriters exercised a portion of their over allotment option, and on June
12, 2000, purchased 236,700 shares. The Company received net proceeds of $80.6
million after commissions of $6.2 million and expenses of $1.2 million.
On May 31, 2000, we sold our ownership interest in LEC Unwired, LLC ("LEC
Unwired"), the Company's competitive local exchange carrier segment, for
approximately $11.5 million.
Cash provided by operating activities was $6.0 million for the six month period
ended June 30, 2000. Cash used in investing activities was $77.5 million for the
six month period ended June 30, 2000, including $10.1 million in net proceeds
from the sale of LEC Unwired, offset by $62.6 million to purchase property
17
<PAGE>
and equipment and $.8 million in microwave relocation costs. Cash provided by
financing activities was $75.5 million for the six month period ended June 30,
2000 and included $80.6 million in net proceeds from an equity offering, $5.0
million in proceeds from the sale of preferred stock and $2.6 million in
proceeds from long-term debt offset by $14.0 million used in the payment of
long-term debt.
We believe that the proceeds from our financings and internally generated cash
flow will be enough to build out our network as planned, cover anticipated
operating losses and meet our debt service requirements through December 2001.
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 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 November 28, 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.
PART II
Item 2. Changes in Securities
On April 4, 2000, the Company filed a registration statement on Form S-1 (file
No. 333-33964) with the Securities and Exchange Commission for the sale to the
public of 8,000,000 shares of its class A common stock ("the Stock Offering").
The registration statement became effective on May 17, 2000, and 8,000,000
shares were issued on May 23, 2000 at the price of $11.00 per share before
underwriting commissions. The underwriters had the option to purchase up to an
additional 1.2 million shares from selling stockholders at the same price of
$11.00 per share before underwriting commissions. The underwriters exercised a
portion of their over allotment option, and on June 12, 2000, purchased 236,700
shares. The Company received aggregate net proceeds of $80.6 million after
incurring expenses of $6.2 million in connection with the issuance and
distribution of the securities registered for underwriting discounts and
commissions and other expenses of $1.2 million, comprised of SEC filing fees of
$36,000, NASD filing fees of $14,000, NASDAQ listing fees of $89,000, printing
and engraving expenses of $547,000, legal fees and expenses of
18
<PAGE>
$210,000, accounting fees and expenses of $279,000 and other miscellaneous
expenses of approximately $45,000. As of June 30, 2000, the net proceeds of the
stock offering were invested in short-term cash investments and have not been
used for any other purposes. The Stock Offering has terminated. At termination,
963,300 of the 9.2 million shares covered by the Registration Statement had not
been sold. The managing underwriters of the Stock Offering were Donaldson,
Lufkin & Jenrette Securities Corporation, Credit Suisse First Boston, First
Union Securities, Inc. and DLJdirectInc. The aggregate price of the shares
covered by the Registration Statement, based on an offering price to the public
of $11.00 per share, was $88.0 million for the account of the Company and $13.2
million for the accounts of the selling stockholders.
Simultaneously with the closing of the Stock Offering on may 23, 2000, the 1818
Fund III, L.P. converted its 500,000 shares of Series A senior redeemable
convertible preferred stock into 10,318,417 shares of Class B common stock at
the conversion price of $4.98 per share, and the following affiliates of the
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, converted their 50,000 shares of Series B senior redeemable
convertible preferred stock at the conversion price of $4.98 per share. These
securities were issued in transactions exempt from registration under Section
3(a)(9) of the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders
On April 28, 2000, shareholders of the Company holding 46,947,486 shares of the
Company's class B common stock, representing 68.33% of the voting power of the
Company, acted by written consent in lieu of a stockholders' meeting to adopt an
amendment to the Company's Articles of Incorporation making some technical non-
substantive corrections to the Company's Articles of Incorporation.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Financial data schedule
b. Report on Form 8-K during the second quarter ended June 30, 2000
No reports on Form 8-K were filed during the quarter ended June 30,
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.
August 11, 2000 US UNWIRED INC.
By: /s/ Jerry E. Vaughn
________________________
Jerry E. Vaughn
Chief Financial Officer
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