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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X[ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
_____________.
Commission file number ...000-22003...
US UNWIRED INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-1457316
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Lakeshore Drive
Lake Charles, LA 70601
(Address of principal executive offices) (Zip code)
(337) 436-9000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 128,822,372 shares of common stock, $0.01 par value per share,
outstanding at August 1, 2002.
1
Part I - Financial Information
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Part II - OTHER INFORMATION
Item 2. Changes in Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
2
Part I Financial Information
Item 1. Financial Statements
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2002 2001
---- ----
(Unaudited) (Note 1)
Assets
Current assets:
Cash and cash equivalents $ 39,453 $100,589
Investment securities at amortized cost held to maturity 54,077 --
Restricted cash 33,849 --
Subscriber receivables, net 43,849 30,011
Other receivables 1,759 10,042
Inventory 8,863 7,691
Prepaid expenses and other assets 16,269 9,373
Receivables from related parties 881 705
Receivables from officers 138 138
---------- --------
Total current assets 199,138 158,549
Property and equipment, net 478,441 255,761
Restricted cash 18,100 --
Goodwill and other intangibles, net 565,415 32,840
Notes receivable from unconsolidated affiliates 1,772 1,735
Other assets 46,387 25,649
---------- --------
Total assets $1,309,253 $474,534
========== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $44,935 $26,602
Accrued expenses 69,743 27,156
Current maturities of long term obligations 2,139 693
---------- --------
Total current liabilities 116,817 54,451
Long term obligations, net of current maturities 721,693 338,675
Deferred gain 35,704 38,216
Investments in and advances to unconsolidated affiliates 3,247 3,554
Stockholders' equity:
Common stock 1,288 844
Additional paid in capital 655,119 185,127
Retained deficit (224,441) (146,333)
Promissory note (174) --
---------- --------
Total stockholders' equity 431,792 39,638
---------- --------
Total liabilities and stockholders' equity $1,309,253 $474,534
========== ========
See accompanying notes to condensed consolidated financial statements
3
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Subscriber $89,553 $33,721 $145,668 $60,752
Roaming 49,601 19,927 80,344 34,947
Merchandise sales 4,742 3,586 9,029 8,023
Other revenue 516 1,447 1,441 2,852
--------- --------- --------- ---------
Total revenue 144,412 58,681 236,482 106,574
Expense:
Cost of service 64,861 25,898 104,836 47,047
Merchandise cost of sales 10,317 5,629 18,307 15,874
General and administrative 38,097 11,313 64,066 23,541
Sales and marketing 28,381 14,710 49,925 30,464
Non-cash stock compensation 1,236 1,310 2,402 2,632
Depreciation and amortization 31,650 15,760 45,835 30,021
--------- --------- --------- ---------
Total operating expense 174,542 74,620 285,371 149,579
--------- --------- --------- ---------
Operating loss (30,130) (15,939) (48,889) (43,005)
Other income (expense):
Interest expense (19,779) (8,022) (29,886) (14,744)
Gain on sale of assets 3 7,273 3 8,219
--------- --------- --------- ---------
Total other expense (19,776) (749) (29,883) (6,525)
Loss before equity in income (loss) of unconsolidated
affiliates (49,906) (16,688) (78,772) (49,530)
Equity in income (loss) of unconsolidated affiliates 160 (1,125) 665 (870)
--------- --------- --------- ---------
Net loss $(49,746) $(17,813) $(78,107) $(50,400)
========= ========= ========= =========
Basic and diluted loss per share $(0.39) $(0.21) $(0.73) $(0.61)
========= ========= ========= =========
Weighted average outstanding common shares 128,777 84,020 107,353 82,369
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements
4
US UNWIRED INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
For the six months ended
June 30,
2002 2001
---- ----
Cash flows from operating activities
Net cash used in operating activities $ (16,536) $ (14,555)
Cash flows from investing activities
Payments for the purchase of equipment (63,202) (55,072)
Acquisition of business, net of cash acquired (61,475) --
Proceeds from maturities of investments 10,935 --
Proceeds from sale of assets 10,016 44,133
Sale of marketable securities -- 176,705
Purchase of marketable securities -- (12,544)
Proceeds from restricted cash -- 5,753
Investments in unconsolidated affiliates -- (547)
---------- ---------
Net cash (used in) provided by investing activities (103,726) 158,428
Cash flows from financing activities
Proceeds from long-term debt 60,000 1,822
Proceeds from stock options exercised 212 550
Proceeds from promissory notes 19 --
Principal payments of long-term debt (343) (373)
Debt issuance costs (762) (130)
---------- ---------
Net cash provided by financing activities 59,126 1,869
---------- ---------
Net (decrease) increase in cash and cash equivalents (61,136) 145,742
Cash and cash equivalents at beginning of period 100,589 15,136
---------- ---------
Cash and cash equivalents at end of period $ 39,453 $ 160,878
========== =========
See accompanying notes to condensed consolidated financial statements.
5
US UNWIRED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for fair
presentation have been included. Operating results for the three and
six-month periods ended June 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002.
The condensed consolidated balance sheet at December 31, 2001 has been
derived from the audited financial statements at that date but does not
include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. The condensed consolidated financial statements contained
herein should be read in conjunction with the financial statements and
notes included in the Form 10-K for US Unwired Inc. for the year ended
December 31, 2001, filed on March 5, 2002 with the Securities and Exchange
Commission.
2. Description of the Organization
US Unwired Inc. ("the Company") is principally engaged in the ownership and
operation of wireless communications systems, consisting of personal
communications systems ("PCS"), cellular and paging communication systems
in the southern and northeastern regions of the United States.
3. Acquisitions
On March 8, 2002, the Company acquired 100% of the ownership interests of
Georgia PCS Management, LLC (Georgia PCS) for approximately $84.5 million
in Company stock and cash. Georgia PCS provides PCS services and related
products to customers in the northeastern United States as part of Sprint
PCS's network The service area of Georgia PCS is adjacent to the Company's
existing markets and is also adjacent on the north and the south to
Atlanta, where service is provided by Sprint PCS. Georgia PCS has completed
its initial build out, and as of June 30, 2002 provided network coverage to
approximately 70% of the 1.4 million residents in its service area. As a
result, management believes that it has access to some of the most
attractive and fastest growing markets in the southern United States, which
allow the Company to leverage its existing operations and experience with
other markets in the Company's territory.
An aggregate 5.4 million common shares of the Company's stock valued at
$28.4 million were exchanged for the outstanding membership units of
Georgia PCS. The value of the 5.4 million shares issued was based on the
average market price of the Company's common shares over the period
including the five days before and after the first day the number of common
shares to be issued became fixed. Of the Company's 5.4 million common
shares issued, 1.1 million shares are being held in escrow pending
resolution of certain post closing adjustments. Additionally, the Company
repaid approximately $54.3 million of Georgia PCS's indebtedness and other
obligations. The Company has incurred approximately $1.8 million in closing
costs associated with the acquisition.
The acquisition has been accounted for using the purchase method of
accounting. The aggregate purchase price has been allocated to the assets
acquired and liabilities assumed based on the Company's initial estimate of
their fair values. The excess of the purchase price over the fair value of
the net identifiable assets has been allocated to goodwill. The Company's
operating results include the
6
operating results of Georgia PCS since the date of acquisition, March 8,
2002.
On April 1, 2002, the Company acquired 100% of the ownership interest in
IWO Holdings, Inc. ("IWO") for approximately $447.8 million in Company
stock. IWO provides PCS services and related products to customers in the
northeastern United States as part of Sprint PCS's network. IWO's service
area consists of a large portion of upstate New York, New Hampshire,
Vermont and portions of Massachusetts and Pennsylvania with a total
population of approximately 6.3 million residents. Management believes that
the high population density and high median household income of these
markets as well as IWO's experienced management team strengthen the
Company's long-term ability to be a leader in the wireless communication
industry. As consideration for the acquisition, the Company issued to the
former stockholders of IWO approximately 39.0 million shares of the
Company's common stock and reserved approximately 6.9 million additional
shares of its common stock for issuance upon the exercise of options and
warrants that the Company assumed or exchanged in connection with the
acquisition. The value of the common shares issued was based on the market
price of the common stock of $10.00 per share at the close of business on
December 19, 2001, the date the terms of the acquisition were agreed to and
announced.
The acquisition has been accounted for using the purchase method of
accounting. The aggregate purchase price has been allocated to the assets
acquired and liabilities assumed based on the Company's initial estimate of
their fair values. The excess of the purchase price over the fair value of
the net identifiable assets has been allocated to goodwill. The Company's
operating results include the operating results of IWO from the date of the
acquisition, April 1, 2002.
The Company is in the process of obtaining independent valuations from a
national valuation firm to assist in the allocation of the purchase price
for Georgia PCS and IWO. The Company expects to receive final valuation
reports from the independent national valuation firm before December 31,
2002.
The following represents the Company's initial allocation of the purchase
prices:
Georgia PCS IWO Total
----------- --- -----
(In thousands)
Consideration:
Common stock $ 28,391 $389,828 $418,219
Stock options and warrants --- 49,410 49,410
Debt retired of acquired company 52,982 --- 52,982
Cash, including merger related costs 3,090 8,561 11,651
-------- -------- --------
Total purchase price $ 84,463 $447,799 $532,262
======== ======== ========
Allocated to:
Working capital $ (5,056) $ 43,289 $ 38,233
Restricted cash and US Treasury obligations --- 28,100 28,100
Investment securities --- 3,103 3,103
Property and equipment 35,298 164,126 199,424
Deferred financing costs and other assets --- 21,768 21,768
Long-term debt --- (306,000) (306,000)
Acquired customer base 12,300 57,500 69,800
Sprint affiliation agreement 15,500 215,000 230,500
Goodwill 26,421 220,913 247,334
-------- -------- --------
Total $ 84,463 $447,799 $532,262
======== ======== ========
The Company is amortizing the acquired customer base over a period of 24
months and the Sprint affiliation agreements over the remaining life of the
agreements - approximately 18 years. None of the above goodwill is expected
to be tax deductible.
The following unaudited supplemental pro forma information for the three
and six-month periods ended June 30, 2002 and 2001 presents the results of
operations as if the IWO acquisition had occurred
7
at the beginning of the period and are not necessarily indicative of future
results or actual results that would have been achieved had these
acquisitions occurred as of the beginning of the period.
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands except earnings per share)
Revenues $ 144,412 $ 83,548 $ 272,015 $ 151,788
========= ========= ========== =========
Net loss $ (49,746) $ (34,521) $ (114,491) $ (81,827)
========= ========= ========== =========
Loss per share $ (.39) $ (.41) $ (0.90) $ (.99)
========= ========= ========== =========
4. Details of Certain Balance Sheet Accounts
Major categories of property and equipment consisted of the following:
June 30, December 31,
2002 2001
---- ----
(In thousands)
Land $ 890 $ 656
Buildings and leasehold improvements 21,513 11,418
Facilities and equipment 545,338 337,955
Furniture, fixtures and vehicles 9,422 6,447
Construction in progress 48,039 15,750
-------- --------
625,202 372,226
Less accumulated depreciation an amortization 146,761 116,465
-------- --------
$478,441 $255,761
======== ========
Goodwill and other intangibles consisted of the following:
June 30, December 31,
2002 2001
---- ----
(In thousands)
Goodwill $273,906 $31,032
Sprint affiliation agreement 230,500 ---
Subscriber base 81,824 12,024
-------- -------
586,230 43,056
Less: accumulated amortization 20,815 10,216
-------- -------
$565,415 $32,840
======== =======
5. Long-Term Obligations
Long-term debt reflects the inclusion of the IWO long-term debt on April 1,
2002 and consisted of the following:
June 30, December 31,
2002 2001
---- ----
Debt outstanding under senior credit facilities:
Senior subordinated discount notes $432,177 $277,369
Bank credit facilities 280,000 50,000
Capital leases 7,483 7,691
Other financing 4,172 4,308
-------- --------
Total long-term obligations 723,832 339,368
Less current maturities 2,139 693
-------- --------
Long-term obligations, excluding current maturities $721,693 $338,675
======== ========
8
As of June 30, 2002, $126.6 million remained available for borrowing under
the senior bank credit facilities.
Senior Subordinated Discount Notes - 13 3/8%
In October 1999, the Company issued $400 million in aggregate principal
amount of its 13 3/8% Senior Subordinated Discount Notes due November 1,
2009 ("the US Unwired Notes"). The US Unwired Notes were issued at a
substantial discount such that the Company received gross proceeds of
approximately $209.2 million. The US Unwired Notes increase in value daily,
compounded twice per year, at the rate of 13 3/8% per year until November
1, 2004. On that date, the value of the US Unwired Notes will be equal to
the face amount of the US Unwired Notes and interest will begin to accrue
at the rate of 13 3/8% per year. The Company will be required to pay the
accrued interest beginning May 1, 2005, and on each November 1 and May 1
thereafter. The US Unwired Notes are a general unsecured obligation of the
Company, except for the limited security provided by a pledge agreement by
the Company's wholly owned subsidiary, Louisiana Unwired LLC ("LA
Unwired"). The US Unwired Notes rank junior to all existing and future
senior debt of the Company and equal in right of payment of any future
senior subordinated indebtedness of the Company.
The US Unwired Notes are fully, unconditionally, and jointly and severally
guaranteed by two of the Company's wholly owned subsidiaries: LA Unwired
and Unwired Telecom Corp. ("Unwired Telecom"). Each of the guarantees is a
general unsecured obligation of the guarantor except for a pledge by LA
Unwired of its interest in Texas Unwired and any notes payable to it by
Texas Unwired as security for the guarantee. Each of the guarantees ranks
equally in right of payment with the guarantor's future senior subordinated
indebtedness and is subordinated in right of payment to all existing and
future senior debt of the guarantor. The US Unwired Notes are not
guaranteed by IWO.
Senior Subordinated Discount Notes - 14%
In February 2001, IWO issued 160,000 units, each consisting of $1,000
principal amount of 14% Senior Notes ("the IWO Notes") due January 15, 2011
and one warrant to purchase 12.50025 shares of IWO's class C common stock
at an exercise price of $7.00 per share. As a result of the acquisition,
this warrant was converted to a US Unwired warrant to purchase 12.96401
shares of the Company's common stock. Interest is payable semi-annually on
January 15 and July 15 of each year. Independent Wireless One Corporation,
a wholly owned subsidiary of IWO, is the sole guarantor of the IWO Notes.
All of IWO's restricted subsidiaries formed or acquired after the issuance
of the IWO Notes that guarantee IWO's senior bank credit facility will also
be required to guarantee the IWO Notes. The IWO Notes are not guaranteed by
Independent Wireless One Realty Corporation, a wholly owned subsidiary of
the Company or its subsidiaries - LA Unwired and Unwired Telecom.
A portion of the original proceeds of the IWO Notes were used to purchase a
portfolio of U.S. government securities which will generate sufficient
proceeds to make the first six scheduled interest payments on the IWO
Notes. The account holding the investment securities and all of the
securities and other items contained in the account have been pledged to
the trustee for the benefit of the holders of the IWO Notes.
9
Senior Bank Credit Facility - $170 million
The $170 million senior bank credit facility consists of a $78.7 million
reducing revolving credit facility and $90 million in term loans. The
reducing revolver is permanently reduced in quarterly installments
beginning June 2002 with the first installment of $1.3 million. The senior
bank credit facility matures in 2008. Effective June 6, 2002, the Company
amended its $170 million senior bank credit facility to allow for letters
of credit. Any letters of credit issued by the Company reduce the amount
available under the reducing revolving credit facility. The term loans will
be repaid in quarterly installments beginning in June 2003. All loans under
the senior bank credit facility bear interest at variable rates tied to the
federal funds rate or LIBOR. The credit facility is secured by all of the
assets of the Company and its subsidiaries (other than property owned by
IWO which the Company acquired on April 1, 2002). At June 30, 2002, the
Company had $78.2 million available under this facility.
Senior Bank Credit Facility - $240 million
Effective December 2000, IWO entered into an amended and restated a secured
credit facility ("the IWO Credit Facility") under which it may borrow up to
$240 million in the aggregate consisting of up to $70 million in revolving
loans and $170 million in term loans. The IWO Credit Facility matures in
2008. The term loans will be repaid in quarterly installments beginning in
March 2004 and the reducing revolver matures in March 2008. All loans under
the IWO Credit Facility bear interest at variable rates tied to the prime
rate, the federal funds rate or LIBOR. The IWO Credit Facility is secured
by all of the assets of IWO and its subsidiaries. At June 30, 2002, the
Company had $48.4 million available under the IWO Credit Facility.
The Company must comply with certain financial and operating covenants for
subordinated discount notes and the senior credit facilities, and at June
30, 2002, the Company was in compliance with these restrictive covenants.
6. Goodwill and Other Intangible Assets - Adoption of Statement 142
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statement. Other
intangible assets will continue to be amortized over their estimated useful
lives.
The Company adopted these new rules on accounting for goodwill and other
intangible assets on January 1, 2002. During the second quarter of 2002,
the Company completed the first of the required impairment tests of
goodwill and indefinite lived assets as of January 1, 2002 and determined
that the adoption of this provision of the new rules had no impact on the
Company's financial statements.
The following information provides net loss and net loss per share
information for the three and six-month periods ended June 30, 2001
adjusted to exclude amortization expense recognized in these periods
related to goodwill.
Three months ended Six months ended
June 30, 2001 June 30, 2001
------------- -------------
(In thousands)
Reported net loss $ (17,813) $ (50,400)
Add back: Goodwill amortization 1,108 1,605
--------- ---------
Adjusted net loss $ (16,705) $ (48,795)
========= =========
10
Basis and diluted loss per share:
Three months ended Six months ended
June 30, 2001 June 30, 2001
------------------- -------------------
Reported net loss $(.21) $(.61)
Add back: Goodwill amortization .01 .02
------ ------
Adjusted net loss $(.20) $(.59)
====== ======
7. Change in Accounting Estimate
Effective July 1, 2001, the Company revised its estimated lives for certain
depreciable assets. The estimated lives of network switch equipment was
increased from five to seven years, cell site towers from five to 10 years
and related cell site equipment from five to seven years. The Company
revised these estimates after considering the impact of certain upgrades to
its network that management believes extends the useful lives of these
assets. This change resulted in a reduction of depreciation expense of
approximately $6.6 million for the three-month period ended June 30, 2002
and $12.5 million for the six-month period ended June 30, 2002.
8. Commitments and Contingencies
The Company's PCS licenses and the PCS licenses that the Company operates
for Sprint PCS are subject to a requirement that the Company construct
network facilities that offer coverage to 25% of the population or have
substantial service in each of its Basic Trading Areas ("BTAs") within five
years from the grant of the licenses. As of June 30, 2002, management
believes that Sprint PCS has met the requirements necessary for the
licenses that the Company operates for Sprint PCS under the Sprint PCS
management agreements and that the Company has met the requirements
necessary for the licenses that it owns.
The Company uses Sprint PCS to process all PCS subscriber billings
including monthly recurring charges, airtime and other charges such as
access and interconnect fees. The Company pays various fees to Sprint PCS
for new subscribers as well as recurring monthly fees for services
performed for existing customers including billing and management of
customer accounts. Additionally, Sprint PCS has contracted with national
retailers that sell handsets and service to new PCS subscribers in the
Company's markets. Sprint PCS pays these national retailers a new
subscriber commission and provides handsets to such retailers below cost.
Sprint PCS passes these costs of commissions and the handset subsidies to
the Company.
The Company periodically reviews all charges from Sprint PCS and from time
to time, the Company may dispute certain of these charges. Based upon the
information provided to the Company by Sprint PCS to date, the Company
believes the accompanying condensed consolidated balance sheet adequately
reflects its obligation to Sprint PCS for these charges.
On July 3, 2002, the FCC issued an order, involving Sprint PCS, that PCS
wireless carriers could not unilaterally impose terminating long distance
access charges pursuant to FCC commission rules. This FCC order did not
preclude such charges when a contractual basis existed for such. The
Company has previously recognized a portion of the terminating long
distance access revenues billed by Sprint PCS that may not be collectible.
The Company believes the accompanying consolidated balance sheet adequately
reflects any amounts that may ultimately be determined to be not
collectible in connection with this matter.
9. Income Taxes
The Company's effective income tax rate for the interim periods presented
is based on management's estimate of the Company's effective tax rate for
the applicable year and differs from the federal statutory income tax rate
primarily due to nondeductible permanent differences, state income taxes
and changes in the valuation allowance for deferred tax assets.
11
10. Condensed Consolidating Financial Information
As discussed in Note 5, the US Unwired Notes are guaranteed by certain of
the Company's subsidiaries. The following information presents the condensed
consolidating balance sheets as of June 30, 2002 and December 31, 2001 and
the condensed consolidating statements of operations and cash flows for the
three and six-month periods ended June 30, 2002 and June 30, 2001 of (a) the
"Parent" Company, US Unwired Inc., (b) the "Guarantors", Unwired Telecom
Corporation and Louisiana Unwired, and (c) the "Non-Guarantor", IWO Holding
Inc. and includes eliminating entries and the Company on a consolidated
basis.
The separate consolidated financial statements of IWO, including disclosure
of condensed consolidating financial information for IWO, are included in a
separate Form 10-Q filing.
Condensed Consolidating Balance Sheet
June 30, 2002
-------------
Unwired Louisiana IWO
US Unwired Telecom Unwired Holding
Inc. Corporation LLC Total Corporation Consolidating
(Parent) (Guarantor) (Guarantor) Guarantors (Non-Guarantor Entries Consolidated
------- ---------- ---------- ---------- -------------- ------- ------------
(In thousands
ASSETS:
Current Assets
Cash and cash equivalents $ 31,485 $ 2,517 $ 4,654 $ 7,171 $ 797 $ --- $ 39,453
Subscriber receivables, net --- 2,686 30,882 33,568 10,281 --- 43,849
Investment securities at amortized cost held
to maturity --- --- --- --- 54,077 --- 54,077
Restricted cash --- --- --- --- 33,849 --- 33,849
Other receivables 65 --- 408 408 1,286 --- 1,759
Inventory --- 249 4,054 4,303 4,560 --- 8,863
Prepaid expenses and other assets 1,526 106 11,218 11,324 3,419 --- 16,269
Receivables from (payables to) related
parties 7,948 4,236 (11,302) (7,066) 21 (22) 881
Receivables from officers 138 --- --- --- --- --- 138
--------- --------- --------- --------- --------- ---------- ----------
Total current assets 41,162 9,794 39,914 49,708 108,290 (22) 199,138
Property and equipment, net 13,262 9,735 285,221 294,956 170,223 --- 478,441
Restricted cash --- --- --- --- 18,100 --- 18,100
Goodwill and other intangible assets, net --- --- 82,148 82,148 507,612 (24,345) 565,415
Notes receivable from unconsolidated
affiliates 160,571 18,522 --- 18,522 174 (177,495) 1,772
Other assets 12,169 93 12,066 12,159 22,059 --- 46,387
--------- --------- --------- --------- --------- ---------- ----------
Total assets $ 227,164 $ 38,144 $ 419,349 $ 457,493 $ 826,458 $ (201,862)$1,309,253
========== ========= ========= ========= ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,903 $ 1,485 $ 21,104 $22,589 $ 19,443 $ --- $44,935
Accrued expenses 3,515 716 31,460 32,176 34,052 --- 69,743
Current maturities of long term obligations 18,398 58 161,004 161,062 --- (177,321) 2,139
--------- --------- --------- --------- --------- ---------- ----------
Total current liabilities 24,816 2,259 213,568 215,827 53,495 (177,321) 116,817
Long term obligations, net of current
maturities 387,938 341 7,049 7,390 326,365 --- 721,693
Deferred tax liability --- --- --- --- 21,723 (21,723) ---
Deferred gain --- 81 35,623 35,704 --- --- 35,704
Investments in and advance to unconsolidated
affiliates (572,961) 2,846 (471,307) (468,461) --- 1,044,669 3,247
Stockholders' equity:
Common stock 1,288 600 --- 600 1 (601) 1,288
Additional paid in capital 656,840 1,347 857,245 858,592 447,991 (1,308,304) 655,119
Retained deficit (270,757) 30,670 (222,829) (192,159) (23,117) 261,592 (224,441)
Promissory note --- --- --- --- --- (174) (174)
---------- --------- --------- --------- --------- ---------- ----------
Total stockholder's equity 387,371 32,617 634,416 667,033 424,875 (1,047,487) 431,792
---------- --------- --------- --------- --------- ---------- ----------
Total liabilities and stockholders' equity $ 227,164 $ 38,144 $ 419,349 $ 457,493 $ 826,458 $ (201,862)$1,309,253
========== ========= ========= ========= ========= ========== ==========
12
Condensed Consolidating Balance Sheet
December 31, 2001
------------------
Unwired Louisiana
US Unwired Telecom Unwired
(Parent) Corporation LLC Total Consolidating
Inc. (Guarantor) (Guarantor) Guarantors Entries Consolidated
---------- ---------- ---------- ---------- ------- ------------
(In thousands)
ASSETS:
Current Assets
Cash and cash equivalents $ 79,184 $ 4,419 $ 16,986 $ 21,405 $ -- $ 100,589
Subscriber receivables, net -- 4,809 25,202 30,011 -- 30,011
Other receivables 203 88 9,751 9,839 -- 10,042
Inventory -- 630 7,061 7,691 -- 7,691
Prepaid expenses and other assets 608 74 8,691 8,765 -- 9,373
Receivables from (payables to) related parties 5,039 5,404 (9,359) (3,955) (379) 705
Receivables from officers 138 -- -- -- -- 138
--------- --------- --------- --------- --------- ---------
Total current assets 85,172 15,424 58,332 73,756 (379) 158,549
Property and equipment, net 13,603 10,188 231,970 242,158 -- 255,761
Goodwill and other intangible assets, net 27,060 -- 5,780 5,780 -- 32,840
Notes receivable from unconsolidated affiliates 127,830 7,735 -- 7,735 (133,830) 1,735
Other assets 12,169 57 13,423 13,480 -- 25,649
--------- --------- --------- --------- --------- ---------
Total assets $ 265,834 $ 33,404 $ 309,505 $ 342,909 $(134,209) $ 474,534
========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,339 $ 1,569 $ 23,694 $ 25,263 -- $ 26,602
Accrued expenses 2,175 810 24,171 24,981 -- 27,156
Current maturities of long term obligations 6,215 56 128,252 128,308 (133,830) 693
--------- --------- --------- --------- --------- ---------
Total current liabilities 9,729 2,435 176,117 178,552 (133,830) 54,451
Long term obligations, net of current maturities 331,036 370 7,269 7,639 -- 338,675
Deferred gain -- 43 38,173 38,216 -- 38,216
Investments in and advance to unconsolidated
affiliates (76,318) 3,153 -- 3,153 76,719 3,554
Stockholders' equity:
Common stock 844 600 -- 600 (600) 844
Additional paid in capital 187,041 1,347 -- 1,347 (3,261) 185,127
Retained deficit (186,498) 25,456 87,946 113,402 (73,237) (146,333)
--------- --------- --------- --------- --------- ---------
Total stockholder's equity 1,387 27,403 87,946 115,349 (77,098) 39,638
--------- --------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 265,834 $ 33,404 $ 309,505 $ 342,909 $(134,209) $ 474,534
========= ========= ========= ========= ========= =========
13
Condensed Consolidating Statement of Operations
Three-month period ended June 30, 2002
--------------------------------------
Unwired Louisiana IWO
US Unwired Telecom Unwired Holding
Inc. Corporation LLC Total Corp Consolidating
(Parent) (Guarantor) (Guarantor) Guarantors (Non-Guarantor) Entries Consolidated
------- ---------- ---------- ---------- -------------- ------------- ------------
(In thousands)
Revenues:
Subscriber $ -- $ 3,417 $ 57,709 $ 61,126 $ 28,427 $ -- $ 89,553
Roaming -- 2,959 37,534 40,493 9,108 -- 49,601
Merchandise sales -- 146 2,562 2,708 2,034 -- 4,742
Other revenue 6,725 122 222 344 7 (6,560) 516
--------- --------- --------- --------- --------- --------- ---------
Total revenues 6,725 6,644 98,027 104,671 39,576 (6,560) 144,412
Operating expenses:
Cost of service -- 1,292 44,829 46,121 18,837 (97) 64,861
Merchandise cost of goods sold -- 302 7,307 7,609 2,708 -- 10,317
General and administrative 6,726 899 24,969 25,868 11,966 (6,463) 38,097
Sales and marketing -- 1,053 18,690 19,743 8,638 -- 28,381
Non-cash stock compensation 1,108 80 48 128 -- -- 1,236
Depreciation and amortization 1,020 552 15,373 15,925 14,705 -- 31,650
--------- --------- --------- --------- --------- --------- ---------
Total operating expense 8,854 4,178 111,216 115,394 56,854 (6,560) 174,542
--------- --------- --------- --------- --------- --------- ---------
Operating loss (2,129) 2,466 (13,189) (10,723) (17,278) -- (30,130)
Other income (expense)
Interest income (expense) (9,444) 192 (2,066) (1,874) (8,461) -- (19,779)
Gain on sale of assets -- -- 3 3 -- -- 3
--------- --------- --------- --------- --------- --------- ---------
Total other income (expense) (9,444) 192 (2,063) (1,871) (8,461) -- (19,776)
Equity in income (losses) of
wholly-owned subsidiaries (41,260) 130 (23,117) (22,987) -- 64,407 160
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax
benefit (52,833) 2,788 (38,369) (35,581) (25,739) 67,029 (49,746)
Income tax benefit -- -- -- -- 2,622 (2,622) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ (52,833) $ 2,788 $ (38,369) $ (35,581) $ (23,117) $ 61,785 $ (49,746)
========= ========= ========= ========= ========= ========= =========
Condensed Consolidating Statement of Operations
Three-month period ended June 30, 2001
--------------------------------------
Unwired Louisiana
US Unwired Telecom Unwired
Inc. Corporation LLC Total Consolidating
(Parent) (Guarantor) (Guarantor) Guarantors Entries Consolidated
------- ---------- ---------- ---------- ------- ------------
(In thousands)
Revenues:
Subscriber $ -- $ 4,791 $ 28,930 $ 33,721 $ -- $ 33,721
Roaming -- 2,678 17,249 19,927 -- 19,927
Merchandise sales -- 108 3,478 3,586 -- 3,586
Other revenue 7,592 137 300 437 (6,582) 1,447
-------- -------- -------- -------- -------- --------
Total revenues 7,592 7,714 49,957 57,671 (6,582) 58,681
Operating expenses:
Cost of service -- 1,978 24,014 25,992 (94) 25,898
Merchandise cost of goods sold -- 442 5,187 5,629 -- 5,629
General and administrative 7,592 1,599 8,609 10,208 (6,487) 11,313
Sales and marketing -- 828 13,882 14,710 -- 14,710
Non-cash stock compensation -- -- 88 88 1,222 1,310
Depreciation and amortization 2,359 1,030 12,371 13,401 -- 15,760
-------- -------- -------- -------- -------- --------
Total operating expense 9,951 5,877 64,151 70,028 (5,359) 74,620
-------- -------- -------- -------- -------- --------
Operating loss (2,359) 1,837 (14,194) (12,357) (1,223) (15,939)
Other income (expense)
Interest expense (7,629) (10) (1,605) (1,615) 1,222 (8,022)
Gain on sale of assets -- -- 7,273 7,273 -- 7,273
-------- -------- -------- -------- -------- --------
Total other (income) expense (7,629) (10) 5,668 5,658 1,222 (749)
Equity in (income) losses of
wholly-owned subsidiaries (8,223) 219 -- 219 6,879 (1,125)
-------- -------- -------- -------- -------- --------
Net income (loss) $(18,211) $ 2,046 $ (8,526) $ (6,480) $ 6,878 $(17,813)
======== ======== ======== ======== ======== ========
14
Condensed Consolidating Statement of Operations
Six-month period ended June 30, 2002
------------------------------------
Unwired Louisiana IWO
US Unwired Telecom Unwired Holding
Inc. Corporation LLC Total Corp Consolidating
(Parent) (Guarantor) (Guarantor) Guarantors (Non-Guarantor) Entries Consolidated
------- ---------- ---------- ---------- --------------- ------------ ------------
(In thousands)
Revenues:
Subscriber $ -- $ 6,833 $ 110,408 $ 117,241 $ 28,427 $ -- $ 145,668
Roaming -- 5,871 65,365 71,236 9,108 -- 80,344
Merchandise sales -- 290 6,705 6,995 2,034 -- 9,029
Other revenue 13,652 245 788 1,033 7 (13,251) 1,441
--------- --------- --------- --------- --------- --------- ---------
Total revenues 13,652 13,239 183,266 196,505 39,576 (13,251) 236,482
Operating expenses:
Cost of service -- 2,663 83,523 86,186 18,837 (187) 104,836
Merchandise cost of goods sold -- 756 14,843 15,599 2,708 -- 18,307
General and administrative 13,652 1,930 49,582 51,512 11,966 (13,064) 64,066
Sales and marketing -- 2,025 39,262 41,287 8,638 -- 49,925
Non-cash stock compensation 2,137 162 103 265 -- -- 2,402
Depreciation and amortization 3,132 1,109 26,889 27,998 14,705 -- 45,835
--------- --------- --------- --------- --------- --------- ---------
Total operating expense 18,921 8,645 214,202 222,847 56,854 (13,251) 285,371
--------- --------- --------- --------- --------- --------- ---------
Operating loss (5,269) 4,594 (30,936) (26,342) (17,278) -- (48,889)
Other income (expense)
Interest (income) expense (17,768) 312 (3,969) (3,657) (8,461) -- (29,886)
Gain on sale of assets -- -- 3 3 -- -- 3
--------- --------- --------- --------- --------- --------- ---------
Total other (income) expense (17,768) 312 (3,966) (3,654) (8,461) -- (29,883)
Equity in (income) losses of
wholly-owned subsidiaries (61,222) 308 (23,117) (22,809) -- 84,696 665
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax
benefit (84,259) 5,214 (58,019) (52,805) (25,739) 84,696 (78,107)
Income tax benefit -- -- -- -- 2,622 (2,622) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ (84,259) $ 5,214 $ (58,019) $ (52,805) $ (23,117) $ 82,074 $ (78,107)
========= ========= ========= ========= ========= ========= =========
Condensed Consolidating Statement of Operations
Six-month period ended June 30, 2001
------------------------------------
Unwired Louisiana
US Unwired Telecom Unwired
Inc. Corporation LLC Total Consolidating
(Parent) (Guarantor) (Guarantor) Guarantors Entries Consolidated
------- ---------- ---------- ---------- ------- ------------
(In thousands)
Revenues:
Subscriber $ -- $ 9,534 $ 51,218 $ 60,752 $ -- $ 60,752
Roaming -- 4,927 30,020 34,947 -- 34,947
Merchandise sales -- 270 7,753 8,023 -- 8,023
Other revenue 16,153 254 480 734 (14,035) 2,852
--------- --------- --------- --------- --------- ---------
Total revenues 16,153 14,985 89,471 104,456 (14,035) 106,574
Operating expenses:
Cost of service -- 3,641 43,595 47,236 (189) 47,047
Merchandise cost of goods sold -- 873 15,001 15,874 -- 15,874
General and administrative 16,153 3,305 17,928 21,233 (13,845) 23,541
Sales and marketing -- 1,940 28,524 30,464 -- 30,464
Non-cash stock compensation -- -- 178 178 2,454 2,632
Depreciation and amortization 3,726 1,980 24,315 26,295 -- 30,021
--------- --------- --------- --------- --------- ---------
Total operating expense 19,879 11,739 129,541 141,280 (11,580) 149,579
--------- --------- --------- --------- --------- ---------
Operating loss (3,726) 3,246 (40,070) (36,824) (2,455) (43,005)
Other income (expense)
Interest expense (14,377) (19) (2,803) (2,822) 2,455 (14,744)
Gain on sale of assets -- -- 8,219 8,219 -- 8,219
--------- --------- --------- --------- --------- ---------
Total other (income) expense (14,377) (19) 5,416 5,397 2,455 (6,525)
Equity in (income) losses of
wholly-owned subsidiaries (34,495) 462 -- 462 33,163 (870)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ (52,598) $ 3,689 $ (34,654) $ (30,965) $ 33,163 $ (50,400)
========= ========= ========= ========= ========= =========
15
Condensed Consolidating Statement of Cash Flows
Six-month period ended June 30, 2002
------------------------------------
IWO
US Unwired Louisiana Holding
Unwired Telecom Unwired Corp
Inc. Corporation LLC Total (Non- Consolidating
(Parent) (Guarantor) (Guarantor) Guarantors Guarantor) Entries Consolidated
-------- ---------- ----------- ---------- --------- ------- ------------
Cash flows from operating activities: (In thousands)
Net cash (used in) provided by operating
activities $ (1,575) $ 9,512 $ (11,265) $ (1,753) $ (15,772) $ 2,564 $ (16,536)
Cash flows from investing activities:
Payments for the purchase of equipment (1,486) (636) (44,586) (45,222) (16,494) -- (63,202)
Acquisition of business, net of cash
acquired (61,990) -- 970 970 2,109 (2,564) (61,475)
Proceeds from maturities of investments -- -- -- -- 10,935 -- 10,935
Proceeds from the sale of assets -- -- 10,016 10,016 -- -- 10,016
Disbursement of intercompany note (32,741) (10,750) -- (10,750) -- 43,491 --
--------- --------- --------- --------- --------- --------- ---------
Net cash (used in) provided by investing
activities (96,217) (11,386) (33,600) (44,986) (3,450) 40,927 (103,726)
Cash flows from financing activities:
Proceeds from long-term debt 50,750 -- 56,000 56,000 20,000 (66,750) 60,000
Proceeds from stock options exercised 212 -- -- -- -- -- 212
Proceeds from promissory notes -- -- -- -- 19 -- 19
Principal payments of long-term debt (107) (27) (23,468) (23,495) -- 23,259 (343)
Debt issuance costs (762) -- -- -- -- -- (762)
--------- --------- --------- --------- --------- --------- ---------
Net cash provided by (used in) activities 50,093 (27) 32,532 32,505 20,019 (43,491) 59,126
--------- --------- --------- --------- --------- --------- ---------
Net decrease (increase) in cash and cash
equivalents (47,699) (1,901) (12,333) (14,234) 797 -- (61,136)
Cash and cash equivalents at beginning of
period 79,184 4,418 16,987 21,405 -- -- 100,589
--------- --------- --------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 31,485 $ 2,517 $ 4,654 $ 7,171 $ 797 $ -- $ 39,453
========= ========= ========= ========= ========= ========= =========
Condensed Consolidating Statement of Cash Flows
Six-month period ended June 30, 2001
------------------------------------
US Unwired Louisiana
Unwired Telecom Unwired
Inc. Corporation LLC Total Consolidating
(Parent) (Guarantor) (Guarantor) Guarantors Entries Consolidated
-------- ----------- ----------- ---------- -------------- ------------
Cash flows from operating activities: (In thousands)
Net cash (used in) provided by operating
activities $ 7,588 $ (623) $ (21,520) $ (22,143) $ -- $ (14,555)
Cash flows from investing activities:
Payments for the purchase of equipment (3,980) (1,587) (49,505) (51,092) -- (55,072)
Proceeds from the sale of assets -- -- 44,133 44,133 -- 44,133
Sale of marketable securities 137,382 -- 39,323 39,323 -- 176,705
Purchase of marketable securities (12,544) -- -- -- -- (12,544)
Proceeds from restricted cash -- 5,753 -- 5,753 -- 5,753
Investments in unconsolidated affiliates -- (547) -- (547) -- (547)
Disbursement of intercompany note (53,500) -- -- -- 53,500 --
--------- --------- --------- --------- --------- ---------
Net cash provided by investing activities 67,358 3,619 33,951 37,570 53,500 158,428
Cash flows from financing activities:
Proceeds from long-term debt 1,822 -- 73,527 73,527 (73,527) 1,822
Proceeds from stock options exercised 550 -- -- -- -- 550
Principal payments of long-term debt (57) (20,318) (25) (20,343) 20,027 (373)
Debt issuance costs (130) -- -- -- -- (130)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) activities 2,185 (20,318) 73,502 53,184 (53,500) 1,869
--------- --------- --------- --------- --------- ---------
Net decrease (increase) in cash and cash
equivalents 77,131 (17,322) 85,933 68,611 -- 145,742
Cash and cash equivalents at beginning of
period 3,642 7,073 4,421 11,494 -- 15,136
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 80,773 $ (10,249) $ 90,354 $ 80,105 $ -- $ 160,878
========= ========= ========= ========= ========= =========
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements, which are statements about
future business strategy, operations and capabilities, construction plans,
construction schedules, financial projections, plans and objectives of
management, expected actions of third parties and other matters. Forward-looking
statements often include words like believes, belief, expects, plans,
anticipates, intends, projects, estimates, may, might, would or similar words.
Forward-looking statements speak only as of the date of this report. They
involve known and unknown risks, uncertainties and other factors that may cause
actual results to be materially different. In addition to the investment
considerations described elsewhere, specific factors that might cause such a
difference include, but are not limited to (i) our ability to integrate
operations and finance future growth opportunities; (ii) our dependence on
Sprint PCS; (iii) our ability to expand our Sprint PCS network or to upgrade the
Sprint PCS network to accommodate new technologies; (iv) limited operating
history in the PCS market and anticipation of future losses; (v) potential
fluctuations in operating results; (vi) changes or advances in technology; (vii)
changes in law or government regulation; (viii) competition in the industry and
markets in which we operate; (ix) future acquisitions; (x) our ability to
attract and retain skilled personnel; (xi) our dependence on contractor and
consultant services, network implementation and information technology support;
(xii) our potential inability to expand the services and related products we
provide in the event of substantial increases in demand in excess of supply for
network and handset equipment and related services and products; (xiii) the
availability at acceptable terms of sufficient funds to pay for our business
plans; (xiv) changes in labor, equipment and capital costs; (xv) any inability
to comply with the indentures that govern our senior notes or credit agreements;
(xvi) changes in management; and (xvii) general economic and business
conditions.
You should not rely too heavily on any forward-looking statement. We cannot
assure you that our forward-looking statements will prove to be correct. We have
no obligation to update or revise publicly any forward-looking statement based
on new information, future events or otherwise. This discussion should be read
in conjunction with our financial statements included in this report and with
the financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations and with risk factors identified in
Investment Considerations that are included in the Form 10-K for US Unwired Inc.
for the year ended December 31, 2001, filed on March 5, 2002 with the Securities
and Exchange Commission ("SEC") and with the financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations and with Risk Factors in the Form 10-K for IWO Holdings, Inc. for the
year ended December 31, 2001, filed on March 26, 2002 with the SEC.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to bad debts,
activation fee revenues and related expense, revenue recognition of credit
challenged customers, contract cancellation fees, inventory reserves, intangible
assets and contingencies. We base our estimates on historical experience and
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may vary from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect our significant
judgments and estimates used in the preparation of our consolidated financial
statements.
We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of customers to make payments. If the financial conditions of our
customers deteriorate, resulting in the customers' inability to make payments,
additional allowances will be required.
17
We provide additional allowances for economically challenged customers that have
been granted limited credit and recognize the revenue only after the customer
has made an initial payment. If these credit challenged customers fail to make
payments after making an initial payment, additional allowances may be required.
We recognize only a portion of contract cancellation fees billed to customers
that disconnect service prior to fulfilling the contractual length of service,
as there is no assurance that all contract cancellation fees that are billed
will be collected. If the collections on contract cancellation fees are less
than that recognized, additional allowances may be required.
We defer revenues collected for activation fees over the estimated life of the
subscriber relationship, which we believe to be 15-24 months, based upon our
historical trends of average customer lives and discussions with Sprint PCS. We
also defer an activation expense in an amount equal to the activation fee
revenue and amortize this expense in an amount equal to the activation fee
revenue over the life of the subscriber relationship. If the estimated life of
the subscriber relationship increases or decreases, the amounts of deferred
revenue and deferred expense will be adjusted over the revised estimated life of
the subscriber relationship.
We write down our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be necessary.
We accrue commissions and other costs related to national retailers based upon
their sales to new subscribers. The national retailers receive both commission
and, because the handset is typically sold below cost, a reimbursement for the
difference between the sales price and the cost. Depending on the level of sales
and other factors, our estimates of the amounts accrued for commissions and
other costs owed to such retailers may require modification of our previous
estimates.
We rely on Sprint PCS for much of our billing information and based upon the
timing of that information, make certain assumptions that the information is
accurate and that it is consistent with historical trends. While we believe our
basis for making such assumptions are reasonable, actual results may vary from
these estimates.
Overview
Through our subsidiary, Louisiana Unwired, LLC ("LA Unwired"), we provide
wireless personal communication services, commonly referred to as PCS in all or
some portion of Louisiana, Texas, Florida, Arkansas, Mississippi, Georgia 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 our service
area which is among the largest in population and subscribers of all of the
Sprint PCS network partners and is contiguous with Sprint PCS's launched markets
of Houston, Dallas, Atlanta, Little Rock, New Orleans, Birmingham, Tallahassee,
Jacksonville and Memphis.
On April 1, 2002, we acquired 100% of the ownership interest in IWO Holdings,
Inc. ("IWO") for approximately $447.8 million in Company stock. IWO provides PCS
services and related products to customers in the northeastern United States as
part of Sprint PCS's network. IWO's service area consists of a large portion of
upstate New York, New Hampshire, Vermont and portions of Massachusetts and
Pennsylvania with a total population of approximately 6.3 million residents.
Management believes that IWO's high population density and high median household
income as well as its experienced management team strengthen the overall
Company's long-term ability to be a leader in the wireless communication
industry. The Company has incurred approximately $8.6 million in closing costs
associated with the acquisition. The acquisition has been accounted for using
the purchase method of accounting. The
18
aggregate purchase price has been allocated to the assets acquired and
liabilities assumed based the Company's initial estimate of their fair values.
The excess of the purchase price over the fair value of the net identifiable
assets has been allocated to goodwill. The Company's operating results include
the operating results of IWO from date of acquisition, April 1, 2002.
Results of Operations
The wireless telecommunications industry uses terms such as subscriber
additions, average revenue per user, churn and cost per gross addition as
performance measurements or metrics. None of these terms are measures of
financial performance under accounting principles generally accepted in the
United States. When we use these terms, they may not be comparable to similar
terms used by other wireless telecommunications companies.
Three-Month Period Ended June 30, 2002 Compared to the Three-Month Period Ended
June 30, 2001
Subscriber Additions
As of June 30, 2002, we provided personal communication services to 539,100
customers as compared to 200,900 customers at June 30, 2001, an increase of
338,200 subscribers. The number of new subscribers includes 169,200 subscribers
that joined us on April 1, 2002 as a result of our acquisition of IWO and 41,100
new subscribers that joined us on March 8, 2002 as a result of our acquisition
of Georgia PCS. In addition, during the three-month period ended June 30, 2002,
we added an additional 19,600 new subscribers in all markets. We do not include
in our customer base an estimate of customers who we anticipate will never make
their initial payment.
Inclusive of IWO, we provided network coverage in an area comprising
approximately 12.5 million residents out of approximately 17.6 million total
residents or 71% of the people in our service area. The number of people in our
service area does not represent the number of Sprint PCS subscribers that we
expect to have in our service area.
We also provide cellular and paging services in parts of Louisiana through our
wholly owned subsidiary, Unwired Telecom Corporation ("Unwired Telecom"). As of
June 30, 2002, we had approximately 30,300 cellular and 10,800 paging
subscribers as compared to 40,900 cellular and 16,600 paging subscribers at June
30,2001.
Subscriber and Roaming Revenue
Subscriber revenue consists primarily of a basic service plan (where the
customer purchases a pre-allotted number of minutes for voice and/or data
transmission); airtime (which consists of billings for minutes that either
exceed or are not covered by the basic service plan); long distance; and charges
associated with travel outside our service area. We do not include subscriber
revenue for an estimate of customers who we anticipate will never make their
initial payment.
Roaming revenue consists primarily of Sprint PCS travel revenue and foreign
roaming revenue. Sprint PCS travel revenue is generated on a per minute basis
when a Sprint PCS subscriber outside of our markets uses our service when
traveling through our markets. Foreign roaming revenue is generated when a
non-Sprint PCS customer uses our service when traveling through our markets.
Average Revenue per User
Average revenue per user ("ARPU") is the average monthly service revenue per
user (subscriber) and is calculated by dividing total subscriber revenue for the
period by the average number of subscribers during the period adjusted for an
estimate of customers who we anticipate will never make an initial payment.
Where roaming revenue is included in the ARPU calculation, we state that it is
included. ARPU was $54.29 per month for the three-month period ended June 30,
2002 as compared to $51.68 per month for the three-month period ended June 30,
2001. The increase is due to higher usage by our subscribers.
19
Churn
Churn is the monthly rate of customer turnover expressed as a percentage of our
overall average customers for the reporting period. Customer turnover includes
both customers that elected voluntarily to not continue using our service and
customers that were involuntarily terminated from using our service because of
non-payment. Churn is calculated by dividing the number of customers that
discontinue service net of those customers reestablishing their service within a
30-day period by our overall average customers for the reporting period. We
exclude from the calculation an estimate of customers who we anticipate will
never make their initial payment. Churn was 3.4% for the three-month period
ended June 30, 2002 as compared to 2.2% for the three-month period ended June
30, 2001. The increase is due to adding a higher number of credit challenged
subscribers in 2002 that elected voluntarily to not continue using our service
or that were involuntarily terminated from using our service because of
non-payment.
Cost per Gross Addition
Cost per gross addition ("CPGA") summarizes the average cost to acquire all
customers during the reporting period, including those customers who we estimate
will not have make an initial payment. CPGA is computed by adding components of
selling and marketing expenses, cost of equipment and activation costs and
reducing the amount by the revenue from handset and accessory sales. The net
amount is divided by the number of total new subscribers added for the period.
CPGA was $385 for the three-month period ended June 30, 2002 as compared to $340
for the three-month period ended June 30, 2001. The increase is due to higher
commissions and advertising costs and a smaller number of additional
subscribers.
Revenues
Three-month period ended June 30,
2002 2001
---- ----
(In thousands)
Subscriber revenues $89,553 $33,721
Roaming revenues 49,601 19,927
Merchandise sales 4,742 3,586
Other revenues 516 1,447
-------- -------
Total revenues $144,412 $58,681
======== =======
Subscriber revenues
Total subscriber revenues were $89.6 million for the three-month period ended
June 30, 2002 as compared to $33.7 million for the three-month period ended June
30, 2001, representing an increase of $55.9 million and was primarily the result
of an increase in subscribers as discussed in Subscriber Additions above.
Roaming revenues
Roaming revenues were $49.6 million for the three-month period ended June 30,
2002 as compared to $19.9 million for the three-month period ended June 30,
2001, representing an increase of $29.7 million and was primarily the result of
a higher volume of Sprint PCS(R) subscribers traveling through our markets, the
expansion of our network coverage that included the build out of the remaining
markets in the Southern service area and the acquisition of IWO and Georgia PCS.
Our April 1, 2002 acquisition of IWO added $9.1 million of roaming revenue in
the three-month period ended June 30, 2002. We provided service in 68 PCS
markets at June 30, 2002 (including 26 markets added as a result of our
acquisitions) as compared to 37 PCS markets at June 30, 2001 and are continuing
to expand our service by upgrading network equipment and adding cell sites in
certain markets that we believe will help us provide better service.
20
Merchandise sales
Merchandise sales were $4.7 million for the three-month period ended June 30,
2002 as compared to $3.6 million for the three-month period ended June 30, 2001,
representing an increase of $1.1 million and related to subscriber additions.
The cost of handsets typically exceeds the amount received from our subscribers
because we subsidize the price of handsets to remain competitive in the
marketplace.
Other revenues
Other revenues were $.5 million for the three-month period ended June 30, 2002
as compared to $1.4 million for the three-month period ended June 30, 2001,
representing a decrease of $.9 million and was primarily attributable to a
decrease in management services provided to related companies and a decrease in
access fee revenues.
Operating Expenses
Three-month period ended June 30,
2002 2001
---- ----
(In thousands)
Cost of service $64,861 $25,898
Merchandise cost of sales 10,317 5,629
General & administrative 38,097 11,313
Sales & marketing 28,381 14,710
Non-cash stock compensation 1,236 1,310
Depreciation & amortization 31,650 15,760
-------- -------
Total operating expenses $174,542 $74,620
======== =======
Cost of service
Cost of service was $64.9 million for the three-month period ended June 30, 2002
as compared to $25.9 million for the three-month period ended June 30, 2001,
representing an increase of $39.0 million, which primarily related to an
increase of $16.3 million in carrier roaming expenses and an increase of $2.9
million in circuit and usage costs as a result of our larger subscriber base and
market coverage. Our April 1, 2002 acquisition of IWO added $18.8 million of
service costs in the three-month period ended June 30, 2002.
Merchandise cost of sales
Merchandise cost of sales was $10.3 million for the three-month period ended
June 30, 2002 as compared to $5.6 million for the three-month period ended June
30, 2001, representing an increase of $4.7 million and primarily related to the
addition of new subscribers. Our April 1, 2002 acquisition of IWO added $2.7
million of merchandise cost of sales in the three-month period ended June 30,
2002. The cost of handsets typically exceeds the amount received from our
subscribers because we subsidize the price of handsets to remain competitive in
the marketplace.
General and administrative expenses
General and administrative expenses were $38.1 million for the three-month
period ended June 30, 2002 as compared to $11.3 million for the three-month
period ended June 30, 2001, representing an increase of $26.8 million and was
primarily related to billing and service costs and bad debt expense associated
with our increased customer base. Our April 1, 2002 acquisition of IWO added
$12.0 million of general and administrative expense in the three-month period
ended June 30, 2002.
21
Sales and marketing expenses
Sales and marketing expenses were $28.4 million for the three-month period ended
June 30, 2002 as compared to $14.7 million for the three-month period ended June
30, 2001, representing an increase of $13.7 million that primarily relates to
increases in commissions and subsidies paid to local and national third party
retailers contracted to sell our product. Our April 1, 2002 acquisition of IWO
added $8.6 million of selling and marketing expense in the three-month period
ended June 30, 2002.
Non-cash stock compensation
Non-cash compensation was $1.2 million for the three-month period ended June 30,
2002 as compared to $1.3 million for the three-month period ended June 30, 2001,
representing a decrease of $0.1 million which was primarily due to forfeitures
of options granted to employees terminated prior to the vesting of their
options. The non-cash stock compensation consists of compensation expense
related to the granting of certain stock options for the Company's stock in July
1999 and January 2000 with exercise prices less than the market value of the
Company's stock at the date of the grant and the impact of the stock options
granted in connection with the IWO acquisition. The non-cash stock compensation
expense is being amortized over a four-year period representing the vesting
periods of the options.
Depreciation and amortization expense
Depreciation and amortization expense was $31.7 million for the three-month
period ended June 30, 2002 as compared to $15.8 million for the three-month
period ended June 30, 2001, representing an increase of $15.9 million. Net
property and equipment increased to $478.4 million at June 30, 2002, which
includes $170.2 million from our April 1, 2002 acquisition of IWO, from $230.8
million at June 30, 2001. Our April 1, 2002 acquisition of IWO added $14.7
million of depreciation and amortization expense in the three-month period ended
June 30, 2002. Depreciation expense for the three-month period ended June 30,
2002 benefited from a change in estimate of the useful lives of certain
depreciable assets in July 2001. Effective July 2001, we revised the useful
lives of certain depreciable assets that resulted in a reduction of $6.6 million
in depreciation expense for three-month period ended June 30, 2002. The
estimated lives of network switch equipment was increased from five to seven
years, cell site towers from five to 10 years and related cell site equipment
from five to seven years. The Company revised these estimates after considering
the impact of certain upgrades to its network that management believes extends
the useful lives of these assets.
Operating loss
The operating loss was $30.1 million for the three-month period ended June 30,
2002 as compared to $15.9 million for the three-month period ended June 30,
2001, representing an increase of $14.2 million that was primarily due to our
April 1, 2002 acquisition of IWO that added $17.3 million of operating losses in
the three-month period ended June 30, 2002, offset by increased revenues
associated with our subscriber base; roaming revenue associated with the
completion of our network build out; and a change in estimate of the useful
lives of certain depreciable assets that resulted in an $6.6 million decrease in
depreciation.
Other Income/(Expense)
Three-month period ended June 30,
2002 2001
---- ----
(In thousands)
Interest expense $ (20,845) $ (9,780)
Interest income 1,066 1,758
Gain on sale of assets 3 7,273
--------- --------
Total other expense $ (19,776) $ (749)
========= ========
Interest expense was $20.8 million for the three-month period ended June 30,
2002 as compared to $9.8 million for the three-month period ended June 30, 2001,
representing an increase of $11.0 million. The
22
increase in interest expense resulted from the increase in outstanding debt. Our
outstanding debt, including current maturities, was $723.8 million at June 30,
2002, which includes $326.4 million from our April 1, 2002 acquisition of IWO,
as compared to $323.2 million at June 30, 2001.
Interest income was $1.1 million for the three-month period ended June 30, 2002
as compared to $1.8 million for the three-month period ended June 30, 2001,
representing a decrease of $.7 million. The decrease was primarily due to less
cash and cash equivalents available for investment.
Gain on sale of assets was $3,000 for the three-month period ended June 30, 2002
as compared to $7.3 million for the three-month period ended June 30, 2001. In
the three-month period ended June 30, 2001, we recognized a gain of $7.3 million
from the sale of 127 towers.
Six-Month Period Ended June 30, 2002 Compared to the Six-Month Period Ended June
30, 2001
Subscriber Additions
As previously discussed, as of June 30, 2002, we provided personal communication
services to 539,100 customers as compared to 200,900 customers at June 30, 2001,
an increase of 338,200 subscribers. The number of new subscribers includes
169,200 subscribers that joined us on April 1, 2002 as a result of our
acquisition of IWO and 41,100 new subscribers that joined us on March 8, 2002 as
a result of our acquisition of Georgia PCS. In addition, during the six-month
period ended June 30, 2002, we added an additional 51,700 subscribers in all
markets. We do not include in our customer base an estimate of customers that
never make their initial payment.
Revenues
Six-month period ended June 30,
2002 2001
---- ----
(In thousands)
Subscriber revenues $145,668 $60,752
Roaming revenues 80,344 34,947
Merchandise sales 9,029 8,023
Other revenues 1,441 2,852
-------- --------
Total revenues $236,482 $106,574
======== ========
Subscriber revenues
Total subscriber revenues were $145.7 million for the six-month period ended
June 30, 2002 as compared to $60.8 million for the six-month period ended June
30, 2001, representing an increase of $84.9 million and was primarily the result
of an increase in subscribers.
Roaming revenues
Roaming revenues were $80.3 million for the six-month period ended June 30, 2002
as compared to $34.9 million for the six-month period ended June 30, 2001,
representing an increase of $45.4 million and was primarily the result of a
higher volume of Sprint PCS(R) subscribers traveling through our markets and the
expansion of our network coverage that included the build out of the remaining
markets in our service area and the acquisition of IWO and Georgia PCS. Our
April 1, 2002 acquisition of IWO added $9.1 million of roaming revenue. We
provided service in 68 PCS markets at June 30, 2002 (including 26 markets added
as a result of our acquisitions) as compared to 37 PCS markets at June 30, 2001
and are continuing to expand our service by upgrading network equipment and
adding cell sites in certain markets that we believe will help us provide better
service.
23
Merchandise sales
Merchandise sales were $9.0 million for the six-month period ended June 30, 2002
as compared to $8.0 million for the six-month period ended June 30, 2001,
representing an increase of $1.0 million and related to subscriber additions.
The cost of handsets typically exceeds the amount received from our subscribers
because we subsidize the price of handsets to remain competitive in the
marketplace.
Other revenues
Other revenues were $1.4 million for the six-month period ended June 30, 2002 as
compared to $2.9 million for the six-month period ended June 30, 2001,
representing a decrease of $1.5 million and was primarily attributable to a
decrease in access fee revenue.
Operating Expenses
Six-month period ended June 30,
2002 2001
---- ----
(In thousands)
Cost of service $104,836 $47,047
Merchandise cost of sales 18,307 15,874
General & administrative 64,066 23,541
Sales & marketing 49,925 30,464
Non-cash stock compensation 2,402 2,632
Depreciation & amortization 45,835 30,021
-------- --------
Total operating expenses $285,371 $149,579
======== ========
Cost of service
Cost of service was $104.8 million for the six-month period ended June 30, 2002
as compared to $47.0 million for the six-month period ended June 30, 2001,
representing an increase of $57.8 million, which primarily related to an
increase of $32.1 million in carrier roaming expenses and an increase of $6.3
million in circuit and usage costs as a result of our larger subscriber base and
market coverage. Our April 1, 2002 acquisition of IWO added $18.8 million of
service costs in the three-month period ended June 30, 2002.
Merchandise cost of sales
Merchandise cost of sales was $18.3 million for the six-month period ended June
30, 2002 as compared to $15.9 million for the six-month period ended June 30,
2001, representing an increase of $2.4 million and primarily related to the
addition of new subscribers. Our April 1, 2002 acquisition of IWO added $2.7
million of merchandise cost of sales in the three-month period ended June 30,
2002. The cost of handsets typically exceeds the amount received from our
subscribers because we subsidize the price of handsets to remain competitive in
the marketplace.
General and administrative expenses
General and administrative expenses were $64.1 million for the six-month period
ended June 30, 2002 as compared to $23.5 million for the six-month period ended
June 30, 2001, representing an increase of $40.6 million and was primarily
related to billing cost, servicing costs and bad debt expense. Our April 1, 2002
acquisition of IWO added $12.0 million of general and administrative expenses in
the three-month period ended June 30, 2002.
Sales and marketing expenses
Sales and marketing expenses were $49.9 million for the six-month period ended
June 30, 2002 as compared to $30.5 million for the six-month period ended June
30, 2001, representing an increase of $19.4
24
million that primarily relates to increases in commissions and subsidies paid to
local and national third party retailers contracted to sell our product. Our
April 1, 2002 acquisition of IWO added $8.6 million of sales and marketing
expenses in the three-month period ended June 30, 2002.
Non-cash stock compensation
Non-cash stock compensation was $2.4 million for the six-month period ended June
30, 2002 as compared to $2.6 million for the six-month period ended June 30,
2001, representing a decrease of $0.2 million which was primarily due to
forfeitures of options granted to employees terminated prior to the vesting of
their options. The non-cash stock compensation consists of compensation expense
related to the granting of certain stock options for the Company's stock in July
1999 and January 2000 with the exercise prices less than the market value of the
Company's stock at the date of the grant. The non-cash stock compensation
expense is being amortized over a four-year period representing the vesting of
the options.
Depreciation and amortization expense
Depreciation and amortization expense was $45.8 million for the six-month period
ended June 30, 2002 as compared to $30.0 million for the six-month period ended
June 30, 2001, representing an increase of $15.8 million. Net property and
equipment increased to $478.4 million at June 30, 2002, which includes $170.2
million from our April 1, 2002 acquisition of IWO, from $230.8 million at June
30, 2001. Our April 1, 2002 acquisition of IWO added $14.7 million of
depreciation and amortization expense in the three-month period ended June 30,
2002. Depreciation expense for the six-month period ended June 30, 2002
benefited from a change in estimate of the useful lives of certain depreciable
assets in July 2001. Effective July 2001, we revised the useful lives of certain
depreciable assets that resulted in a reduction of $12.5 million in depreciation
expense for six-month period ended June 30, 2002. The estimated lives of network
switch equipment was increased from five to seven years, cell site towers from
five to 10 years and related cell site equipment from five to seven years. The
Company revised these estimates after considering the impact of certain upgrades
to its network that management believes extends the useful lives of these
assets.
Operating loss
The operating loss was $48.9 million for the six-month period ended June 30,
2002 as compared to $43.0 million for the six-month period ended June 30, 2001,
representing an increase of $5.9 million that was primarily due to our April 1,
2002 acquisition of IWO that added $17.3 million of operating losses in the
three-month period ended June 30, 2002 that was offset by increased revenues
associated with our subscriber base and roaming revenue associated with the
completion of our network build out and a change in estimate of the useful lives
of certain depreciable assets that resulted in an $12.5 million decrease in
depreciation.
Other Income/(Expense)
Six-month period ended June 30,
2002 2001
---- ----
(In thousands)
Interest expense $ (31,357) $ (19,322)
Interest income 1,471 4,578
Gain on sale of assets 3 8,219
--------- ---------
Total other expense $ (29,883) $ (6,525)
========= =========
Interest expense was $31.4 million for the six-month period ended June 30, 2002
as compared to $19.3 million for the six-month period ended June 30, 2001,
representing an increase of $12.1 million. The increase in interest expense
resulted from the increase in outstanding debt. Our outstanding debt, including
current maturities was $723.8 million at June 30, 2002, which includes $326.4
million from our April 1, 2002 acquisition of IWO, as compared to $323.2 million
at June 30, 2001.
25
Interest income was $1.5 million for the six-month period ended June 30, 2002 as
compared to $4.6 million for the six-month period ended June 30, 2001,
representing a decrease of $3.1 million. The decrease was primarily due to less
cash and cash equivalents available for investment and lower interest rates.
Gain on sale of assets $3,000 for the six-month period ended June 30, 2002 as
compared to $8.2 million for the six-month period ended June 30, 2001,
representing a decrease of $8.2 million. In the six-month period ended June 30,
2001, we recognized an $8.2 million gain on sale of 141 towers.
Liquidity and Capital Resources
As of June 30, 2002, we had $39.5 million in cash and cash equivalents, $54.1
million in short-term investment securities, $51.9 million in restricted cash
designated for our senior notes and total availability in revolving loans under
our senior bank credit facilities of $126.6 million.
We used $16.5 million of cash in operating activities during the six-month
period ended June 30, 2002. The $103.7 million of cash used in investing
activities during the six-month period ended June 30, 2002 includes cash outlays
of $63.2 million for capital expenditures and $61.5 million for the business
acquisitions, partially offset by $10.9 million in proceeds from maturities of
investments and $10.0 million in proceeds from the sale of assets. The $59.1
million in cash provided by financing activities during the six-month period
ended June 30, 2002 consisted primarily of the borrowings under the senior bank
credit facilities net of repayments.
We expect that cash and cash equivalents and our investments in securities,
together with future draws under the senior bank credit facilities, will fund
our capital expenditures and our working capital requirements through 2003, at
which time we anticipate we will be cash flow positive. The senior bank credit
facilities and senior notes are subject to certain restrictive covenants
including maintaining certain financial ratios, attaining defined subscribers
and network coverage goals, and limiting annual capital expenditures. Further,
the senior credit facilities and senior note indenture restrict the payment of
dividends on our common stock.
As of June 30, 2002, management believes that we are in compliance with all
financial and operational covenants associated with our senior bank credit
facility, senior notes and agreements with Sprint PCS.
Seasonality
Like the wireless communications industry in general, there is an increase in
subscriber additions in the fourth quarter due to the holiday season. A greater
number of phones sold at holiday promotional prices causes our losses on
merchandise sales to increase. Our sales and marketing expenses increase also
with holiday promotional activities. We generally have the weakest demand for
new wireless services during the summer. We expect these trends to continue
based on historical operating results.
Part II
Item 2. Changes in Securities
On March 8, 2002, the Company completed its acquisition of Georgia PCS
Management, L.L.C. pursuant to an Agreement and Plan of Merger dated as of
February 8, 2002. A portion of the acquisition price included an aggregate of
5,395,615 shares of the Company's Class A common stock that were exchanged for
the outstanding membership units and options of the former owners and employees.
Of our 5,395,615 Class A common shares issued, 1,100,000 shares are being held
in escrow pursuant to the terms and conditions of an escrow agreement requiring
the former members to satisfy any outstanding obligations of the former members
made against us after the date of the merger. The Company relied on Rule 506 of
Regulation D of the Securities Act of 1933, as amended ("the Act") for the
exemption from registration. Under the terms of the Agreement, the Company
intends to file a "shelf" registration statement pursuant to Rule 415 under the
Securities Act of 1933 providing for the sale by each recipient of the
securities in August 2002.
26
On April 1, 2002, the Company acquired IWO Holdings, Inc., a Delaware
corporation ("IWO"), by merging Northeast Unwired Inc., a Delaware corporation
("Northeast Unwired") that is US Unwired's indirect, wholly owned subsidiary,
into IWO (the "Merger"). In connection with the Merger, US Unwired issued to the
former stockholders of IWO approximately 39.0 million shares of US Unwired
common stock and reserved approximately 6.9 million additional shares of its
common stock for issuance upon the exercise of options and warrants that US
Unwired assumed or exchanged in connection with the Merger. As a result of the
Merger, IWO became an indirect, wholly owned subsidiary of US Unwired. The
acquisition was effected pursuant to an Agreement and Plan of Merger dated as of
December 19, 2001 (the "Merger Agreement"), by and among US Unwired, Northeast
Unwired and IWO. The Merger Agreement and the press release of US Unwired
announcing the completion of the Merger were filed with the Registration
Statement on Form S-4 filed by the Company on February 1, 2002. The number of US
Unwired shares issued to each former IWO stockholder in connection with the
Merger was equal to 1.0371 times the number of shares of IWO common stock such
stockholder held immediately prior to the Merger (the "Exchange Ratio"). In
addition, upon the effectiveness of the Merger, each IWO warrant or option that
US Unwired assumed or exchanged in connection with the Merger became exercisable
for US Unwired shares equal to the number of IWO shares underlying such option
or warrant immediately prior to the merger multiplied by the Exchange Ratio. The
Exchange Ratio was determined through negotiations between US Unwired and IWO.
There were no material relationships between IWO on the one hand, and US
Unwired, any of US Unwired's affiliates, directors or officers or any associate
of such directors or officers, on the other hand, prior to the consummation of
the Merger.
In conjunction with agreement to acquire IWO Holding Inc. and effective on the
April 1, 2002 date of the merger, the Company, in a special meeting of the
Stockholders, approved and adopted amendments of the First Restated Articles of
Incorporation of the Company in the form of the Second Restated Articles of
Incorporation to provide for the reclassification of each share of Class B
common stock to Class A common stock; change of the name of Class A common stock
to "common stock"; the addition of the 300 million authorized shares of Class B
Common Stock to the existing 500 million shares of Class A common stock; and the
deletion of references to the two classes of common stock and of the special
provisions to the two classes of common stock.
On April 16, 2002, the Company filed an S-3 Registration Statement to authorize
the issuance of 160,000 warrants to purchase common stock. The Company offered
2,074,241 shares of common stock that are issuable by the Company upon exercise
of warrants that the Company assumed from IWO that the Company acquired on April
1, 2002. Each warrant is exercisable for 12.96401 shares of the Company's common
stock at a price of $6.75 per share and were initially issued by IWO on February
2, 2001 as a part of IWO's offering of its Senior Subordinated Discount Notes.
The warrants expire on January 15, 2011.
27
Item 4. Submission of Matters to a Vote of Security Holders
We submitted to a vote of our stockholders, through a solicitation by proxy, the
approval of the merger with IWO and the Merger Agreement. The matters were
submitted for a vote at a Special Meeting of Stockholders on March 29, 2002.
15,401,836 Class A common shares and 55,553,932 Class B common shares were
represented by proxy of a total number of 27,918,444 Class A common shares and
56,460,144 Class B common shares outstanding. This represented 84.1% of the
total outstanding shares and 96.4% of the voting power. Each Class A common
share had one vote and each Class B common share had 10 votes.
The table below summarizes the results of the vote:
Total Class A
Class A Class B and Class B
Common Shares Common Shares Common Shares Voting Power
------------- ------------- ------------- ------------
Voting for 15,371,003 55,553,932 70,924,935 570,910,323
Voting against 24,088 -- 24,088 24,088
Abstentions 6,745 -- 6,745 6,745
----------- ----------- ----------- -----------
Total Votes 15,401,836 55,553,932 70,955,768 570,941,156
=========== =========== =========== ===========
Eligible to Vote 27,918,444 56,460,144 84,378,588 592,519,844
=========== =========== =========== ===========
Percentage Approving Merger 84.1% 96.4%
=========== ===========
We submitted to a vote of our stockholders, through a solicitation by proxy, the
approval of amendments to our Articles of Incorporation in the form of the
Second Restated Articles of Incorporation. The matters were submitted for a vote
at a Special Meeting of Stockholders on March 29, 2002. 15,401,836 Class A
common shares and 55,553,932 Class B common shares were represented by proxy of
a total number of 27,918,444 Class A common shares and 56,460,144 Class B common
shares outstanding. This represented 84.1% of the total outstanding shares and
96.4% of the voting power. Each Class A common share had one vote and each Class
B common share had 10 votes.
The table below summarizes the results of the vote:
Total Class A
Class A Class B and Class B
Common Shares Common Shares Common Shares Voting Power
------------- ------------- ------------- ------------
Voting for 15,370,967 55,553,932 70,924,899 570,910,287
Voting against 21,174 --- 21,174 21,174
Abstentions 9,695 --- 9,695 9,695
---------- ---------- ---------- -----------
Total Votes 15,401,836 55,553,932 70,955,768 570,941,156
========== ========== ========== ===========
Eligible to Vote 27,918,444 56,460,144 84,378,588 592,519,844
========== ========== ========== ===========
Percentage Approving Amendments 84.1% 96.4%
========== ===========
We submitted to a vote of our stockholders, through solicitation by proxy, the
approval of amendments to our Articles of Incorporation in the form of the Third
Restated Articles of Incorporation and the election of certain directors. The
matters were submitted for a vote at the Annual Meeting of Stockholders on April
23, 2002. 80,318,100 common shares were represented either in person or by
proxy. This represented 93.5% of the total outstanding shares and voting power.
28
The table below summarizes the results of the vote:
Amendments to the Articles of Incorporation:
Common Shares
-------------
Voting for 67,521,324
Voting against 6,769,740
Abstentions 81,104
----------
Total Votes 74,372,168
==========
Broker no votes 5,945,932
==========
Eligible to Vote 85,916,066
==========
Percentage Approving Amendments 78.6%
=========
Election of Class II Directors:
Percentage Voting
Common Shares for Director
------------- -----------------
Voting for:
Charles T. Cannada 69,810,970 81.2%
Robert W. Piper 69,681,260 81.1%
Christopher J. Stadler 69,680,670 81.1%
Votes withheld:
Charles T. Cannada 468,713
Robert W. Piper 598,423
Christopher J. Stadler 599,013
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(a) The following exhibits are filed as part of this report:
(2) Agreement and Plan of Merger, dated as of December 19, 2001,
by and among US Unwired Inc., Northeast Unwired Inc. and IWO
Holdings, Inc. (Incorporated by reference to Exhibit 2.1
filed with the registration statement on Form S-4 filed by
the Registrant on February 1, 2002).
(3)(i)(a) First Restated Articles of Incorporation of US Unwired Inc.
(Incorporated by reference to Exhibit 3.1 filed on Form
10-K, annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 filed by the Registrant on
March 16, 2001) (3)(i)(b) Second Restated Articles of
Incorporation of US Unwired Inc. (Incorporated by reference
to Exhibit 3.2 filed with the registration statement on Form
S-4 filed by the Registrant on February 1, 2002,
Registration No. 333-81928)
(3)(i)(c) Third Restated Articles of Incorporation of US Unwired Inc.
(Incorporated by reference to Exhibit 3.2 of Form 10-Q filed
by the Registrant on May 9, 2002)
(4)(i)(a) Amended and Restated Agreement Credit Agreement dated March
8, 2002 between US Unwired Inc. and lenders. (Incorporated
by reference to Exhibit 4.1 of Form 8-K filed by the
Registrant on March 21, 2002)
(4)(i)(b) Waiver and Amendment dated May 1, 2002 to the Amended and
Restated Agreement Credit Agreement dated March 8, 2002
between US Unwired Inc. and lenders.
(4)(i)(c) Second Agreement Regarding Amendments to Loan Documents
dated June 6, 2002 between US Unwired Inc. and lenders.
29
(4)(i)(d) Supplemental Indenture dated as of March 11, 2002, among
Georgia PCS Management, LLC and Georgia PCS Leasing, LLC,
both Georgia limited liability companies and subsidiaries of
US Unwired Inc., the other Guarantors and State Street Bank
and Trust Company, as trustee under the indenture.
(4)(i)(e) Registration Rights Agreement, dated April 1, 2002, by and
among Issuer, Northeast Unwired Inc. and IWO Holdings Inc.
for certain registration rights of US Unwired common stock
(16) Change in Certifying Accountant for IWO Holdings, Inc.
(Incorporated by reference to Exhibit 16 of Form 8-K filed
by IWO Holding Inc. on April 23, 2002).
(99) Audited consolidated financial statements of IWO Holdings,
Inc. and subsidiaries as of December 31, 2001 and 2000 and
for the period January 1, 1999. (Incorporated by reference
to Exhibit 99 of Form 8-K filed by the Registrant on April
15, 2002).
(99.1) Certification by President and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(99.2) Certification by Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
-------------------------
Registrant agrees to furnish to the Commission on request copies of any
instrument defining the rights of holders of long-term debt the total
amount of which does not exceed 10% of the total consolidated assets of the
registrant and which is otherwise not filed as an exhibit.
b. Reports on Form 8-K
On April 1, 2002, we filed a Current Report on Form 8-K containing the
financial statements and related materials listed in Item 7(a) for IWO
Holdings, Inc.
On April 15, 2002, we filed a Current Report on Form 8-K announcing
the acquisition of IWO Holdings, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
August 9, 2002 US UNWIRED INC.
By: /s/ Jerry E. Vaughn
-----------------------------
Jerry E. Vaughn
Chief Financial Officer
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