<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 SEPTEMBER 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.
(------------------------------------------------------------------------------)
(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 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 November 9, 2000.
1
<PAGE>
Part I - Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 6. Exhibits and Reports on Form 8-K............................. 18
SIGNATURES.............................................................. 19
</TABLE>
2
<PAGE>
Part I Financial Information
Item 1. Financial Statements
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------ -----------
2000 1999
---- ----
(Unaudited) (Note 1)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,963 $ 14,695
Subscriber receivables, net 7,632 6,036
Other receivables 1,621 1,055
Inventory 3,463 6,021
Prepaid expenses 4,548 1,146
Income taxes receivables 2,434 10,296
Receivables from related parties 492 654
Receivables from officers 119 110
-------- --------
Total current assets 39,272 40,013
Marketable securities 124,388 141,453
Property and equipment, net 203,934 106,067
Deferred financing costs, net 11,708 12,279
Licenses, net 10,851 10,462
Other assets 17,165 6,836
-------- --------
Total assets $407,318 $317,110
======== ========
Liabilities and stockholders' equity
------------------------------------
Current liabilities:
Accounts payable $ 19,741 $ 14,618
Accrued expenses 11,055 2,048
Current maturities of long term obligations 684 188
Net liabilities of discontinued operations --- 573
-------- --------
Total current liabilities 31,480 17,427
Long term obligations, net of current maturities 247,160 215,892
Net liabilities of discontinued operations --- 1,341
Deferred income tax 2,137 2,407
Minority interest 13 1,458
Mandatory redeemable preferred stock --- 50,000
Stockholders' equity:
Common stock 790 600
Additional paid in capital 146,579 2,147
Accumulated other comprehensive income 1,332 474
Retained earnings (deficit) (22,173) 25,364
-------- --------
Total stockholders' equity 126,528 28,585
-------- --------
Total liabilities and stockholders' equity $407,318 $317,110
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Subscriber $ 17,777 $ 9,717 $ 47,940 $ 29,108
Roaming 7,894 3,100 17,722 7,552
Merchandise sales 2,470 1,241 7,719 3,670
Management fees 876 517 3,034 1,499
Other revenue 282 109 752 260
--------- -------- --------- ---------
Total revenue 29,299 14,684 77,167 42,089
Expense:
Cost of service 13,061 5,211 30,493 13,360
Merchandise cost of sales 5,034 2,852 15,628 7,596
General and administrative 8,408 4,829 26,652 12,888
Sales and marketing 8,934 3,035 21,134 7,814
Depreciation and amortization 11,312 5,549 28,182 13,482
--------- -------- --------- ---------
Total operating expense 46,749 21,476 122,089 55,140
--------- -------- --------- ---------
Operating loss (17,450) (6,792) (44,922) (13,051)
Other income (expense):
Interest income (expense) (5,635) (2,132) (17,148) (3,980)
Gain on sale of certain markets 172 --- 4,992 ---
--------- -------- --------- ---------
Total other income (expense) (5,463) (2,132) (12,156) (3,980)
--------- -------- --------- ---------
Loss before income taxes, extraordinary item, minority
interest and equity in income (losses) of affiliates (22,913) (8,924) (57,078) (17,031)
Income tax benefit --- (1,808) (4,322) (3,472)
--------- -------- --------- ---------
Loss before extraordinary item, minority interest and equity
in (income) losses of affiliates (22,913) (7,116) (52,756) (13,559)
Minority interest in losses of subsidiaries 523 1,447 1,255 7,717
Equity in income (losses) of affiliates 291 1,561 847 (809)
--------- -------- --------- ---------
Loss from continuing operations (22,099) (4,108) (50,654) (6,651)
Discontinued operations
Gain on disposal of discontinued operations --- --- 6,483 ---
Income (loss) from discontinued operations --- (587) --- (2,314)
--------- -------- --------- ---------
--- (587) 6,483 (2,314)
--------- -------- --------- ---------
Loss before extraordinary items (22,099) (4,695) (44,171) (8,965)
Extraordinary item-early extinguishment of debt --- --- (238) (477)
--------- -------- --------- ---------
Net loss (22,099) (4,695) (44,409) (9,442)
Preferred stock dividends --- --- (5,000) ---
--------- -------- --------- ---------
Net loss available to common shareholders $ (22,099) $ (4,695) $ (49,409) $ (9,442)
========= ======== ========= =========
Basic and diluted earnings (loss) per share:
Continuing operations $ (0.28) $ (0.07) $ (0.80) $ (0.11)
Discontinued operations --- (0.01) 0.09 (0.04)
Extraordinary loss --- --- --- (0.01)
--------- -------- --------- ---------
$ (0.28) $ (0.08) $ (0.71) $ (0.16)
========= ======== ========= =========
Weighted average outstanding common shares 79,009 59,967 69,349 59,967
========= ======== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
---- ----
Cash flows from operating activities
------------------------------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 5,726 $ (2,777)
Cash flows from investing activities
------------------------------------
Sale of marketable securities 136,888 ---
Purchase of marketable securities (119,281) ---
Investments to unconsolidated affiliates (381) (2,588)
Distributions from unconsolidated affiliates 391 152
Payments for the purchase of equipment (102,417) (35,244)
Payments for microwave relocation costs (2,628) (1,562)
Cash acquired from consolidation of previously unconsolidated affiliate --- 1,350
Net proceeds from sale of discontinued operation 11,522 ---
Proceeds from sale of assets 261 ---
Discontinued operation (1,406) (3,049)
--------- --------
Net cash used in investing activities (77,051) (40,941)
Cash flows from financing activities
------------------------------------
Debt issuance costs (241) (3,645)
Equity issuance costs (7,379) ---
Proceeds from long-term debt 2,815 28,759
Proceeds from preferred stock 5,000 ---
Proceeds from equity offering 88,000 ---
Principal payments of long-term debt (14,165) (33)
Discontinued operations 1,563 2,300
--------- --------
Net cash provided by financing activities 75,593 27,381
--------- --------
Net increase (decrease) in cash and cash equivalents 4,268 (16,337)
Cash and cash equivalents at beginning of period 14,695 32,475
--------- --------
Cash and cash equivalents at end of period $ 18,963 $ 16,138
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine month periods ended September 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 landline telephone service.
Effective January 1, 2000, the Company entered into an agreement with Gulf
Coast Wireless Limited Partnership ("Gulf Coast Wireless"), formerly known
as Meretel Communications Limited Partnership, 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 Gulf Coast Wireless 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
Gulf Coast Wireless' debt to approximately $2.5 million. In connection with
these transactions with Gulf Coast Wireless, the Company recorded gains of
$2.2 million and $2.8 million related to the exchange of the Beaumont-Port
Arthur and Lufkin-Nacogdoches markets for a reduction in the Company's
ownership interest in Gulf Coast Wireless 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
6
<PAGE>
The following is a summary of the Company's available-for-sale marketable
securities as of September 30, 2000:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
---------------- ---------------- -------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Commercial paper $108,229 $1,332 --- $109,561
Fixed income mutual fund 14,827 --- --- 14,827
-------- ------ ------ --------
$123,056 $1,332 --- $124,388
======== ====== ====== ========
</TABLE>
4. Property and Equipment
Major categories of property and equipment were:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Land $ 1,061 $ 1,061
Buildings and leasehold improvements 6,748 3,209
Facilities and equipment 221,645 127,587
Office equipment 14,810 2,186
Construction in progress 25,076 12,729
-------- --------
269,340 146,772
Less accumulated depreciation and amortization 65,406 40,705
-------- --------
$203,934 $106,067
======== ========
</TABLE>
5. Long-Term Obligations
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(In thousands)
Debt outstanding under senior credit facilities:
<S> <C> <C>
Senior subordinated discount notes $235,829 $214,045
FCC debt 1,115 1,509
Bank and other financing 2,709 526
Capital leases 8,191 ---
-------- --------
Total long-term obligations 247,844 216,080
Less current maturities 684 188
-------- --------
Long-term obligations, excluding current maturities $247,160 $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. 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.
7
<PAGE>
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. 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 September 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 September 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 September
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 September 30, 2000, the Company was in compliance with
these restrictive covenants.
In 1999, Gulf Coast Wireless entered into agreements to lease towers for a
15-year period. As part of the agreement discussed in Note 2 above, Texas
Unwired assumed Gulf Coast Wireless' obligations with respect to 31 of
these towers in the Beaumont-Port Arthur and Lufkin-Nacogdoches markets.
During the nine months ended September 30, 2000, the Company executed two
additional tower capital leases, bringing the total to 33.
Future minimum annual lease payments due under these capital leases
consisted of the following at September 30, 2000:
(In thousands)
2001 $ 792
2002 792
2003 792
2004 792
2005 792
Thereafter 7,163
------
11,123
Amounts representing interest (2,932)
------
Present value of minimum lease payments
(including current portion of $397 $ 8,191
======
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
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
8
<PAGE>
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 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 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 an underwriting discount. 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 the discount. 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 the underwriting discount 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 3,595,876 shares under the 1999 Equity
Plan. These options have a ten-year term and vest over a four-year period.
The exercise price for 2,654,536 of these options is $1.13 per share, and
the exercise price for 941,340 of these options is $4.98 per share.
Additionally, options for another 2,218,533 shares were granted on January
1, 2000 with an exercise price of $4.98 per share. As of September 30,
2000, all of the options were outstanding and 898,969 were exercisable.
In connection with the above mentioned July 16, 1999 grant of options to
purchase 2,654,536 shares of the Company's common stock at an exercise
price of $1.13 per share and options to purchase 941,340 shares at $4.98
per share, and the January 1, 2000 grant of options to purchase 2,218,533
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 nine month period ended September 30, 2000, $4.0 million has been
recognized as stock compensation expense, as the exercise price of these
options was less than the fair value of the Company's stock at the grant
dates as estimated for financial reporting purposes.
8. Commitments and Contingencies
9
<PAGE>
The Company's PCS licenses are subject to a requirement that the Company
construct network facilities that offer coverage to 25% of the population
or have substantial service in each of its BTAs within five years from the
grant of the licenses. Should the Company fail to meet these coverage
requirements, it may be subject to forfeiture of its licenses or imposition
of fines by the FCC. The PCS build out in each BTA is subject to the
successful completion of the network design, site and facility
acquisitions, the purchase and installation of the network equipment,
network testing, and the satisfactory accommodation of microwave users
currently using the spectrum. All FCC requirements have been met where
operations have commenced.
9. Other Comprehensive Loss
The total other comprehensive loss was $20.8 million for the three months
ended September 30, 2000, $4.7 million for the three months ended September
30, 1999, $48.1 million for the nine months ended September 30, 2000 and
$9.4 million for the nine months ended September 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 nine month
period ended September 30, 2000 also includes a preferred stock dividend of
$5.0 million.
10. 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.
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 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
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, Tennessee and Mississippi. We own 93.86% of LA Unwired and
80% of Texas Unwired. Through our subsidiary, we are a Sprint PCS network
partner and
10
<PAGE>
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. We are constructing a 100% digital, 100% wireless PCS network that we
expect to substantially complete by March 2001. Our service area is contiguous
with Sprint PCS's launched markets of Houston, Dallas, Little Rock, New Orleans,
Birmingham, Tallahassee and Memphis.
We have launched our PCS service in eight new markets since June 30, 2000 and at
September 30, 2000 offered PCS service in 28 markets in Louisiana, Texas,
Alabama, Florida, Arkansas, Mississippi and Tennessee. Since June 30, 2000 we
have increased our network coverage by over 2.1 million residents, and at
September 30, 2000, our network covered approximately 5.1 million residents out
of approximately 8.0 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 September 30, 2000,
we had approximately 91,100 subscribers within the 28 markets. This phase of our
build out represents 584 operational owned and co-located towers. We are
continuing to build out new markets in the Florida panhandle, Mississippi,
Arkansas and Alabama and 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 September 30, 2000, we had approximately 53,100 cellular and
20,300 paging subscribers.
In 1995, we and our third-party partners formed Gulf Coast Wireless Limited
Partnership ("Gulf Coast Wireless"), formerly known as Meretel Communications
Limited Partnership , to bid for, develop and operate PCS licenses in specified
markets. Effective January 1, 2000, Gulf Coast Wireless transferred to us an 80%
ownership in each of its Beaumont-Port Arthur and Lufkin-Nacogdoches markets in
exchange for a reduction in our ownership interest in Gulf Coast Wireless 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 Gulf Coast Wireless' debt from a maximum $4.6 million to approximately $2.5
million. We terminated our management agreement with Gulf Coast Wireless and
entered into a new agreement to provide limited billing and customer care
services. Texas Unwired is consolidated for the three and nine month periods
ended September 30, 2000. For the year ended December 31, 1999 and for the three
and nine month periods ended September 30, 1999, the operating results of the
Beaumont-Port Arthur and Lufkin-Nacogdoches markets are included in Gulf Coast
Wireless, which is included in the accompanying financial statements for these
periods using the equity method.
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 nine month periods ended September
30, 2000 and 1999.
In October 2000, we amended our management agreements with Sprint PCS whereby
Sprint PCS will begin providing substantially all of our billing and customer
care services. As a part of the amendment, Sprint PCS has also agreed to not
change the existing reciprocal Sprint roaming rates with us for PCS customers
through December 31, 2002.
Results of Operations
Three and Nine month Periods Ended September 30, 2000 Compared to Three Month
and Nine month Periods Ended September 30, 1999
You should keep in mind that our operating results for the three and nine month
periods ended September 30, 2000 include the consolidation of Texas Unwired but
our operating results for the three and nine month
11
<PAGE>
periods ended September 30, 1999 include the operations of Texas Unwired as a
part of Gulf Coast Wireless, which is included using the equity method.
Revenues
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Subscriber revenues $17,777 $ 9,717 $47,940 $29,108
Roaming revenues 7,894 3,100 17,722 7,552
Merchandise sales 2,470 1,241 7,719 3,670
Other revenues 1,158 626 3,786 1,759
------- ------- ------- -------
Total revenues $29,299 $14,684 $77,167 $42,089
======= ======= ======= =======
</TABLE>
Subscriber revenues
Total subscriber revenues were $17.8 million for the three month period ended
September 30, 2000 as compared to $9.7 million for the three month period ended
September 30, 1999, representing an increase of $8.1 million. PCS subscriber
revenues were $12.0 million for the three month period ended September 30, 2000
as compared to $2.8 million for the three month period ended September 30, 1999,
representing an increase of $9.2 million and was primarily the result of an
increase in PCS subscribers to 91,100 at September 30, 2000 from 23,400 at
September 30, 1999. Cellular and paging subscriber revenues were $5.8 million
for the three month period ended September 30, 2000 as compared to $6.9 million
for the three month period ended September 30, 1999, representing a $1.1 million
decrease and was primarily the result of a decrease to 73,400 cellular and
paging subscribers at September 30, 2000 from 84,700 cellular and paging
subscribers at September 30, 1999.
Total subscriber revenues were $47.9 million for the nine month period ended
September 30, 2000 as compared to $29.1 million for the nine month period ended
September 30, 1999, representing an increase of $18.8 million. PCS subscriber
revenues were $29.9 million for the nine month period ended September 30, 2000
as compared to $6.5 million for the nine month period ended September 30, 1999,
representing an increase of $23.4 million and was primarily the result of an
increase in our overall PCS subscribers to 91,100 at September 30, 2000 from
23,400 at September 30, 1999. Cellular and paging subscriber revenues were $18.0
million for the nine month period ended September 30, 2000 as compared to $22.6
million for the nine month period ended September 30, 1999, representing a $4.6
million decrease and was primarily the result of a decrease to 73,400 cellular
and paging subscribers at September 30, 2000 from 84,700 cellular and paging
subscribers at September 30, 1999.
Roaming revenues
Roaming revenues were $7.9 million for the three month period ended September
30, 2000 as compared to $3.1 million for the three month period ended September
30, 1999, representing an increase of $4.8 million. PCS roaming revenues were
$5.8 million for the three month period ended September 30, 2000 as compared to
$1.3 million for the three month period ended September 30, 1999, representing
an increase of $4.5 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 eight PCS markets to our coverage area during the
three month period ended September 30, 2000 and operated 28 PCS markets at
September 30, 2000 as compared to eight PCS markets at September 30, 1999.
Cellular roaming revenues were $2.1 million for the three month period ended
September 30, 2000 as compared to $1.8 million for the three month period ended
September 30, 1999, representing an increase of $.3 million and was primarily
the result of higher usage in our service area.
Roaming revenues were $17.7 million for the nine month period ended September
30, 2000 as compared to $7.6 million for the nine month period ended September
30, 1999, representing an increase of $10.1 million. PCS roaming revenues were
$11.7 million for the nine month period ended September 30, 2000 as compared to
$2.4 million for the nine month period ended September 30, 1999, representing an
increase of
12
<PAGE>
$9.3 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 20 PCS markets to our coverage area since September 30, 1999
and operated 28 PCS markets at September 30, 2000 as compared to eight PCS
markets at September 30, 1999. Cellular roaming revenues were $6.0 million for
the nine month period ended September 30, 2000 as compared to $5.2 million for
the nine month period ended September 30, 1999, representing an increase of $.8
million and was primarily the result of higher usage in our service area.
Merchandise sales
Merchandise sales were $2.5 million for the three month period ended September
30, 2000 as compared to $1.2 million for the three month period ended September
30, 1999, representing an increase of $1.3 million. PCS merchandise sales were
$2.3 million for the three month period ended September 30, 2000 as compared to
$1.0 million for the three month period ended September 30, 1999, representing
an increase of $1.3 million and were due primarily to an increase in initial
sales to new PCS subscribers. We recorded initial sales to 23,900 new PCS
subscribers during the three month period ended September 30, 2000 as compared
to initial sales to 7,500 new PCS subscribers during the three month period
ended September 30, 1999. Cellular and paging merchandise sales were unchanged
at $.2 million for the three month period ended September 30, 2000 and the three
month period ended September 30, 1999.
Merchandise sales were $7.7 million for the nine month period ended September
30, 2000 as compared to $3.7 million for the nine month period ended September
30, 1999, representing an increase of $4.0 million. PCS merchandise sales were
$6.9 million for the nine month period ended September 30, 2000 as compared to
$2.7 million for the nine month period ended September 30, 1999, representing an
increase of $4.2 million and were due primarily to an increase in initial sales
to new PCS subscribers. We recorded initial sales to 63,200 new PCS subscribers
during the nine month period ended September 30, 2000 as compared to initial
sales to 22,200 new PCS subscribers during the nine month period ended September
30, 1999. Cellular and paging merchandise sales were $.8 million for the nine
month period ended September 30, 2000 as compared to $1.0 million for the nine
month period ended September 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 $1.2 million for the three month period ended September 30,
2000 as compared to $.6 million for the three month period ended September 30,
1999, representing an increase of $.6 million and $3.8 million for the nine
month period ended September 30, 2000 as compared to $1.8 million for the nine
month period ended September 30, 1999, representing an increase of $2.0 million
and were primarily attributable to increased fees charged to Gulf Coast Wireless
for limited billing and customer care services.
Operating Expenses
Cost of service
Cost of service was $13.1 million for the three month period ended September 30,
2000 as compared to $5.2 million for the three month period ended September 30,
1999, representing an increase of $7.9 million. PCS cost of service was $11.2
million for the three month period ended September 30, 2000 as compared to $2.7
million for the three month period ended September 30, 1999, representing an
increase of $8.5 million, which primarily related to increased circuit costs and
cell site leases for the increase in coverage area and for the market expansion
in Texas, Florida, Alabama, Arkansas, Tennessee and Mississippi as described
above. Cellular cost of service was $1.9 million for the three month period
ended September 30, 2000 as compared to $2.5 million for the three month period
ended September 30, 1999, representing a decrease of $.6 million and was
primarily related to a decrease in our cellular and paging subscriber base.
Cost of service was $30.5 million for the nine month period ended September 30,
2000 as compared to $13.4 million for the nine month period ended September 30,
1999, representing an increase of $17.1 million. PCS cost of service was $24.4
million for the nine month period ended September 30, 2000 as
13
<PAGE>
compared to $6.2 million for the nine month period ended September 30, 1999,
representing an increase of $17.9 million which primarily related to increased
circuit costs and cell site leases for the increase in coverage area and for the
market expansion in Texas, Florida, Alabama, Arkansas, Tennessee and Mississippi
as described above. Cellular cost of service was $6.4 million for the nine month
period ended September 30, 2000 as compared to $7.2 million for the nine month
period ended September 30, 1999, representing a decrease of $.8 million and was
primarily related to a decrease in our cellular and paging subscriber base.
Merchandise cost of sales
Merchandise cost of sales was $5.0 million for the three month period ended
September 30, 2000 as compared to $2.9 million for the three month period ended
September 30, 1999, representing an increase of $2.1 million. PCS merchandise
cost of sales was $4.4 million for the three month period ended September 30,
2000 as compared to $2.1 million for the three month period ended September 30,
1999, representing an increase of $2.3 million and was primarily due to an
increase in initial sales to new PCS subscribers. We recorded initial sales to
23,900 new PCS subscribers during the three month period ended September 30,
2000 as compared to initial sales to 7,500 new PCS subscribers during the three
month period ended September 30, 1999. Cellular and paging merchandise cost of
sales was $.6 million for the three month period ended September 30, 2000 as
compared to $.8 million for the three month period ended September 30, 1999,
representing a decrease of $.2 million, which was primarily related to the
decrease in the subscriber base.
Merchandise cost of sales was $15.6 million for the nine month period ended
September 30, 2000 as compared to $7.6 million for the nine month period ended
September 30, 1999, representing an increase of $8.0 million. PCS merchandise
cost of sales was $13.6 million for the nine month period ended September 30,
2000 as compared to $5.6 million for the nine month period ended September 30,
1999, representing an increase of $8.0 million and was primarily due to an
increase in initial sales to new PCS subscribers. We recorded initial sales to
63,200 new PCS subscribers during the nine month period ended September 30, 2000
compared to initial sales to 22,200 new PCS subscribers during the nine month
period ended September 30, 1999. Cellular and paging merchandise cost of sales
were unchanged at $2.0 million for the nine month period ended September 30,
2000 and the nine month period ended September 30, 1999.
General and administrative expenses
General and administrative expenses were $8.4 million for the three month period
ended September 30, 2000 as compared to $4.8 million for the three month period
ended September 30, 1999, representing an increase of $3.6 million and was
partially due to the recognition of $1.1 million in stock compensation expense
related to the issuance of stock options. The remaining $2.5 million was
primarily related to the hiring of additional employees and increased billing
costs as the number of PCS subscribers increased to 91,100 at September 30, 2000
from 23,400 at September 30, 1999 and overall market expansion increased to 28
PCS markets at September 30, 2000 from eight markets at September 30, 1999.
Additionally, we serviced 73,400 cellular and paging subscribers at September
30, 2000 as compared to 84,700 at September 30, 1999.
General and administrative expenses were $26.7 million for the nine month period
ended September 30, 2000 as compared to $12.9 million for the nine month period
ended September 30, 1999, representing an increase of $13.8 million and was
partially due to the recognition of $4.0 million in stock compensation expense
related to the issuance of stock options. The remaining $9.8 million is
primarily related to the hiring of additional employees and increased billing
costs as the number of PCS subscribers increased to 91,100 at September 30, 2000
from 23,400 at September 30, 1999 and overall market expansion has increased to
28 PCS markets at September 30, 2000 from eight PCS markets at September 30,
1999. Additionally, we serviced 73,400 cellular and paging subscribers at
September 30, 2000 as compared to 84,700 at September 30, 1999.
Selling and marketing expenses
14
<PAGE>
Selling and marketing expenses were $8.9 million for the three month period
ended September 30, 2000 as compared to $3.0 million for the three month period
ended September 30, 1999, representing an increase of $5.9 million. PCS selling
and marketing expenses were $7.7 million for the three month period ended
September 30, 2000 as compared to $1.9 million for the three month period ended
September 30, 1999, representing an increase of $5.8 million and primarily
relates to advertising, direct selling headcount and commissions paid to local
and national third party retailers contracted to sell our product. PCS
subscribers increased to 91,100 at September 30, 2000 from 23,400 at September
30, 1999; network coverage increased to 28 PCS markets at September 30, 2000
from eight PCS markets at September 30, 1999; and nine additional PCS retail
outlets were open at September 30, 2000 compared to September 30, 1999. Cellular
and paging selling and marketing expenses were $1.2 million for the three month
period ended September 30, 2000 as compared to $1.1 million for the three month
period ended September 30, 1999, representing an increase of $.1 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 $21.1 million for the nine month period
ended September 30, 2000 as compared to $7.8 million for the nine month period
ended September 30, 1999, representing an increase of $13.3 million. PCS selling
and marketing expenses were $17.5 million for the nine month period ended
September 30, 2000 as compared to $4.5 million for the nine month period ended
September 30, 1999, representing an increase of $13.0 million and primarily
relates to advertising, direct selling headcount and commissions paid to local
and national third party retailers contracted to sell our product. PCS
subscribers increased to 91,100 at September 30, 2000 from 23,400 at September
30, 1999; network coverage increased to 28 PCS markets at September 30, 2000
from eight PCS markets at September 30, 1999; and nine additional PCS retail
outlets were open at September 30, 2000 compared to September 30, 1999. Cellular
and paging selling and marketing expenses were $3.6 million for the nine month
period ended September 30, 2000 as compared to $3.3 million for the nine month
period ended September 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 $11.3 million for the three month
period ended September 30, 2000 as compared to $5.5 million for the three month
period ended September 30, 1999, representing an increase of $5.8 million, and
$28.2 million for the nine month period ended September 30, 2000 as compared to
$13.5 million for the nine month period ended September 30, 1999, representing
an increase of $14.7 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 $182.6 million at September 30, 2000 from $85.3
million at September 30, 1999. Depreciation and amortization expense for our
cellular and paging operations was unchanged at $1.1 million for the three month
period ended September 30, 2000 and the three month period ended September 30,
1999 and was $3.5 million for the nine month period ended September 30, 2000 and
the nine month period ended September 30, 1999.
Operating Loss
The operating loss was $17.5 million for the three month period ended September
30, 2000 as compared to $6.8 million for the three month period ended September
30, 1999, representing an increase of $10.7 million. The operating loss for our
PCS operations was $13.5 million for the three month period ended September 30,
2000 as compared to $6.0 million for the three month period ended September 30,
1999, representing an increase of $7.5 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 $2.2 million for the three
month period ended September 30, 2000 as compared to $2.7 for the three month
period ended September 30, 1999, representing a decrease of $.5 million and was
primarily related to the decrease in subscribers. The balance of the remaining
change of $2.6 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.
15
<PAGE>
The operating loss was $44.9 million for the nine month period ended September
30, 2000 as compared to $13.1 million for the nine month period ended September
30, 1999, representing an increase of $31.8 million. The operating loss for our
PCS operations was $31.6 million for the nine month period ended September 30,
2000 as compared to $14.4 million for the nine month period ended September 30,
1999, representing an increase of $17.3 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 $7.0 million for the nine month
period ended September 30, 2000 as compared to $11.3 for the nine month period
ended September 30, 1999, representing a decrease of $4.1 million and is related
to the decrease in subscribers. The balance of the remaining change of $9.6
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 $4.0 million of stock
compensation expense related to stock options.
Other Income/(Expense)
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
( In thousands) ( In thousands)
<S> <C>
Interest expense $(8,169) $(2,518) $(24,004) $(5,337)
Interest income 2,534 386 6,856 1,357
Other 172 --- 4,992 ---
------- ------- -------- -------
Total other income/(expense) $(5,463) $(2,132) $(12,156) $(3,980)
======= ======= ======== =======
</TABLE>
Interest expense was $8.2 million for the three month period ended September 30,
2000 as compared to $2.5 million for the three month period ended September 30,
1999, representing an increase of $5.7 million. The increase in interest expense
resulted from the increase in outstanding debt. Our outstanding debt was $247.8
million at September 30, 2000 as compared to $105.2 million at September 30,
1999. The increase in debt primarily resulted from our senior subordinated
discount note offering in October 1999.
Interest expense was $24.0 million for the nine month period ended September 30,
2000 as compared to $5.3 million for the nine month period ended September 30,
1999, representing an increase of $18.7 million. The increase in interest
expense resulted from the increase in outstanding debt. Our outstanding debt was
$247.8 million at September 30, 2000 as compared to $105.2 million at September
30, 1999. The increase in debt primarily resulted from our senior subordinated
discount note offering in October 1999.
Interest income was $2.5 million for the three month period ended September 30,
2000 as compared to $.4 million for the three month period ended September 30,
1999, representing an increase of $2.1 million, and $6.9 million for the nine
month period ended September 30, 2000 as compared to $1.3 million for the nine
month period ended September 30, 1999, representing an increase of $5.6 million.
The increase resulted from investing available funds in marketable securities
until the funds are required for our market build out.
Gain on sale of certain markets was $5.0 million for the nine month period ended
September 30, 2000 as compared to $0 for the nine month period ended September
30, 1999, representing an increase of $5.0 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 Gulf Coast Wireless
and a gain of approximately $2.8 million due to the reduction of the Company's
guarantee of Gulf Coast Wireless debt.
Minority Interest in Subsidiaries
Minority interest in losses of affiliates was $.5 million for the three month
period ended September 30, 2000 as compared to $1.4 million for the three month
period ended September 30, 1999, representing a decrease of $.9 million, and
$1.3 million for the nine month period ended September 30, 2000 as compared to
$7.7 million for the nine month period ended September 30, 1999, representing an
decrease of $6.4 million. This decrease related to the consolidation of LA
Unwired and represents the portion of the losses from LA Unwired allocable to
minority shareholders.
16
<PAGE>
Equity in Income (Losses) of Affiliates
Equity in losses of affiliates was $.3 million for the three month period ended
September 30, 2000 as compared to an equity loss affiliates of $1.6 million for
the three month period ended September 30, 1999, representing a decrease of $1.3
million, and equity loss in affiliates was $.8 million for the nine month period
ended September 30, 2000 as compared to equity income in affiliates of $.8
million for the nine month period ended September 30, 1999, representing a
decrease of $1.6 million. This change was primarily the result of our reduction
in ownership of Gulf Coast Wireless to 13.28% for the nine month period ended
September 30, 2000 from 24.33% for the nine month period ended September 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 $.6
million for the three months ended September 30, 1999 and $2.3 million for the
nine months ended September 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 September 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
underwriting discount. 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 discount. The underwriters exercised a
portion of their over allotment option, and on September 12, 2000, purchased
236,700 shares. The Company received net proceeds of $80.6 million after
underwriting discount 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 $5.7 million for the nine month period
ended September 30, 2000. Cash used in investing activities was $77.1 million
for the nine month period ended September 30, 2000, including $10.1 million in
net proceeds from the sale of LEC Unwired, offset by $102.4 million to purchase
property and equipment and $2.6 million in microwave relocation costs. Cash
provided by financing activities was $75.6 million for the nine month period
ended September 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 net proceeds from long-term debt offset by $14.2 million used in
the payment of long-term debt.
17
<PAGE>
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.
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.
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 discount. 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 discount. The underwriters exercised a
portion of their over allotment option, and on September 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 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 $210,000, accounting fees and expenses
of $279,000 and other miscellaneous expenses of approximately $45,000. As of
September 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.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Financial data schedule
b. Reports on Form 8-K
18
<PAGE>
No reports on Form 8-K were filed during the quarter ended September
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.
November 9, 2000 US UNWIRED INC.
By: /s/ Jerry E. Vaughn
-------------------------------
Jerry E. Vaughn
Chief Financial Officer
19
