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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 2000.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number: 022003
US UNWIRED INC.
(Exact name of registrant as specified in its charter)
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72-1457316
Louisiana (I.R.S. Employer
(State or other Identification Number)
jurisdiction of
incorporation or 70629
Organization) (Zip code)
One Lakeshore Drive, Suite 1900
Lake Charles, Louisiana 70629
(Address of principal executive offices)
(337) 436-9000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
Title of Each Class
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 and 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant (based upon the closing sale price on the NASDAQ Stock Market on
March 15, 2001 is approximately $130,406,579. (For purposes of determination of
the foregoing amount, only our directors and executive officers and holders of
our Class B Common Stock have been deemed affiliates). As of March 15, 2001,
there were 18,494,008 shares of Class A common stock, $0.01 par value per
share, and 65,477,646 shares of Class B common stock, $0.01 par value per
share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the US Unwired Inc. Proxy Statement of Registrant for its 2001
annual meeting of shareholders.
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US UNWIRED INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
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PART I
ITEM 1. Business...................................................... 1
ITEM 2. Properties.................................................... 18
ITEM 3. Legal proceedings............................................. 19
ITEM 4. Submission of Matters to a Vote of Security Holders........... 19
ITEM 4A. Executive Officers of the Registrant.......................... 19
PART II
ITEM 5. Market For Registrant's Common Equity And Related Stockholder
Matters....................................................... 21
ITEM 6. Selected Financial Data....................................... 22
ITEM 7. Management's Discussion And Analysis Of Financial Condition
And Results of Operations..................................... 22
ITEM 7A. Quantitative And Qualitative Disclosures About Market Risk.... 30
ITEM 8. Financial Statements.......................................... 31
ITEM 9. Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure...................................... 31
PART III
ITEM 10. Directors And Executive Officers Of The Registrant............ 31
ITEM 11. Executive Compensation........................................ 31
ITEM 12. Security Ownership Of Certain Beneficial Owners And
Management.................................................... 32
ITEM 13. Certain Relationships And Related Transactions................ 32
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules, And Reports On Form
8-K........................................................... 32
This annual report on Form 10-K includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which can be identified by the use of forward-
looking terminology such as, "may," "might," "could," "would," "believe,"
"expect," "intend," "plan," "seek," "anticipate," "estimate," "project," or
"continue" or the negative thereof or other variations thereon or comparable
technology. All statements other than historical fact included in this annual
report on Form 10-K, including without limitation, the statements under "Item
1. Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation" and located elsewhere herein regarding our
financial position and liquidity are forward-looking statements.
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.
All written and oral forward-looking statements are expressly qualified in
their entirety by the cautionary statements.
PART I
ITEM 1. Business
General
We currently provide wireless personal communications services, commonly
referred to as PCS, primarily in Louisiana, Texas, Florida, Arkansas,
Mississippi and Alabama. We are a network partner of Sprint PCS, the personal
communications services group of Sprint Corporation. Sprint PCS, directly and
through affiliates like us, provides wireless services in more than 4,000
cities and communities across the country. We have the exclusive right to
provide digital PCS services under the Sprint(R) and Sprint PCS(R) brand names
in a service area comprising approximately 9.8 million residents in eastern
Texas, southern Oklahoma, southern Arkansas, significant portions of Louisiana,
Alabama and Mississippi, the Florida panhandle and southern Tennessee. Our
service area is among the largest in population and subscribers of the Sprint
PCS network partners.
We currently provide Sprint PCS service in 36 Business Trading Areas
("BTAs" or "markets") within the states listed above. A market is a
geographical area in which we operate and, in total, our service area consists
of 41 markets. We have listed all of our PCS markets in a table below. Our
network currently covers approximately 6.0 million residents of approximately
9.3 million total residents in the 36 markets in which we operate. We expect to
cover a total of 6.5 million residents by mid-2001, at which point we expect to
have covered approximately 66% of the 9.8 million resident population in our
service area. The people in our service area do not represent the
1
number of Sprint PCS subscribers that we expect to have in our service area.
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 mid-2001.
At December 31, 2000, we were providing PCS service to approximately
126,000 subscribers in our service area.
In addition, we provide cellular and paging services in parts of southwest
Louisiana and as of December 31, 2000, we had approximately 49,500 cellular
subscribers and 19,500 paging subscribers.
Our Background
US Unwired operates three subsidiaries: Louisiana Unwired LLC ("LA
Unwired"), Texas Unwired, a Louisiana general partnership ("Texas Unwired"),
and Unwired Telecom Corporation ("Unwired Telecom"). LA Unwired and Texas
Unwired provide PCS telecommunication services and Unwired Telecom provides
cellular and paging telecommunications service. At December 31, 2000, LA
Unwired was 93.86% owned by US Unwired; Texas Unwired was 80% owned by LA
Unwired; and Unwired Telecom was 100% owned by US Unwired.
On February 28, 2001, we purchased from Cameron Communications Corporation
its 6.14% minority interest in LA Unwired in exchange for 4,634,842 shares of
our Class A common stock. The market value of the Class A common stock
associated with this transaction on February 28, 2001 was approximately $36.5
million. Upon conclusion of the transaction, we owned 100% of LA Unwired. In
February 2001, we also purchased the minority interests in Texas Unwired for
310,664 shares of our Class A common stock. The market value of the Class A
common stock associated with this transaction was $2.4 million. Upon conclusion
of the transaction, we owned 100% of Texas Unwired.
Our Affiliation with Sprint PCS
Under our agreements with Sprint PCS, we market Sprint PCS products and
services in our service area using licenses that Sprint PCS acquired from the
FCC in 1994 and 1996. We will be the only provider of Sprint PCS products and
services in our service area. Some key points about these agreements are:
. each agreement lasts 50 years with an initial period of 20 years and
three successive 10-year renewal periods.
. each agreement requires revenue sharing of 8% to Sprint PCS and 92% to
US Unwired, except that US Unwired retains 100% of revenues from non-US
Unwired Sprint PCS customers traveling in our service area,
extraordinary income and equipment sales.
. if we terminate or breach the agreements, we may be required to sell our
PCS business and network to Sprint PCS or to purchase the Sprint PCS
licenses from Sprint PCS.
. if Sprint PCS terminates or breaches the agreements, we may be able to
sell our PCS business and network to Sprint PCS or to purchase the
Sprint PCS licenses from Sprint PCS.
2
In October 2000, we amended our agreements to provide that Sprint PCS will
begin providing substantially all of our PCS billing and customer care
services. We anticipate that Sprint PCS will begin these services in August
2001. Until such time, we will continue to staff customer care internally and
provide billing services through an affiliate company.
We believe that our service area is important to Sprint PCS's plan to
expand its PCS network. To date, Sprint PCS has made considerable investments
in the licenses covering our service area.
Our Service Area
Our Sprint PCS service area covers 41 markets spanning over 164,500 square
miles with a population of approximately 9.8 million. Our service area is one
of the largest in the United States by measure of population for all of the
territories assigned to Sprint PCS network partners. Even though our service
area comprises approximately 9.8 million residents, the number of residents in
our service area does not represent the number of PCS subscribers that we
expect to have in our service area. At December 31, 2000, we were providing PCS
services to approximately 126,000 subscribers in our service area.
Our service area is contiguous with Sprint PCS's launched markets of
Houston, Dallas, Little Rock, New Orleans, Birmingham, Tallahassee and Memphis.
Our network build out links these existing Sprint PCS markets. We will be the
only provider of Sprint PCS products and services in the markets connecting
these major cities.
The following table provides some key information about our PCS markets
(population in thousands) including launch dates if not operational. Our
network currently covers approximately 6.0 million residents of approximately
9.3 million total residents in the 36 markets in which we operate. We expect to
cover a total of 6.5 million residents by mid-2001, at which point we expect to
have covered approximately 66% of the 9.8 million resident population in our
service area.
Basic Expected
Trading Market On Line
Market (1) Area # Population Date
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Anniston, AL........................................ 17 167.3 Online
Chilton Area Counties, AL (2) (3)................... 44 246.4 Online
Decatur, AL......................................... 108 145.6 2001
Florence, AL........................................ 146 185.8 Online
Gadsden, AL......................................... 158 188.3 Online
Huntsville, AL...................................... 198 512.9 Online
Mobile, AL.......................................... 302 668.1 Online
Montgomery, AL...................................... 305 477.6 Online
Selma, AL........................................... 415 72.1 Online
Tuscaloosa, AL...................................... 450 254.5 Online
El Dorado, AR....................................... 125 102.2 2001
Hot Springs, AR..................................... 193 135.7 Online
Nevada Area Counties, AR (2) (4).................... 257 57.3 Online
Pine Bluff, AR...................................... 348 147.4 2001
Fort Walton Beach, FL............................... 154 225.6 Online
Jackson Area County, FL (2)......................... 439 50.9 Online
Panama City, FL..................................... 340 210.6 Online
3
Basic Expected
Trading Market On Line
Market (1) Area # Population Date
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Anniston, AL........................................ 17 167.3 Online
Pensacola, FL....................................... 343 429.1 Online
Alexandria, LA...................................... 9 273.7 Online
Houma, LA........................................... 195 277.1 Online
Lake Charles, LA.................................... 238 282.6 Online
Monroe, LA.......................................... 304 330.4 Online
Shreveport, LA...................................... 419 586.8 Online
Columbus, MS........................................ 94 171.5 Online
Greenville, MS...................................... 175 205.8 Online
Grenada Counties, MS (2) (5)........................ 290 62.4 Online
Hattiesburg, MS..................................... 186 186.6 Online
Jackson, MS......................................... 210 667.5 Online
Laurel, MS.......................................... 246 82.3 Online
McComb, MS.......................................... 269 111.7 Online
Meridian, MS........................................ 292 206.7 Online
Natchez, MS......................................... 315 72.1 2001
Tupelo, MS.......................................... 449 318.5 Online
Vicksburg, MS....................................... 455 62.4 Online
Marshall Area Counties, TN (2) (6).................. 314 56.9 Online
Longview, TX........................................ 260 320.8 Online
Paris, TX........................................... 341 93.0 2001
Texarkana, TX....................................... 443 262.0 Online
Tyler, TX........................................... 452 310.0 Online
Beaumont, TX........................................ 34 464.4 Online
Lufkin, TX.......................................... 265 165.2 Online
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Sub-total......................................... 9,847.8
Minority Interest Baton Rouge, LA................... 32 91.1 Online
Hammond, LA......................................... 180 14.3 Online
Lafayette, LA....................................... 236 72.1 Online
Biloxi, MS.......................................... 42 51.7 Online
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Sub-total......................................... 229.2
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Total........................................... 10,077.0
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(1) Source: Paul Kagan Associates, Inc., 2000 PCS Atlas and Databook ("Kagan
Atlas").
Market population has been calculated as the market population from the
Kagan Atlas times our ownership interest in the market. LA Unwired and
Texas Unwired are calculated at 100% ownership as a result of our February
28, 2001 purchase of the minority interests. Our minority interest in Gulf
Coast Wireless is 13.28%.
(2) County based information.(1999)
(3) Includes Nevada, Clark, Dallas, and Grant Counties.
(4) Includes Chilton, Cullman, Talladega, Coosa and Tallapoosa Counties.
(5) Includes Grenada, Yalobusha, Tallahatchie and Montgomery Counties.
(6) Includes Marshall and Giles Counties.
4
PCS Services and Features
We offer Sprint PCS products and services in our service area. Our
products and services are designed to mirror those of Sprint PCS and to be a
part of the Sprint PCS nationwide network. Sprint PCS customers in our service
area may use Sprint PCS services throughout our contiguous markets and
seamlessly throughout the Sprint network.
We support the Sprint PCS Wireless Web throughout our service area.
We offer Code Division Multiple Access ("CDMA") handsets that weigh five
to seven ounces and can offer up to five days of standby time and up to five
hours of talk time. We also offer dual-mode handsets that allow customers to
make and receive calls on both PCS and cellular frequency bands. All handsets
are equipped with preprogrammed features and are sold under the Sprint PCS
brand name.
We provide roaming services to both Sprint PCS subscribers that are
traveling through our service area as well as non-Sprint subscribers traveling
through our service area. Sprint PCS and other affiliates provide a similar
service to our subscribers traveling outside of our market area.
PCS Marketing Strategy
Our marketing and sales strategy uses the advertising and marketing
programs that have been developed by Sprint PCS. We enhance this with
strategies that we have tailored specifically for our markets.
We benefit from the recognizable Sprint PCS brand names and logos and from
Sprint PCS's technological developments.
Advertising. We use the Sprint PCS name and reputation to attract
customers more efficiently than competitors with low brand awareness. Sprint
PCS has launched a national advertising campaign to promote its products, and
we benefit from this national advertising in our service area at no additional
cost to us. Sprint PCS also runs numerous promotional campaigns which provide
customers with benefits such as additional features at the same rate or free
ancillary services.
Pricing. We use the Sprint PCS pricing strategy. This offers customers in
our service plans with preferred options and features that typically offer
service features such as voicemail, enhanced caller identification, call
waiting, three-way calling and low per-minute rates.
We offer long-term traveling arrangements with set pricing. We are the
only provider of PCS service for non-US Unwired Sprint PCS customers traveling
in our service area.
Regional focus and customer care. Our regional focus enables us to
supplement Sprint PCS's marketing strategies with our own strategies tailored
to each of our specific markets. This includes attracting local businesses to
enhance our distribution and drawing on our management team's local experience.
Our large local sales force executes our marketing strategy through our retail
stores and kiosks. Our outside sales force targets business sales.
Additionally, we staff our retail outlets with full-time customer care
representatives to communicate directly with the customers concerning billing
and service issues.
5
We direct our media and promotional efforts at the community level by
advertising Sprint PCS's products and services through television, radio, print
advertisements, outdoor advertising, billing inserts and promotional displays
in our retail stores. We market our products and services under the name US
Unwired along with the Sprint(R) and Sprint PCS(R) logos. Also, we sponsor
local and regional events. In addition, Sprint PCS's existing agreements with
national retailers provide us with access to over 550 national retail locations
in our service area.
Sales and Distribution
We target a broad range of consumer and business markets through a sales
and distribution plan. We use traditional sales channels, like our retail
stores, mass merchandisers and other national retail outlets, independent
agents and an outside sales force. We also use lower-cost methods like direct
marketing and a corporate website.
Retail stores. We have 26 retail stores and eight kiosks and plan to open
seven additional retail stores by mid-2001. Our retail stores are located in
the principal retail districts in each market. Kiosks, which are located
primarily in high traffic retail outlets, maximize our retail presence in some
of our markets and take advantage of high traffic areas. We use our stores and
kiosks for much of the distribution and sale of our handsets and services.
Sales representatives in these stores and kiosks receive in-depth training that
allows them to explain PCS service in an informed manner. We believe that these
representatives will foster effective and enduring customer relationships.
Independent agents. We have a contracted network of 483 independent agents
that creates additional opportunities for local distribution. Most of these
businesses are family-owned consumer electronics dealers and wireless
telecommunication retailers.
Mass merchandisers and outlets. We target customers through our mass-
market retail outlets. We have negotiated distribution agreements based on
Sprint PCS's arrangements with national and regional mass merchandisers and
consumer electronic retailers, including Radio Shack, Office Depot, Circuit
City, Dillard's, Sam's Wholesale Club, Office Max and Best Buy. Approximately
280 of the total 550 national retail outlet locations in our market area are
currently selling our service.
Other Sprint PCS initiatives. We participate in Sprint PCS's national
accounts program, which targets Fortune 1000 companies, take advantage of
Sprint PCS's inbound telemarketing sales program and Sprint PCS's internet site
that allows customers in our service area who purchase products and services
over the Sprint PCS internet site become customers of our PCS network.
Cellular and Paging Services
We provide cellular and paging service in southwest Louisiana. At December
31, 2000, we had approximately 49,500 cellular subscribers and approximately
19,500 paging subscribers. Our Louisiana cellular and paging business had $32.8
million in revenues for the year ended December 31, 2000.
6
Competition
We compete in our service area with the current cellular providers and new
PCS providers. The cellular providers in our service area serve different
geographic segments of our service area, but no one cellular carrier provides
complete coverage throughout our service area. Some of these cellular providers
offer a digital product also, but it typically covers only a small segment of
our service area.
Of our PCS competitors, only Verizon, SunCom, Cingular and Alltel provide
service comparable to ours in our service area. Verizon is licensed to offer
PCS services in all of our Louisiana and Texas markets but has not indicated
any intention to build out a network in these markets. SunCom, an AT&T wireless
network provider, operates in parts of the south-central and southeastern
United States and competes with us in our Louisiana, Alabama, Arkansas and
Mississippi markets. Alltel is a current PCS provider in several of our
markets.
Our ability to compete effectively with other PCS providers will depend
on:
. the continued success of CDMA technology in providing better call
quality and clarity than analog cellular systems.
. our competitive pricing with various options suiting individual
subscribers calling needs.
. the continued expansion and improvement of the Sprint PCS network,
customer care system and telephone handset options.
We compete also with paging, enhanced specialized mobile radio and
dispatch companies in our markets. Potential users of PCS systems may satisfy
their communications needs with other current and developing technologies. One
or two-way paging or beeper services that feature voice messaging and data
display as well as tone-only service may be adequate for potential subscribers
who do not need to speak to the caller.
Sprint PCS has chosen CDMA technology, which we believe offers significant
advantages in the marketplace. CDMA is one of three languages that wireless
telephones use to communicate with the phone network. The other two predominant
standards are TDMA and GSM.
CDMA offers superior call quality and clarity. CDMA also offers the
highest capacity of the three standards. This means that more simultaneous
calls can be handled on a CDMA network than on equivalent TDMA or GSM networks.
CDMA also offers a high level of security, giving customers confidence that
their calls remain private. CDMA offers many advanced features such as short
text messaging, Internet access, call waiting, call forwarding and three way
calling. Several providers in the United States, including Sprint PCS, Bell
Atlantic and PCS PrimeCo, have adopted CDMA.
TDMA is generally less expensive to deploy if a carrier seeks to overlay
an analog network, like a cellular carrier would be required to do. TDMA also
offers increased call security and advanced features like those available on a
CDMA network. Several providers in the United States, including SunCom use
TDMA.
7
GSM is the most widely adopted standard around the world. It originated
in Europe, where it continues to be the dominant standard. It has been widely
deployed for over ten years, which means that economies of scale for network
and handset equipment have been achieved. This has lowered the cost of
purchasing the equipment for a GSM system. GSM also offers increased call
security and advanced features like those available on a CDMA network. Several
providers in the United States, including Cingular, VoiceStream Wireless, and
Powertel, have adopted GSM.
We do not currently face competition from resellers on our facilities. A
reseller buys blocks of wireless telephone numbers and capacity from a
licensed carrier and resells service through its own distribution network to
the public but does not hold FCC licenses or own facilities. Thus, a reseller
is both a customer of a wireless licensee's services and also a competitor of
that and other licensees. We expect to continue to be subject to the FCC rule
that requires cellular and PCS licensees to permit resale of carrier service.
Over the past several years the FCC has auctioned and will continue to
auction large amounts of wireless spectrum that could be used to compete with
PCS services. Based upon increased competition, we anticipate that market
prices for two-way wireless services generally will decline in the future. We
will compete to attract and retain subscribers principally on the basis of
services and features, the size and location of our service areas, network
coverage and reliability, customer care and pricing. Our ability to compete
successfully will also depend, in part, on our ability to anticipate and
respond to various competitive factors affecting the industry, including new
services that may be introduced, changes in consumer preferences, demographic
trends, economic conditions and discount pricing strategies by competitors.
Network Build Out
We have focused our network construction first on the concentrated
population and business centers of the major metropolitan areas in our service
area and the adjoining interstate highways. We continue to build out the
smaller markets surrounding the existing built out areas, interstate and state
highways. We only launch PCS service after we complete a significant portion
of the planned build out for a given area. Before we launch service, we
perform extensive field-testing to ensure comprehensive and reliable coverage
within a particular market. We provide overall project and construction
management of the design, site acquisition, installation and testing of our
PCS system.
We obtain cell sites in three ways: (1) co-location, (2) construction of
a tower by an independent build-to-suit company, or (3) construction of a
tower by us. We prefer to co-locate with another wireless company by leasing
space on an existing tower or building. When we co-locate, we generally have
lower construction costs, and it is likely that any zoning difficulties have
been resolved. As of December 31, 2000, we had 722 PCS cell sites, of which
approximately 80% were co-locations and 20% owned. We believe that we need
approximately 833 PCS cell sites to achieve approximately 66% coverage of the
population in our service area. In addition, we had 46 cellular, microwave and
paging sites operating at December 31, 2000.
Microwave relocation. Fixed microwave operators previously used the
frequencies that are now allocated for PCS licenses. The FCC has established
procedures for PCS licensees to relocate these existing microwave paths,
generally at the PCS licensee's expense. With Sprint PCS's assistance, we have
relocated all microwave paths for the PCS licenses that we own.
8
Switching centers. We lease five switching centers for our service area.
These centers are located in our four markets of Shreveport and Lake Charles,
Louisiana, Jackson, Mississippi and Montgomery, Alabama. Each switching center
serves several purposes, including routing calls, managing call handoff and
managing access to landlines and providing access to voice mail.
Interconnection. We connect our digital PCS network to the landline
telephone system through interconnection agreements with local exchange
carriers. Before entering the Sprint PCS agreements, we entered into
interconnection agreements with BellSouth. Through our agreements with Sprint
PCS, we benefit from the interconnection agreements that Sprint PCS
negotiates.
Long distance and back haul. We have a long distance agreement with our
affiliate, Cameron Communications Corporation, for long distance services. We
can also buy long distance services from Sprint PCS.
Network monitoring systems. Our network operations center in Lake
Charles, Louisiana provides monitoring and maintenance of our entire network,
including:
. the constant monitoring for blocked or dropped calls, call clarity and
signs of tampering, cloning or fraud.
. the recording of network traffic.
. the overseeing of customer usage, data collected at switch facilities
and billing.
. as noted above, we amended our management agreements whereby Sprint PCS
will begin providing substantially all of our PCS billing and have
targeted the transition date as August 2001. We plan to continue to
perform network capacity monitoring and planning beyond that date.
Government Regulation
The FCC and other state and local regulatory agencies regulate our PCS
and cellular systems.
Licensing of PCS systems. A broadband PCS system operates under a service
area license granted by the FCC for a particular market. These licenses
operate on one of six frequency blocks allocated for broadband PCS service.
Narrowband PCS is for non-voice applications such as paging and data service
and is separately licensed. The FCC awards all PCS licenses by auction.
All PCS licenses have a 10-year term and must be renewed at the end of
this term. The FCC generally will renew a PCS license if the licensee provided
substantial service during the past license term and substantially complied
with applicable law. The FCC may revoke a license for serious violations of
FCC rules. All PCS licensees must satisfy coverage requirements. Licensees
that fail to meet the coverage requirements may lose the service area that is
not covered, or the license.
For up to five years after a PCS license is granted, the licensee must
share spectrum with existing licensees that operate fixed microwave systems
within its license area. To operate our PCS systems efficiently and with
adequate population coverage, we must relocate many of these existing
licensees. The FCC has adopted a transition plan to relocate microwave
operators and a cost-sharing plan for relocation that benefits more than one
PCS licensee. These plans expire on April 4, 2005.
9
The FCC regulates PCS resale practices also.
Licensing of cellular telephone systems. The FCC awards licenses for
cellular telephone systems by auction. Cellular licenses generally last for 10
years and may be renewed for periods of up to 10 years. The FCC may revoke a
license for serious violations of FCC rules. The FCC may deny renewal if it
determines that the grant of an application would not serve the public
interest. In addition, at the renewal time, other parties may file competing
applications for the license. A license in good standing is entitled to renewal
expectancy. This gives the current license holder an advantage over competing
applicants.
The FCC regulates cellular service resale practices and the terms under
which ancillary services may be provided through cellular facilities.
We use landline facilities to connect cell sites and to link them to the
main switching office. The FCC separately licenses and regulates these
landlines.
Other regulatory requirements. The FCC imposes additional regulatory
requirements on all commercial mobile radio service, or CMRS, operators, which
include PCS and cellular systems as well as some specialized mobile radio
systems. These requirements may change. Some of the current requirements
include:
. Resale. Most CMRS operators, including us, generally may not restrict
the resale of their services so that resellers may use the facilities of
the CMRS operator to introduce a competitive service.
. Roaming. CMRS carriers must provide service to all subscribers of a
compatible CMRS service in another geographic region.
. Number portability. CMRS carriers will soon be required to allow their
customers to take their phone numbers with them if they change to a
competitive service and must now be able to deliver calls to carried
numbers.
. Enhanced 911. CMRS carriers must transmit 911 calls from any qualified
handset without credit check or validation, must provide 911 service to
individuals with speech or hearing disabilities, and must provide the
approximate location of the 911 caller.
. Wiretaps. CMRS carriers must provide law enforcement personnel with
sufficient capacity to enable wiretaps on the CMRS network.
. Calling party pays. The FCC is considering rules to permit CMRS
operators to charge the party making the call. The new rules, if
adopted, would place consumer protection and uniform notification
requirements on the service.
. Customer information. The FCC has rules that protect the customer
against the use of customer proprietary information for marketing
purposes. A federal court struck down these rules, but the FCC has
stayed the effect of this decision by petitioning for rehearing.
. Interconnection. All telecommunications carriers, including CMRS
carriers, must interconnect directly or indirectly with other
telecommunications carriers.
. Universal service and other fees. The FCC imposes large universal
service support fees on telecommunications carriers, including CMRS
carriers. The FCC imposes smaller fees for telecommunications relay
service, number portability and the cost of FCC regulation.
10
. Spectrum cap. There are limitations on a person's ownership in licenses
for more than 45 MHz of PCS, cellular and some specialized mobile radio
services in metropolitan statistical areas and 55 MHz in rural service
areas where there is significant overlap in any geographic area.
Significant overlap means that at least ten percent of the population of
the PCS licensed service area is within the cellular and/or SMR service
area(s). We believe that we are in compliance with these limits.
Transfers and assignments of PCS and cellular licenses. The FCC must
approve the assignment or transfer of control of a license for a PCS or
cellular system. In addition, the FCC requires licensees who transfer control
of a PCS license within the first three years of their license term to disclose
the total consideration received for the transfer. FCC approval is not required
for the sale of an interest that does not transfer control of a license. Any
acquisition or sale of PCS or cellular interests may also require the prior
approval of the Federal Trade Commission, the Department of Justice and state
or local regulatory authorities.
Foreign ownership. The Communications Act of 1934 limits the non-U.S.
ownership of licensees. If foreign ownership exceeds the permitted level, the
FCC may revoke the PCS licenses or require an ownership restructuring. We
believe that we comply with these limitations.
Additional spectrum. In 2000, the FCC auctioned spectrum that could be
used to compete with our PCS system. We have no way of knowing whether the
persons who acquired the licenses for the new spectrum in our service area will
offer a competitive service.
Intellectual Property
The Sprint(R) and Sprint PCS(R) brand names and logos are registered
service marks owned by Sprint. We have license agreements with Sprint that
allow us to use, without payment and only in our service area, the Sprint
design logo and "diamond" symbol and other Sprint service marks, like the
phrases "The Clear Alternative to Cellular" and "Clear Across the Nation." We
can use some of Sprint's licensed marks on some wireless telephone handsets.
The license agreements have many restrictions on our use of their licensed
marks. We are the only person entitled to market Sprint PCS products and
services in our service area, except for the Sprint PCS national marketing
programs.
Employees
As of December 31, 2000, we had approximately 850 employees. A union does
not represent our employees. We believe that we have good relations with our
employees.
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 increases our losses on merchandise
sales. Our sales and marketing expenses increase also with holiday promotional
activities. We generally have the most use and revenue per subscriber in the
summer because of an increase in revenues from fees charged to non-US Unwired,
non-Sprint PCS customers who use our network while traveling in our service
area. We believe that the increased traffic in our service area comes from
people traveling during summer vacation. We expect these trends to continue
based on historical operating results.
11
Risk Factors Related to US Unwired
Our substantial indebtedness could prevent us from fulfilling our
obligations to our creditors that could, in turn, adversely affect our
stockholders. We have a substantial amount of debt. On December 31, 2000, we
had outstanding debt of:
. approximately $243.7 million in principal amount of our notes.
. approximately $50 million related to our CoBank facility.
. approximately $4.1 million of debt guaranteed by US Unwired. This
represents our share of the guarantee of the indebtedness of Gulf Coast
Wireless at December 31, 2000.
We may incur additional debt in the future. The indenture governing our
notes permits us to incur additional debt, but there are limitations. Our
credit facilities provide for total borrowings of up to $130.0 million. Some of
our obligations under our credit facilities may limit our ability to borrow
more money. If we cannot borrow more money, it could impair our ability to
repay our notes and other indebtedness.
Because of our substantial debt:
. we will use a substantial portion of our cash flow from operations to
pay interest and principal on our debt, which will reduce the cash
that is available for other purposes.
. an increase in interest rates could increase our interest expense.
. most of our assets are encumbered with liens.
. we may not be able to adjust to changing market conditions or
competition.
. we may be at a competitive disadvantage to our competitors who have
less debt.
Our ability to generate cash to pay interest and principal on our
indebtedness depends on many factors beyond our control, and this could reduce
our flexibility and impair the value of our common stock.
Our ability to pay interest and principal on our debt depends on our
future operating performance. Our performance depends on general economic and
competitive conditions and on financial, business and other factors, many of
which we cannot control. We will use a substantial portion of our cash flow
from operations to repay our borrowings and interest under our debt
instruments. This will be a significant cost to us. We cannot assure you that
we will have enough cash flow from operations or future borrowings under our
credit facilities to repay our indebtedness or for our other liquidity needs.
We may try to:
. delay or reduce our capital expenditures.
. restructure our debt.
. sell some of our assets or operations.
. acquire equity capital from other investors.
We may not be able to take any of these actions on satisfactory terms or
at all. These actions may not provide us with enough cash to repay our debt. If
we cannot repay our debt or take any of these actions, the market value of the
common stock will be impaired.
12
As a holding company, we depend on dividends from our subsidiaries to meet
our debt obligations. The indenture governing our notes may allow our
subsidiaries to enter into future loan agreements that restrict or prohibit
them from paying dividends. State law may also limit the amount of the
dividends that our subsidiaries are permitted to pay.
If there is a change of control of US Unwired, we may not be able to
satisfy our obligations to our creditors.
If the persons who control US Unwired lose this control, we must offer to
buy back all of our outstanding notes. We cannot assure you that we will have
sufficient funds at the time of a change of control to perform this obligation
or that restrictions in our credit facilities will allow us to do so. Our
inability to buy back the notes could impair the value of our common stock.
If we need additional financing that we cannot obtain, we may have to
change our network construction plan.
We may need to make significant capital expenditures to maintain our PCS
network. Actual expenditures may differ significantly from our estimates. We
would have to obtain additional financing if:
. changes in technology or governmental regulations create unanticipated
costs.
. we acquire additional licenses or Sprint PCS grants us more service
areas to build out and manage.
. any of our sources of capital is unavailable or insufficient.
. we significantly depart from our business plan.
We cannot predict whether any additional financing will be available or on
what terms. If we need additional financing that we cannot obtain, we will have
to change our plans for the remainder of our network.
If we cannot construct our communications network timely or successfully,
our ability to compete could be limited, and we could lose our PCS licenses or
our relationship with Sprint PCS.
We must lease or acquire rights to use locations for our PCS equipment and
our PCS network. This may require us to obtain zoning variances or governmental
approvals. If we are unable to obtain or use these locations, we may need to
alter the design of our network. This could prevent us from completing
construction of our network in a timely manner or at all.
There is considerable demand for the communications equipment that we need
to construct our network, and manufacturers of this equipment could have
substantial backlogs of orders. Competitors who purchase large quantities of
communications equipment may receive priority in the delivery of this
equipment. If we cannot get this equipment, we may fail to construct our
network timely. This could limit our ability to compete effectively or to meet
the construction requirements of the FCC or our Sprint PCS agreements. If we do
not meet these construction requirements, we could lose our licenses or breach
our agreements with Sprint PCS.
If we lose our agreements with Sprint PCS, our PCS business may not
succeed.
13
Our agreements with Sprint PCS are central to our business plan.
. These agreements give us the right to use the Sprint PCS(R) brand name
and logo and related rights. If we lose these rights, our PCS
operations will be impaired.
. These agreements impose strict requirements on the construction of our
network. If we do not meet these requirements, these agreements may be
terminated and we could lose the right to be the sole provider of
Sprint PCS products and services in our service area.
. These agreements may be terminated also if any of Sprint PCS's FCC
licenses is lost or jeopardized, or if we become insolvent.
. These agreements give Sprint PCS a substantial amount of control over
the conduct of our business. Sprint PCS may make decisions that
adversely affect our business like setting the prices for its national
plans at levels that may not be economically sufficient for our
business.
. If our management agreements with Sprint PCS are terminated or
breached, we may be required to sell our PCS assets to Sprint PCS or
Sprint PCS may be required to assign to us some of their licensed
spectrum.
. If Sprint PCS decides not to renew our management agreements at the
expiration of the 20-year initial term or any 10-year renewal term, we
would no longer be a part of the Sprint PCS network and would be
limited in conducting our business.
Provisions of our management agreements with Sprint PCS may diminish our
value and restrict the sale of our business.
Under specific circumstances and without further stockholder approval,
Sprint PCS may purchase our operating assets for 72% or 80%, depending on the
circumstances, of our "entire business value," which is more fully described
in "Sprint PCS Agreements--The Management Agreements--Non-renewal of
management agreements." Sprint PCS must approve any change of control of our
ownership and consent to any assignment of our management agreements to an
unrelated third party or to one of its competitors. In addition, before we can
accept an offer to sell the properties used in specified markets, we must
first offer them to Sprint PCS on the same terms. Also, if we want to transfer
an ownership interest in LA Unwired or Texas Unwired to an unrelated third
party, we must first give Sprint PCS a right of first offer or the interest.
These restrictions and other restrictions in our management agreements with
Sprint PCS could adversely affect the value of our common stock, may limit our
ability to sell the business, may reduce the value a buyer would be willing to
pay for our business and may reduce our entire business value.
Problems with Sprint PCS's internal support systems could lead to
customer dissatisfaction or increase our costs.
We will rely on Sprint PCS's internal support systems, including customer
care, billing and back-office support, in some of our markets. As Sprint PCS
has expanded, its internal support systems have been subject to increased
demand and, in some cases, suffered problems in service. We cannot assure you
that Sprint PCS will be able to add system capacity successfully or that its
internal support systems will be adequate. Problems with Sprint PCS's internal
support systems could cause:
. delays or problems in our own operations or service.
14
. delays or difficulty in gaining access to customer and financial
information.
. a loss of Sprint PCS customers.
. an increase in the costs of customer care, billing and back office
services.
The Federal Communications Act of 1934 could affect our agreements with
Sprint PCS and could require changes in them.
The Communications Act prohibits any transfer of control of a radio
station license without prior approval of the FCC. Our agreements with Sprint
PCS provide for us to manage its licenses in our service area. If the FCC were
to conclude that our management constituted our control over Sprint PCS's
licenses, we would probably be required to modify our agreements to eliminate
that control. We cannot predict what modifications could be required or whether
they would adversely affect us.
If Sprint PCS does not succeed, or if we do not maintain a good
relationship with Sprint PCS, our PCS business may not succeed.
If Sprint PCS has a significant disruption to its system, fails to develop
its system, or suffers a weakening of its brand name, our operations and
profitability would likely be impaired.
We will use our relationship with Sprint PCS to obtain, at favorable
prices, the equipment for the construction and operation of our network. Any
disruption in our relationship with Sprint PCS could make it much more
difficult to obtain this equipment.
Our competitors may have more resources or other advantages that may make
it difficult for us to compete effectively.
Competition in the wireless communications services industry is intense.
If we are unable to compete successfully, our business and operations will be
impaired. We may be at a disadvantage compared to our competitors who:
. have substantially greater financial, technological, marketing and
sales and distribution resources than we do.
. entered the wireless communications services market before we did.
. have more established networks, marketing programs and brand names.
. offer coverage in areas not served by our PCS network or offer lower
rates for placing and receiving calls outside of their own networks.
We expect that some of the existing cellular providers will continue to
upgrade their systems to provide digital wireless communication services that
compete with Sprint PCS. Many of these cellular providers have more financial
resources and customers than we do. Providers of traditional landline telephone
services, energy companies, utility companies and cable operators may expand
their services to offer competitive wired or wireless communications services.
We compete also with companies that use other communications technologies and
paging and dispatch companies. People who are considering using PCS systems may
find their communications needs satisfied by these other current and developing
changes in technology could adversely affect us.
15
PCS providers in the United States use one of three technological
standards. Even though the three standards share basic characteristics, they
are not compatible or interchangeable with each other. We and Sprint PCS use
the standard known as CDMA. If another standard becomes preferred in the
industry, we may be at a competitive disadvantage. If Sprint PCS changes its
standard, we will need to change ours as well, which will be costly and time
consuming. If we cannot change our standard, we may not be able to compete with
other systems.
The wireless telecommunications industry is experiencing significant
technological change. This is evident from:
. an increase in the number of upgrades from analog systems to digital.
. improvements in digital technology.
. shorter development periods for new products and enhancements.
. changes in customer needs and preferences.
To be competitive, we must have access to new technology. Future
technology and advancements could be better than PCS service and even make our
service obsolete. The development of new or better technologies could impair
our business and operating results.
If the Sprint PCS network does not complete its nationwide expansion, we
may not be able to provide our customers with the services they demand.
Sprint PCS intends to cover a significant portion of the population of the
United States, Puerto Rico and the U.S. Virgin Islands with its PCS system, but
it has not yet completed the build out of its planned network. If one of our
customers travels in an area where a Sprint PCS system or another CDMA-based
system is not yet operational, the customer will need a telephone handset that
can make calls on both CDMA-systems and non-CDMA-systems. Generally, these
handsets are more costly. Moreover, the Sprint PCS network does not allow for
calls to be transferred without interruption between the Sprint PCS network and
another wireless network. This means that a customer must end a call in
progress and initiate a new call when entering an area not served by the Sprint
PCS network. The quality of the service provided by another network may not be
equal to that of the Sprint PCS network, and our customers may not be able to
use some of the advanced features of our network. This could result in customer
dissatisfaction and loss of customers.
Our service area is threatened by bad weather, including hurricanes, which
could cause interruptions in service.
Much of our service area is on or near the Gulf of Mexico and could be
damaged by bad weather like hurricanes and excessive rain. Even though we
believe our insurance coverage is adequate, we may face service interruptions
for indefinite periods if a major hurricane strikes one or more of our Gulf
Coast service areas.
Risks Related to the Wireless Telecommunications Industry
We are subject to broad and evolving government regulation that could
cause us to change our business plans or lose our licenses if we do not comply.
. Our business must comply with the rules and regulations of the FCC,
the FAA and state and local regulatory agencies.
16
. New regulations may require us to modify our business plan or
operations. This could increase our operating costs.
. The loss of any of our FCC licenses, or any of Sprint PCS's FCC
licenses for our service area, would impair our business and operating
results.
. The FCC may revoke any of our PCS licenses at any time for cause.
Cause could be our failure to comply with terms of the licenses or the
FCC rules that apply to us. We cannot ensure that our PCS licenses
will be renewed when they expire.
. The FCC regulates our relationship with Sprint PCS under our Sprint
PCS agreements.
. We may need to acquire additional licenses, which may require approval
of regulatory authorities. These regulatory authorities may not grant
approval in a timely manner, if at all.
. All PCS licenses, including our own licenses and Sprint PCS's
licenses, are subject to the FCC's build out regulations. These
regulations require license holders to offer specified levels of
service to the population in their service areas within set time
periods. Even though we have developed a build out plan that meets
these requirements, we may be unable to meet our build out schedule.
If Sprint PCS or we do not meet these requirements, the FCC could take
back the portions of our service area that are not being served,
impose fines, or even revoke the related licenses. The FCC imposes
limitations on the foreign ownership of license holders. If foreign
ownership is too great, the FCC may revoke our PCS licenses or require
an ownership restructuring. The FCC imposes additional requirements on
holders of PCS licenses reserved for small businesses. These licenses
are called C-block and F-block licenses. We hold F-block licenses and
must meet special requirements to hold them. If we do not meet these
requirements, the FCC could fine us, revoke our licenses or require us
to restructure our ownership.
Our future prospects are uncertain because the future prospects of the PCS
industry are uncertain.
PCS systems have not operated in the United States for very long, and we
cannot assure you that the operation of these systems in our markets will
become profitable. In addition, we cannot estimate how much demand there will
be for PCS in our markets or how much competitive pricing pressure there will
be. As a result, the future prospects of the PCS industry, including our
prospects, remain uncertain. The future demand for wireless communications
services in general is uncertain.
Our PCS business may suffer because more subscribers generally disconnect
their service in the PCS industry than in the cellular industry.
We plan to keep our PCS subscriber churn down by expanding network
coverage, improving network reliability, marketing affordable plans and
enhancing customer care. We cannot assure you that these strategies will be
successful. A high rate of PCS subscriber churn could harm our competitive
position and the results of operations of our PCS services.
Radio frequency emissions may pose health concerns that may cause people
to sue us or discourage them from using our services.
17
Media reports have suggested that some radio frequency emissions from
wireless telephone handsets may be linked to various health concerns,
including cancer, and may interfere with some electronic medical devices,
including hearing aids and pacemakers. These concerns may discourage the use
of these handsets or expose us to potential litigation.
Worse than expected fourth quarter results may cause our stock price to
drop and significantly reduce our overall results of operations.
The wireless industry is heavily dependent on fourth quarter results.
Among other things, the industry relies on significantly higher subscriber
additions and handset sales in the fourth quarter as compared to the other
three fiscal quarters. The price of our common stock may drop and our overall
results of operations could be significantly reduced if we have a worse than
expected fourth quarter for any reason, including the following:
. our inability to match or beat pricing plans offered by competitors.
. our failure to promote Sprint PCS's products, services and pricing
plans adequately.
. our inability to obtain an adequate supply or selection of handsets.
. a downturn in the economy of some or all markets in our service area.
. a poor holiday shopping season.
Provisions in our charter document and in Louisiana law could prevent or
delay a change in the persons who control us. This could impair the market
price of our common stock.
Some of the provisions in our articles of incorporation, bylaws and
Louisiana law could:
. discourage potential acquisition proposals
. delay or prevent a change in the persons who control us
. limit the price that investors may be willing to pay in the future for
shares of our common stock
In particular, our articles of incorporation and bylaws provide the
following:
. our board of directors is divided into three classes, as nearly equal
in size as possible, with each class beginning its three year term in
a different year
. our board of directors may issue preferred stock without stockholder
approval
. a stockholder may nominate directors only if the stockholder delivers
written notice to us no less than 45 days or not more than 90 days
before the meeting of shareholders to elect directors
. the Louisiana Business Corporation Law and our charter documents
require supermajority voting power to amend our articles of
incorporation or to approve a merger, consolidation, share exchange,
disposition of all or substantially all of our assets or dissolution
ITEM 2. Properties
We lease space for our switches in Lake Charles and Shreveport,
Louisiana, Jackson, Mississippi and Montgomery, Alabama. We lease space also
for our corporate operations, network operators and customer care and data
center in Lake Charles, Louisiana. We own two store sites, and
18
we lease 8 store sites in Louisiana, six in Texas, five in Alabama, three in
Florida and two in Mississippi. At December 31, 2000, we owned 169 and leased
599 cellular, PCS, paging and microwave towers.
We also own an 11-story, 115,300 square foot office building in downtown
Lake Charles that will be used as our Corporate headquarters upon completion of
renovations in 2001.
ITEM 3. Legal Proceedings
We are from time to time involved in litigation that we believe ordinarily
accompanies the communications business. We do not believe that any of our
pending or threatened litigation will leave a material adverse effect on our
business or financial situation.
In 2000, we received an assessment for approximately $2.0 million for
certain sales and use taxes resulting from a local audit. Although management
is continuing to discuss and evaluate this assessment with local tax
authorities, we believe that any additional sales and use taxes that may result
from this assessment have been adequately provided for in the accompanying
financial statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 4A. Executive Officers of the Registrant
The following table presents information with respect to our executive
officers:
Name Age Position
- ---- --- --------
William L. Henning,
Jr................... 48 Chairman of the Board of Directors
Robert W. Piper......... 42 President, Chief Executive Officer
Jerry E. Vaughn......... 56 Chief Financial Officer
Thomas G. Henning....... 41 Secretary and General Counsel
Michael D. Bennett...... 36 Vice President and General Manager Wireless Operations
Jack J. Blanchard....... 41 Vice President of Marketing
Don A. Matz............. 42 Vice President of Information Technology
Brenda S. McElveen...... 55 Vice President of Administration
Paul J. Clifton......... 46 Vice President of Research and Development
William L. Henning, Jr. is Chairman of our Board of Directors. He has been
the Chief Executive Officer and Chairman of Xspedius Holdings, Inc. since 1998.
From 1988 to 2000, he was our Chief Executive Officer.
Robert W. Piper has been our President since 1995 and was named Chief
Executive Officer in 2000. He served as our Chief Operating Officer from 1995
to 2000
Jerry E. Vaughn has served as our Chief Financial Officer since June 7,
1999. He has over 20 years of diversified financial management experience and
focused the last 11 of these years in the telecommunications industry. From
1994 until he joined us, Mr. Vaughn was President of NTFC Capital Corporation,
a subsidiary of GE Capital. Before that, he was Treasurer of Northern Telecom
Finance Corporation and Vice President of Mellon Bank Corporation.
19
Thomas G. Henning has been General Counsel and Secretary since 1994.
Michael D. Bennett has served as Vice President and General Manager of
wireless operations since January 2000 when he joined us. He has 15 years of
telecommunications experience and spent the last five years in various
positions with PrimeCo, including area director and sales and marketing
director in Jacksonville, Florida, and director of strategy and planning in
Dallas, Texas. He has also worked in various management positions at U.S.
Intelco Networks in Olympia, Washington and Century Telephone Enterprises, Inc.
in Monroe, Louisiana.
Jack J. Blanchard has served as our Vice President of Marketing since
January 1998. Before that, he served for at least five years as our Sales
Manager and Director of Sales and Marketing. He is responsible for all
marketing and public relations efforts for our PCS, cellular and paging
services. He had a leadership role in naming and developing our very successful
wireless prepaid program "Chat Pak." He has been instrumental in our winning
numerous advertising campaign awards such as CLIO's Best Overall Campaign at
the "One Awards" and first place in the television division at the 1998
Cellular Telecommunications Industry Association's EMA awards.
Don A. Matz has served as our Vice President of Information Systems since
October 26, 1998. He is responsible for our management information system and
support. Before joining us in 1998, he was employed for 18 years with Century
Telephone Enterprises, Inc., a telecommunications company engaged in wire line
and wireless activities. With Century Telephone, he held various positions
within Information Systems, the last seven years of which were in director-
level positions in Applications Development, Systems and Networks, and Research
and Development.
Brenda S. McElveen presently serves as our Vice President of
Administration and is responsible for customer care, credit collections,
customer retention, facilities management and purchasing for our cellular,
paging and PCS services. She joined us in 1984 as Office Manager.
Paul J. Clifton has served as our Vice President of Research and
Development since 1998. From 1994 to 1998, he was our Vice President for
Engineering and Technical Services. From 1988 to 1994, he served us in various
capacities such as manager of network systems and traffic manager. He was first
hired by Cameron Telephone Company in 1977 and began to work for us in 1988. In
those capacities between 1980 and 1994, he was responsible for design and
implementation of projects associated with the operation of our cellular,
paging, voicemail, central office, personal computer, cable television and long
distance operations.
20
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our Class A common stock has been traded on the NASDAQ National Market
under the symbol "UNWR" since May 18, 2000. Prior to that date, there was no
public market for our common stock. The following table sets forth, the periods
indicated, the range of high and low sales prices for our Class A common stock
as reported on the NASDAQ National Market:
Price Range
of Common
Stock
-------------
High Low
------ ------
Fiscal Year Ended December 31, 2000
Fourth Quarter............................................ $ 9.50 $4.563
Third Quarter............................................. $17.25 $ 9.00
Second Quarter (From May 18, 2000)........................ $16.00 $10.25
On March 15, 2001, there were 81 holders of record of our Class A common
stock.
We have not declared or paid any cash dividends on our common stock or any
other of our securities. We do not expect to pay cash dividends on our capital
stock in the foreseeable future. We currently intend to retain our future
earnings, if any, to fund the development and growth of our business. Our
future decisions concerning the payment of dividends on our common stock will
depend upon our results of operations, financial condition and capital
expenditure plans, as well as such other factors as the board of directors, in
its sole discretion, may consider relevant. In addition, our existing
indebtedness restricts, and we anticipate our future indebtedness may restrict,
our ability to pay dividends.
Recent Sales of Unregistered Securities and Use of Proceeds from Sales of
Registered Securities
In 1999, the Company issued 500,000 shares of Series A senior redeemable
convertible preferred stock for $50 million to one investor and on May 15,
2000, the securities were converted into 10,038,417 shares of Class B common
stock. The exemption claimed for this issuance is Section 3 (a)(9) of the
Securities Act of 1933.
On February 15, 2000, the Company issued $5 million of its Series B senior
redeemable convertible preferred stock to eight investors. The exemption
claimed for this issuance is Section 4(2) of the Securities Act of 1933. On
March 15, 2000, these securities were converted by the investors into 1,003,842
shares of Class A common stock. The exemption claimed for the issuance is
Section 3 (a)(9) of the Securities Act of 1933.
21
ITEM 6. Selected Financial Data
The following selected financial data are derived from the consolidated
financial statements of US Unwired Inc. and subsidiaries. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information included herein.
As of December 31,
--------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- -------
(In thousands except per share data)
Statement of Operation Data:
Revenues........................ $113,051 $ 58,632 $71,711 $74,668 $61,893
Cost of service and merchandise
sold......................... 69,419 31,591 29,363 29,054 21,949
Other operating expense......... 121,527 52,299 37,873 36,053 27,781
-------- -------- ------- ------- -------
Operating income (loss)......... $(77,895) $(25,258) $ 4,475 $ 9,561 $12,163
======== ======== ======= ======= =======
Income (loss) from continuing
operations................... $(77,555) $(17,634) $28,796 $(1,509) $ 3,854
======== ======== ======= ======= =======
Income (loss) from continuing
operations per diluted common
share........................ $ (1.08) $ (0.29) $ 0.48 $ (0.03) $ 0.06
======== ======== ======= ======= =======
As of December 31,
--------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- -------
(In thousands except per share data)
Balance Sheet Data:
Cash and cash equivalents....... $ 15,136 $ 14,695 $32,475 $ 4,955 $ 5,464
Marketable securities........... 165,438 141,453 -- -- --
Property and equipment, net..... 212,382 106,067 22,565 38,891 28,692
Total assets.................... 456,980 318,970 87,629 142,133 132,328
Long-term debt and redeemable
preferred stock.............. 305,533 266,080 29,067 100,066 95,901
Stockholders' equity............ 100,054 28,585 51,479 23,929 25,437
ITEM 7. Management's Discussion and Analysis of Financial And Results of
Operations
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere in
this Report. The discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from the
results contemplated in these forward-looking statements.
Overview
We launched our PCS service in 26 new markets since December 31, 1999 and
at December 31, 2000 offered PCS service in 36 markets in Louisiana, Texas,
Florida, Arkansas, Mississippi and Alabama. Since December 31, 1999 we have
increased our network coverage by over 4.5 million residents.
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,
22
Texas Unwired, of which LA Unwired is the managing partner and owns an 80%
interest. 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.
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 $7.5 million,
net of income taxes of $5.1 million, on the transaction. LEC Unwired is
presented as a discontinued operation in our consolidated financial statements.
On December 29, 2000 we sold 127 of our towers to SBA Properties, Inc. for
$39.8 million. Concurrent with the sale, we entered into 10-year operating
leases for antenna and ground space on the 127 towers. We recognized a gain of
$11.6 million for the year ended December 31, 2000 and deferred a gain of $16.4
million that will be recognized over the 10-year term of the leases.
Results of Operations
2000 compared to 1999
Revenues
Years Ended
December 31,
----------------
2000 1999
-------- -------
Subscriber revenues...................................... $ 68,345 $39,734
Roaming revenues......................................... 28,079 10,867
Merchandise sales........................................ 11,517 5,371
Other revenues........................................... 5,110 2,660
-------- -------
Total revenues......................................... $113,051 $58,632
======== =======
Total subscriber revenues were $68.3 million for 2000 as compared to $39.7
million for 1999, representing an increase of $28.6 million. PCS subscriber
revenues were $45.1 million for 2000 as compared to $10.3 million for 1999,
representing an increase of $34.8 million and was primarily the result of an
increase in PCS subscribers to 126,000 at December 31, 2000 from 33,700 at
December 31, 1999. Cellular and paging subscriber revenues were $23.2 million
for 2000 as compared to $29.4 million for 1999, representing a $6.2 million
decrease and was primarily the result of a decrease to 69,000 cellular and
paging subscribers at December 31, 2000 from 83,500 cellular and paging
subscribers at December 31, 1999.
Roaming revenues were $28.1 million for 2000 as compared to $10.9 million
for 1999, representing an increase of $17.2 million. PCS roaming revenues were
$20.1 million for 2000 as compared to $3.6 million for 1999, representing an
increase of $16.5 million and was primarily the result of a higher volume of
Sprint PCS subscribers traveling through our markets and the expansion of our
network coverage. We added 26 PCS markets to our coverage area during 2000 and
operated 36 PCS markets at December 31, 2000 as compared to ten PCS markets at
December 31, 1999. Cellular roaming revenues were $8.0 million for 2000 as
compared to $7.3 million for 1999, representing an increase of $.7 million and
was primarily the result of higher usage in our service area that was
substantially unchanged between 2000 and 1999.
23
Merchandise sales were $11.5 million for 2000 as compared to $5.4 million
for 1999, representing an increase of $6.1 million. PCS merchandise sales were
$10.5 million for 2000 as compared to $4.0 million for 1999, representing an
increase of $6.5 million and were due primarily to an increase in initial sales
to new PCS subscribers. We recorded initial sales to 108,000 new PCS
subscribers during 2000 as compared to initial sales to 35,800 new PCS
subscribers during 1999. Cellular and paging merchandise sales were $1.0
million for 2000 as compared to $1.4 million for 1999, representing a decrease
of $.4 million due primarily to fewer new cellular and paging subscribers.
Other revenues were $5.1 million for 2000 as compared to $2.6 million for
1999, representing an increase of $2.5 million primarily attributable to
increased fees charged to PCS provider outside our market area for limited
billing and customer care services.
Operating Expenses
Cost of service was $46.0 million for 2000 as compared to $19.6 million
for 1999, representing an increase of $26.4 million. PCS cost of service was
$37.7 million for 2000 as compared to $10.0 million for 1999, representing an
increase of $27.7 million, which primarily related to increased PCS related
circuit costs and PCS cell site leases associated with the increase in coverage
area and market expansion in Texas, Florida, Alabama, Arkansas, Tennessee and
Mississippi. We leased 583 PCS cell sites at December 31, 2000 as compared to
87 at December 31, 1999. Cellular cost of service was $8.4 million for 2000 as
compared to $9.6 million for 1999, representing a decrease of $1.2 million and
was primarily related to a decrease in our cellular and paging subscriber base.
Merchandise cost of sales was $23.4 million for 2000 as compared to $12.0
million for 1999, representing an increase of $11.4 million. PCS merchandise
cost of sales was $20.5 million for 2000 as compared to $9.2 million for 1999,
representing an increase of $11.3 million and was primarily due to an increase
in initial sales to new PCS subscribers. We recorded initial sales to 108,000
new PCS subscribers during 2000 as compared to initial sales to 35,800 new PCS
subscribers during 1999. Cellular and paging merchandise cost of sales was $2.9
million for 2000 as compared to $2.8 million for 1999, representing an increase
of $.1 million, which was primarily related higher handset volume to preserve
our customer base.
General and administrative expenses were $34.3 million for 2000 as
compared to $19.3 million for 1999, representing an increase of $15.0 million
and is primarily related to the hiring of additional employees and increased
billing costs as the number of PCS subscribers increased to 126,000 at December
31, 2000 from 33,700 at December 31, 1999 and overall market expansion has
increased to 36 PCS markets at December 31, 2000 from 10 PCS markets at
December 31, 1999. Additionally, we serviced 69,000 cellular and paging
subscribers at December 31, 2000 as compared to 83,500 at December 31, 1999.
Selling and marketing expenses was $38.5 million for 2000 as compared to
$12.8 million for 1999, representing an increase of $25.7 million. PCS selling
and marketing expenses were $33.4 million for 2000 as compared to $8.2 million
for 1999, representing an increase of $25.2 million and primarily relates to
advertising, direct selling headcount and commissions paid to local and
national
24
third party retailers contracted to sell our product. PCS subscribers increased
to 126,000 at December 31, 2000 from 33,700 at December 31, 1999; network
coverage increased to 36 PCS markets at December 31, 2000 from 10 PCS markets
at December 30, 1999; and 26 stores were open at December 31, 2000 compared to
13 at December 31, 1999. Cellular and paging selling and marketing expenses
were $5.4 million for 2000 as compared to $4.6 million for 1999, representing
an increase of $.8 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.
Non-cash stock compensation was $5.3 million for 2000 as compared to $.8
million for 1999, representing an increase of $4.5 million. In May 2000, we
completed an offering for the sale to the public of 8,000,000 shares of our
class A common stock ("the Stock Offering") at the price of $11.00 per share.
The non-cash compensation expense was incurred for stock options issued below
market value. This expense is being amortized over a four-year period
representing the vesting of the options.
Depreciation and amortization expense was $43.5 million for 2000 as
compared to $19.4 million for 1999, representing an increase of $24.1 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
$192.1 million at December 31, 2000 from $85.3 million at December 31, 1999.
Depreciation and amortization expense for our cellular and paging operations
was unchanged at $4.9 million for 2000.
Operating Loss
The operating loss was $77.9 million for 2000 as compared to $25.3 million
for 1999, representing an increase of $52.6 million. The operating loss for our
PCS operations was $54.0 million for 2000 as compared to $29.6 million for
1999, representing an increase of $29.4 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 $7.5 million for 2000 as
compared to $13.7 for 1999, representing a decrease of $6.2 million and is
related to the decrease in subscribers. The balance of the remaining change of
$52.6 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 $4.5 million
increase in stock compensation expense related to stock options.
Other Income/(Expense)
Years Ended
December 31,
------------------
2000 1999
-------- --------
(In thousands)
Interest expense..................................... $(33,392) $(11,225)
Interest income...................................... 10,324 2,949
Other income......................................... -- 587
Gain on the sale of assets/markets................... 16,401 819
-------- --------
Total other expense................................ $ (6,667) $ (6,870)
======== ========
25
Interest expense was $33.4 million for 2000 as compared to $11.2 million
for 1999, representing an increase of $22.2 million. The increase in interest
expense resulted from the increase in outstanding debt. Our outstanding debt
was $305.5 million at December 31, 2000 as compared to $216.1 million at
December 31, 1999. The increase in debt primarily resulted from our senior
subordinated discount note offering in October 1999 and a $50 million draw on
our credit facility.
Interest income was $10.3 million for 2000 as compared to $2.9 million for
1999, representing an increase of $7.4 million. The increase resulted from
investing available funds in marketable securities until the funds are required
to fund our market build out.
Gain on sale of certain markets was $16.4 million for 2000 as compared to
$819,000 for 1999, representing an increase of $15.6 million. In 2000, we
recognized a gain of approximately $11.6 million from the sale of 127 towers,
$2.0 million from the sale of a portion of the Company's ownership interest a
PCS operator and a gain of approximately $2.8 million due to the reduction of
the Company's guarantee of that operator's debt.
Minority Interest in Subsidiaries
Minority interest in losses of subsidiaries was $1.3 million for 2000 and
$10.4 million in 1999. The decrease in losses allocated to minority
shareholders occurred primarily due to losses in excess of the minority
shareholder's interest in the equity capital of the respective subsidiaries.
Equity in Income (Losses) of Affiliates
Equity in income in affiliates was $.7 million for 2000 as compared to
equity in losses in affiliates of $4.9 million for 1999, representing a change
of $5.6 million. This change was primarily the result of our reduction in
ownership of a PCS operator to 13.28% during 2000 from 24.33% during 1999 and
our changes in debt guarantees.
Discontinued Operations
Effective May 31, 2000, we sold our ownership interest in LEC Unwired, our
competitive local exchange carrier segment, for approximately $11.5 million and
recognized a gain of approximately $7.5 million, net of income taxes of $5.1
million, on the transaction.
1999 compared to 1998
Revenues
Years Ended
December 31,
---------------
1999 1998
------- -------
Subscriber revenues....................................... $39,734 $48,723
Roaming revenues.......................................... 10,867 11,914
Merchandise sales......................................... 5,371 3,915
Other revenues............................................ 2,660 7,159
------- -------
Total revenues.......................................... $58,632 $71,711
======= =======
26
Subscriber revenues were $39.7 million for 1999 compared to $48.7 million
for 1998. The decrease of $9.0 million was attributable to the sale of selected
cellular markets in 1998, which generated $13.5 million of revenues through the
point of sale in July 1998 and the loss of $2.1 million of subscriber revenue
related to the conclusion of our PCS reseller activity. Additionally, cellular
and paging revenues for our Louisiana cellular markets decreased $3.7 million
from $33.1 million in 1998 to $29.4 million in 1999 due to a decline in
subscribers. These decreases were offset by the consolidation of LA Unwired in
1999, which generated subscriber revenue of $10.3 million.
Roaming revenues were $10.9 million for 1999 compared to $11.9 million for
1998. The decrease of $1.0 million is attributable to the sale of selected
cellular markets in 1998, which generated roaming revenues of $5.3 million
through the point of sale in July 1998. This decrease was offset by 1999
consolidation of LA Unwired that generated roaming revenue of $3.6 million in
1999. In addition, 1999 roaming revenue for our Louisiana cellular markets
increased $600,000 from $6.6 million in 1998 to $7.2 million in 1999.
Merchandise sales were $5.4 million for 1999 compared to $3.9 million for
1998. This increase of $1.5 million was substantially due to the inclusion of
LA Unwired as a consolidated entity in 1999, resulting in an additional $4.0
million in merchandise sales. Offsetting the increase was the inclusion of PCS
reseller activity in 1998 amounting to $1.6 million, which was discontinued in
August 1998 when we sold certain PCS subscribers to Gulf Coast Wireless, and
the inclusion of $500,000 in 1998 merchandise sales attributable to the sale of
selected cellular markets sold in July 1998. Louisiana market cellular and
paging merchandise sales decreased $400,000 from $1.8 million in 1998 to $1.4
million in 1999.
Other revenues were $2.7 million in 1999 compared to $7.2 million in 1998.
PCS reseller activity, which concluded in August 1998, accounted for $2.2
million. LA Unwired management fees accounted for $1.2 million in 1998, and
were eliminated in consolidation in 1999. LEC Unwired management fees were
approximately $500,000 in 1998. We collected $1.7 million in management fees in
1998 for management services following the sale of selected markets. This was
offset by an increase in 1999 of management fees related to Gulf Coast Wireless
of $1.3 million.
Operating Expenses
Cost of service was $19.6 million for 1999 as compared to $18.6 million
for 1998. The increase of $1.0 million was primarily due to the inclusion of LA
Unwired presented in 1999 on a consolidated basis versus an equity basis in
1998. Cost of service in 1999 for LA Unwired was $10.3 million. This increase
was offset by the 1998 sale of selected cellular markets and the conclusion of
PCS reseller activity that accounted for 1998 cost of service of $6.2 million
and $1.5 million, respectively. Cost of service in our Louisiana cellular and
paging markets decreased $1.3 million from $10.9 million in 1998 to $9.6
million in 1999.
Merchandise cost of sales was $12.0 million for 1999 and $10.8 million for
1998. This increase of $1.2 million was primarily the result of the inclusion
in 1998 of merchandise cost of sales of $1.5 million associated with selected
cellular markets sold in 1998, and the inclusion of $4.2 million of merchandise
sales in 1998 related to PCS reseller activity that was concluded in 1998. The
inclusion of LA Unwired on a consolidated basis in 1999 added $9.2 million to
cost of sales.
27
Merchandise cost of sales for our Louisiana cellular and paging properties
decreased $2.3 million from $5.1 million in 1998 to $2.8 million in 1999.
General and administrative expenses were $19.3 million for 1999 and $17.2
million for 1998, an increase of $2.1 million. The sale of selected cellular
markets in 1998 resulted in a $2.4 million decrease and the conclusion of PCS
reseller activity in 1998 accounted for a $1.6 million decrease. This was
offset by the inclusion of LA Unwired in 1999 on a consolidated basis that
added $6.5 million to 1999. General and administrative expenses for our
Louisiana cellular and paging markets remained unchanged in 1999 and included
an adjustment to salaries of $799,000 for the compensation associated with the
issuance of stock options below market value.
Sales and marketing expenses were $12.8 million for 1999 and $10.9 million
for 1998. This increase of $1.9 million was primarily the result of 1999
consolidation of LA Unwired, which accounted for $8.3 million. This was offset
by $3.2 million associated with the sale of selected markets in 1998 and $3.6
million associated with PCS reseller activity that concluded in 1998. Sales and
marketing expenses for our Louisiana cellular and paging markets increased by
$400,000 from $4.1 million in 1998 to $4.5 million in 1999.
Non-cash compensation was $.8 million for 1999 and $0 for 1998. The non-
cash compensation was incurred for stock options issued below market and is
being amortized over a four-year period.
Depreciation and amortization expense was $19.4 million for 1999 and $9.8
million for 1998, an increase of $9.6 million. The inclusion of LA Unwired in
1999 added $13.5 million. Depreciation and amortization expense for our
Louisiana cellular and paging markets increased $1.3 million from $4.6 million
in 1998 to $5.9 million in 1999. These increases were partially offset by the
elimination of $5.2 million related to the sale of selected cellular markets in
1998.
Operating Income/(Loss)
The total operating loss for 1999 was $25.3 million as compared to
operating income of $4.5 million for 1998. This decrease of $29.8 million was
primarily the result of the reduction of income associated with the sale of
selected cellular markets of $800,000; losses of $29.6 million associated with
the start-up of LA Unwired; and a decrease in operating income of $3.9 million
related to our Louisiana cellular markets, which included $799,000 related to
option compensation. These decreases were offset by the conclusion of our PCS
reseller activity that resulted in operating losses of $5.0 million in 1998.
Other Income/(Expense)
Years Ended
December 31,
-----------------
1999 1998
-------- -------
(In thousands)
Interest expense..................................... $(11,225) $(6,157)
Interest income...................................... 2,949 1,778
Other income (expense)............................... 587 --
Loss on sale of assets............................... -- (114)
Gain on the sale of selected markets................. 819 57,364
-------- -------
Total other income/(expense)....................... $ (6,870) $52,871
======== =======
28
Interest expense was $11.2 million for 1999 and $6.2 million for 1998. Our
outstanding debt was $216.1 million at December 31, 1999 as compared to $29.1
million at December 31, 1998. The increase in debt was the result of our
offering of our senior subordinated discount notes in October 1999. Interest
income was $2.9 million for 1999 and $1.8 million for 1998. Interest income in
1999 was associated with the proceeds from the note offering. Interest income
in 1998 was associated with the sale of selected cellular markets. Other income
for the year ended December 31, 1999 represents income earned on the settlement
of LA Unwired's interest rate swap agreement.
Gain on sale of markets was $57.4 million in 1998. In 1998, we received
gross proceeds of $161.5 million from the sale of selected cellular markets.
The $819,000 recognized in 1999 is also associated with the 1998 sale, as we
concluded our settlement of the working capital and related items relative to
the original sale.
Minority Interest in Subsidiaries
Minority interest in losses of subsidiaries was $10.4 million for 1999 and
$0 in 1998. The increase in minority interest in losses of subsidiaries
resulted from the consolidation of LA Unwired in 1999 and primarily represents
the portion of the losses from LA Unwired allocable to minority shareholders of
LA Unwired.
Equity in Losses of Affiliates
Equity in losses of affiliates was $4.9 million for 1999 and $11.7 million
in 1998. The decrease of $6.8 million was primarily due to the consolidation of
LA Unwired in 1999 versus reporting for the losses under the equity method in
1998.
Result of Discontinued Operations
On March 22, 2000 US Unwired adopted a formal plan to sell its 56.7%
ownership interest in LEC Unwired. For financial reporting purposes, we are
presenting this as a discontinued operation and recognizing a charge of
approximately $3.5 million, net of $1.5 million in income taxes.
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. During
2000, we borrowed $50 million under this agreement and at December 31, 2000, we
had $80 million still available.
On October 29, 1999, we issued approximately $400 million in principal
amount of 13 3/8% senior subordinated discount notes of US Unwired and received
net 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 these notes.
In addition, we issued $50 million of preferred stock on October 29, 1999
and $5 million of preferred stock on February 15, 2000, all of which were
converted into our common stock at the completion of the stock offering in May
2000.
29
We expect to spend approximately $75 million in 2001 completing our market
build out in the five unopened markets, upgrading existing tower sites,
increasing our coverage area by erecting additional towers in selected
locations of already opened markets and upgrading some of our network switches.
We will also spend approximately $6.0 million in leasehold improvements in our
new corporate headquarters.
Cash provided by operating activities was $11.7 million in 2000. This
primarily consisted of our net loss of $70.2 million, $23.9 million in gains on
various sales of non-core business assets and a $5.1 million deferred income
tax benefit offset by $43.5 million in depreciation and amortization, $29.6
million in debt discount accretion, a $35.7 increase in working capital and
$5.3 in non-cash compensation. Net cash used by operations for 1999 was $7.4
million and for 1998 was $14.7 million.
Cash used in investing activities was $134.3 million in 2000. These uses
primarily consisted of $158.9 million to purchase property and equipment and
$217.3 million to purchase marketable securities offset by $194.1 million in
proceeds from the sale of marketable securities, $39.8 million in proceeds from
the sale of towers and $11.5 million from the sale of discontinued operations.
Net cash used in investing activities was $198.4 million in 1999, and net cash
provided by investing activities was $113.2 million in 1998.
Cash flow provided by financing activities was $123.2 million in 2000. We
received $80.6 million in net proceeds from the Stock offering in May 2000,
$5.0 million from the issuance of preferred stock and $52.3 million from long-
term borrowings. Cash used in financing activities consisted of $14.1 million
of principal payments on long-term debt. Net cash provided by financing
activities was $188.0 million in 1999, and net cash used in financing
activities was $71.0 million in 1998.
At December 31, 2000, we have approximate $180.6 million of cash and
marketable securities and $80 million of available credit to fund our remaining
build out plans, cover anticipated operating losses and meet our debt service
requirements. We believe that these funds are sufficient to meet our
foreseeable future needs.
Inflation
We believe that inflation has not impaired, and will not impair, our
results of operations.
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk
Quantitative and Qualitative Disclosure about Market Risk
The following discussions about our market risk include "forward looking"
statements that involve risk and uncertainties. Actual results could differ
from those contemplated in the forward-looking statements.
We are exposed to market risks, primarily interest rate risk. The adverse
effects of potential changes in these market risks are discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity nor do they consider
30
additional actions management may take to mitigate our exposure to such
changes. See the Notes to the consolidated Financial Statements for a
description of our accounting policies and other information related to these
financial instruments. We do not engage in speculative transactions and do not
use derivative instruments or engage in hedging activities.
We place our short-term investments (principally cash equivalents and
marketable debt securities), which generally have a term of 30-60 days, with
high quality financial institutions, limit the amount of credit exposure to any
one institution and have investment guidelines relative to diversification and
maturities designed to maintain safety and liquidity.
At December 31, 2000, we had short-term investments totaling approximately
$165 million. A 1% decrease would have resulted in a decrease in interest rates
related to these short-term investments in interest income of approximately
$1.5 million in 2000.
At December 31, 2000, our outstanding long-term debt consisted of $400
million in Senior Subordinated Discount Notes (the Notes) and a $50 million
draw against our $130 million senior credit facility. Interest on the Notes is
fixed at 13 3/8% but does not begin to accrue until November 11, 2004. At
December 31, 2000, the market value of the Notes was estimated to be $182.0
million.
Borrowings under the senior credit facility totaled $50 million at
December 31, 2000. These borrowings bear interest at a variable rate. A 1%
increase in interest rates in 2000 would not have resulted in a material
increase in interest expense for the year ended December 31, 2000.
ITEM 8. Financial Statements
Our financial statements are listed under Item 14(a) of this annual report
and are filed as part of this report on the pages indicated.
ITEM 9. Changes In And Disagreement With Accountants on Accounting And
Financial Disclosure
None.
PART III
ITEM 10. Directors And Executive Officers Of The Registrant
The sections under the headings "Election of Directors" in the proxy
statement for the annual meeting of stockholders currently scheduled to be held
April 26, 2001 are incorporated herein by reference. See "Item 4A. Executive
Officers of the Registrant" for information regarding our executive officers.
Item 11. Executive Compensation
The section "Executive Compensation" of the proxy statement is
incorporated herein by reference.
31
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The section "Stock Ownership of Directors and Officers" and "Stock
Ownership of Certain Beneficial Owners" of the proxy statement is incorporated
herein by reference.
Item 13. Certain Relationships And Related Transactions
The section "Certain Transactions" of the proxy statement is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement, Schedules, And Reports on Form 8-K
a. Financial Statements
Listed in the Index to Financial Statements provide in response to item 8
hereof (see page F-1 for Index).
b. Financial Statement schedule
Listed in the Index to Financial Statements provide in response to item 8
hereof (see page F-1 for Index).
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
c. Reports on Form 8-K
d. Exhibits
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
------- ---------------------- ------------
3.1 First Restated Articles of Incorporation of US Unwired
Inc.
3.2* By-laws of US Unwired Inc.
3.3+ Certificate of Amendment to By-Laws of US Unwired Inc.
4.1* Indenture dated as of October 29, 1999 among US Unwired
Inc., the Guarantors (as defined therein) and State
Street Bank and Trust Company.
4.2* Pledge and Security Agreement dated as of October 29,
1999 by and between Louisiana Unwired, LLC and State
Street Bank and Trust Company.
4.3* Intercreditor Agreement dated as of October 29, 1999
between CoBank, ACB and State Street Bank and Trust
Company.
10.1* Shareholders Agreement dated as of September 24, 1999
among US Unwired Inc. and the shareholders of US
Unwired Inc. who are signatories thereto.
10.2 Amended and Restated US Unwired Inc. 1999 Equity
Incentive Plan.
32
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
------- ---------------------- ------------
10.3 Employment contract between US Unwired Inc. and
William L. Henning, Jr.
10.4 Employment contract between US Unwired Inc. and Robert
W. Piper
10.5 Employment contract between US Unwired Inc. and Thomas
G. Henning
10.6 Employment contract between US Unwired Inc. and Jerry
E. Vaughn
10.7* Registration Rights Agreement dated as of October 29,
1999 between US Unwired Inc. and The 1818 Fund, L.P.
10.8** First Amendment to Registration Rights Agreement dated
as of February 15, 2000 by and among US Unwired Inc.,
The 1818 Fund III, L.P., 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 Mezanine Trust II, TCW/Crescent Mezzanine
Partners II, L.P. and Brown University Third Century
Fund.
10.9* Shareholders Agreement dated as of October 29, 1999 by
and among US Unwired Inc., The 1818 Fund III, L.P. and
the shareholders of US Unwired Inc. who are
signatories thereto.
10.10** First Amendment to Shareholders Agreement dated as of
February 15, 2000 by and among US Unwired Inc., The
1818 Fund III, L.P., 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 II, TCW/Crescent
Mezzanine Partners II, L.P. and Brown University Third
Century Fund.
10.11+ Form of Second Amendment to Shareholders Agreement
among US Unwired Inc., The 1818 Fund III, L.P., 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 II, TCW/Crescent Mezzanine Partners II, L.P. and
Brown University Third Century Fund, and the
shareholders of US Unwired Inc. named therein.
10.12*** Sprint PCS Management Agreement dated February 8, 1999
among Wirelessco, L.P., Sprint Spectrum L.P.,
SprintCom, Inc. and Louisiana Unwired, LLC, including
Sprint Trademark and Service Mark License Agreement
and Sprint Spectrum Trademark and Service Mark License
Agreement.
10.13+++ Addendum III to Sprint PCS Management Agreement dated
February 8, 1999 among Wirelessco, L.P.,Sprint
Spectrum L.P., SprintCom, Inc. and Louisiana Unwired
10.14*** Sprint PCS Management Agreement dated June 8, 1998
among Wirelessco, L.P., Sprint Spectrum L.P.,
SprintCom, Inc. and Louisiana Unwired, LLC, including
Sprint Trademark and Service Mark License Agreement
and Sprint Spectrum Trademark and Service Mark License
Agreement.
10.15+++ Addendum V to Sprint PCS Management Agreement dated
June 8, 1998 among Wirelessco, L.P.,Sprint Spectrum
L.P., SprintCom, Inc. and Louisiana Unwired
10.16*** Sprint PCS Management Agreement dated as of January 7,
2000 among Wirelessco, L.P. Sprint Spectrum L.P.,
SprintCom, Inc. and Texas Unwired, including Sprint
Trademark and Service Mark License Agreement and
Sprint Spectrum Trademark and Service Mark License
Agreement.
10.17+++ Addendum II to Sprint PCS Management Agreement dated
January 7, 2000 among Wirelessco, L.P.,Sprint Spectrum
L.P., SprintCom, Inc. and Texas Unwired
33
Sequentially
Exhibit Numbered
Number Description of Exhibit Pages
------- ---------------------- ------------
10.18*** Consent and Agreement dated as of June 23, 1999
between Sprint Spectrum L.P., SprintCom, Inc., Sprint
Communications Company, L.P., Wirelessco, L.P. and
CoBank, ACB.
10.19*** Consent and Agreement dated as of October 26, 1999
between Sprint Spectrum L.P., SprintCom, Inc., Sprint
Communications Company, L.P., Wirelessco, L.P. and
CoBank, ACB.
10.20** Headquarters Building Lease between Calcasieu Marine
National Bank of Lake Charles and Mercury, Inc., as
amended.
10.21** Management and Construction Agreement dated as of
January 1, 1999 by and between US Unwired Inc. and
Louisiana Unwired, LLC.
10.22** Authorized Dealer Agreement dated as of May 13, 1998
by and between US Unwired Inc. and Louisiana Unwired,
LLC.
10.23** Agreement dated as of May 13, 1998 by and between US
Unwired Inc. and Louisiana Unwired, LLC for Louisiana
Unwired, LLC to do business as US Unwired
10.24** Billing Agreement dated as of May 13, 1998 by and
between Unibill, Inc. and Louisiana Unwired, LLC.
10.25** Long Distance Agreement dated as of June 10, 1998 by
and between Cameron Communications Corporation and US
Unwired Inc.
10.26* Credit Agreement dated as of October 1, 1999 by and
among US Unwired Inc., as Borrower, and CoBank, ACB,
as Administrative Agent and a Lender, First Union
Capital Markets Corp., as Syndication Agent and a Co-
Arranger, The Bank of New York, as Documentation
Agent and a Lender, BNY Capital Markets, Inc., as a
Co-Arranger, First Union National Bank, as a Lender,
and the other Lenders referred to therein.
10.27*** Loan Agreement dated as of January 1, 2000 by and
between Texas Unwired and Louisiana Unwired, LLC.
10.28**** Letter Agreement dated November 19, 1999 between US
Unwired Inc. and Meretel Communications, L.P.
10.29** Omnibus Agreement dated as of September 7, 1999 by
and among US Unwired Inc., EATELCORP, Inc., Fort Bend
Telephone Compnay, XIT Leasing, Inc., Wireless
Management Corporation, Meretel Commucations Limited
Partnership and Meretel Wireless, Inc.
10.30*** First Amendment dated as of February 9, 2000 to the
Omnibus Agreement made and entered into by and among
Unwired Telecom Corp., EATELCORP, Inc., Fort Bend
Telephone Company, XIT Leasing, Inc., Wireless
Management Corporation, Meretel Communications
Limited Partnership, and Meretel Wireless, Inc.
10.31*** Telecom Distribution Agreement dated as of January 1,
2000 between Unwired Telecom Corp. and US Unwired
Inc.
10.32*** Telecom Contribution Agreement dated as of January 1,
2000 between US Unwired Inc. and Louisiana Unwired,
LLC.
10.33++ Asset Purchase Agreement by and between Lo