SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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: 0-27442
OMNIPOINT CORPORATION
(Exact Name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
04-2969720
(IRS employer
identification No.)
THREE BETHESDA METRO CENTER, SUITE 400
BETHESDA, MD
(Address of principal executive office)
20814
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (301) 951-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class:
COMMON STOCK, PAR VALUE
$0.01 PER SHARE
Name of Each Exchange
on which Registered:
NASDAQ NATIONAL MARKET
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
NONE
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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 51,653,014 shares of common
stock were outstanding as of November 7, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Note 1)
<TABLE>
<CAPTION>
OMNIPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30,
1997 December 31,
(unaudited) 1996
----------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $84,913 $215,029
Short term investments 22,052 46,827
Escrow deposit 50,510 43,516
Accounts receivable, net of allowances of $1,938 as of 11,173 47
September 30,1997
Inventory 19,607 37,490
Prepaid expenses and other current assets 7,256 1,748
----------------- -----------------
Total current assets 195,511 344,657
Fixed assets, net 486,729 186,851
FCC licensing costs, net of accumulated amortization of $24,320 and
$17,804 as of September 30, 1997 and December 31, 939,206 752,189
1996, respectively
FCC deposit - 60,000
Escrow deposit - 48,466
Deferred financing costs and other intangible assets, net of
accumulated amortization of $4,154 and $2,089 as of
September 30, 1997 and December 31, 1996, 25,208 27,047
respectively
Other long-term assets 5,925 262
----------------- -----------------
Total assets $1,652,579 $1,419,472
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 122,389 73,878
Accrued expenses 17,670 12,333
Accrued interest payable 34,163 12,072
FCC license obligations-current portion 52,508 -
Deferred revenue 2,943 -
Loans payable under financing agreements - current portion 19,398
-
Capital lease obligations-current portion 18
59
----------------- -----------------
Total current liabilities 249,089 98,342
Capital lease obligations-long term portion 69 -
Loans payable under financing agreements 286,592 -
Senior notes 19,481 18,617
11 5/8% Senior and Series A Senior Notes due 2006 458,434 458,886
FCC license obligations-long term portion 703,416 709,853
Commitments and contingencies (Note 6)
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<PAGE>
Stockholders' equity (deficit):
Common stock, par value, $.01 per share; authorized 75,000,000 shares;
51,612,210 shares issued and outstanding at September 30, 1997 and 50,969,300
shares issued
and outstanding at December 31, 1996 516 510
Additional paid-in capital 333,115 329,772
Accumulated deficit (388,258) (186,428)
Unearned compensation (7,786) (8,883)
Notes receivable (2,089) (1,197)
----------------- -----------------
Total stockholders' equity (deficit) (64,502) 133,774
----------------- -----------------
Total liabilities and stockholders' equity (deficit) $ 1,652,579 $ 1,419,472
================= =================
See notes to consolidated financial statements
</TABLE>
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<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
License fees $ - $ - $ 4,500 $ -
Service and handset revenues 13,829 - 23,778 -
--------------- ----------------- --------------- ----------------
Total revenues 13,829 - 28,278 -
Operating expenses:
Research and development 5,983 8,251 18,927 21,669
Sales, general, and administrative 56,782 11,418 127,077 21,457
Depreciation and amortization 12,245 2,779 35,314 9,374
--------------- ----------------- --------------- ----------------
Total operating expenses 75,010 22,448 181,318 52,500
Loss from operations (61,181) (22,448) (153,040) (52,500)
Other income (expense):
Interest income 2,157 3,119 10,759 5,830
Interest expense (22,137) (8,522) (59,549) (18,594)
--------------- ----------------- --------------- ----------------
Net loss $ (81,161) $ (27,851) $ (201,830) $ (65,264)
=============== ================= =============== ================
Loss per share $ (1.57) $ (0.55) $ (3.92) $ (1.44)
=============== ================= =============== ================
Weighted average common shares outstanding 51,587 50,278 51,440 45,458
=============== ================= =============== ================
See notes to consolidated financial statements
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
September 30,
--------------------------------------
1997 1996
--------------------- ----------------
Cash flows used in operating activities:
<S> <C> <C>
Net loss $ (201,830) $ (65,264)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation 35,314 9,374
Inventory writedown to replacement cost 5,166 -
Allowance for doubtful accounts 1,938 -
Compensation expense from stock grants 1,880 174
Increase in employee notes receivable and related accrued interest (101) (64)
Forgiveness of employee notes receivable 146 -
Accrued Interest 26,625 112
Interest expense associated with amortization of discount, premium
and issuance costs 7,843 1,921
Delivery of pilot system equipment funded by financing agreement
- 540
Interest income associated with restricted cash (2,964) (265)
Changes in assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable (13,063) -
Prepaid expenses and other assets (11,173) (79)
Inventory 12,718 (6,655)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 53,848 3,728
Deferred revenue 2,943 -
--------------------- ----------------
Net cash used in operating activities (80,710) (56,478)
--------------------- ----------------
Cash flows used in investing activities:
Purchase of fixed assets (327,363) (64,611)
Payments for FCC licenses (121,964) (50,913)
Refund of FCC deposit 60,000 40,000
Deposits for FCC auctions - (60,000)
Capitalized interest on C and F Block licenses (32,334) -
Purchase of investment securities (54,759) (62,085)
Sales of investment securities 79,533 -
Proceeds from held to maturity investments 44,435 -
Deposits for network infrastructure equipment - (2,052)
--------------------- ----------------
Net cash used in investing activities (352,452) (199,661)
--------------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,629 693
Proceeds from financing agreements 301,458 55,549
Payments on financing agreements - (75,178)
Payments of obligations under capital leases (41) (180)
Proceeds from credit agreement - 60,000
Payments on credit agreement - (96,500)
Proceeds from initial public offering, net of expenses - 118,437
Proceeds from secondary public offering, net of expenses - 110,684
Proceeds from offering of senior notes - 188,056
Dividends accrued and paid - (1,537)
--------------------- ----------------
Net cash provided by financing activities 303,046 360,024
--------------------- ----------------
Net increase (decrease) in cash and cash equivalents (130,116) 103,885
Cash and cash equivalents at beginning of period 215,029 57,784
--------------------- ----------------
Cash and cash equivalents at end of period $ 84,913 $ 161,669
===================== ================
See notes to consolidated financial statements
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(In thousands, except share data)
Total
Common Stock Additional Accumulated Unearned Notes Stockholders'
Shares Amount Paid-in Deficit Compensation Receivable Equity
Capital (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 50,969,300 $ 510 $ 329,772 $(186,428) $ (8,883) $ (1,197) $ 133,774
Exercise of stock options 476,601 4 692 - - - 696
Exercise of warrants 58,487 - (1) - - - (1)
Sale of common stock under
Employee Stock Purchase Plan 62,822 1 933 - - - 934
Restricted stock returned
upon termination (15,000) - (150) - - 150 -
Issuance of restricted stock
in exchange for employee
note receivable 60,000 1 1,086 - - (1,087) -
Issuance of options in form
of advanced compensation - - 910 - (910) - -
Amortization of
unearned compensation - - - - 1,880 - 1,880
Cancellation of unearned
compensation - - (127) - 127 - -
Interest on employee
notes receivable - - - - - (101) (101)
Forgiveness of employee
notes receivable - - - - - 146 146
Net loss - - - (201,830) - - (201,830)
----------- --------- ------------- ------------- -------------- ------------ ---------------
Balance, September 30, 1997 51,612,210 $ 516 $ 333,115 $(388,258) $ (7,786) $ (2,089) $ (64,502)
============ ========= ============== ============= ============= ============ ===============
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The consolidated financial statements have been prepared by Omnipoint
Corporation ("Omnipoint" or the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and, in
the opinion of management, include all adjustments necessary for a fair
presentation of the financial information for each period shown. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC
rules and regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading. The results for
interim periods are not necessarily indicative of the results for the full
year. These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's 1996 Annual Report on Form 10-K.
Certain prior year amounts have been reclassified to conform to the three
and nine month presentation.
2. INVENTORY:
Inventory consists of the following for September 30, 1997 (unaudited) and
December 31 1996:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------ -----------------
(in thousands)
<S> <C> <C>
Raw Materials 835 1,102
GSM Handsets 15,098 33,343
Accessories & SIM Cards
3,674 3,045
------------------ -----------------
$ 19,607 $ 37,490
================== =================
</TABLE>
3. FIXED ASSETS:
Fixed assets including equipment under capital leases consist of the
following at September 30, 1997 (unaudited) and December 31, 1996:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------------- ------------------
(in thousands)
<S> <C> <C>
Building and building improvements $ 14,599 $ 7,751
Machinery, office and computer equipment 52,070 30,680
Network infrastructure equipment 233,323 67,252
Vehicles 490 452
-------------------- ------------------
300,482 106,135
Less: accumulated depreciation (35,300) (8,317)
-------------------- ------------------
$ 265,182 $ 97,818
Construction in progress 221,547 89,033
-------------------- ------------------
$ 486,729 $ 186,851
==================== ==================
</TABLE>
-7-
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Depreciation expense for the period ended September 30, 1997 and for the
year ended December 31, 1996 was $27.5 and $5.9, respectively.
Approximately $13.1 million of capitalized interest has been included in
network infrastructure equipment that was previously or continues to be
construction in progress.
4. FCC BLOCK LICENSES:
On January 14, 1997, the Company successfully bid for 109 D, E and F Block
licenses for an aggregate of $181.4 million (net of the 25% small business
discount for the F Block licenses). The Company made its first payment of $28.8
million utilizing the $60.0 million deposit with the FCC; the remaining $31.2
million of such deposit was refunded to the Company on May 12, 1997. The Company
made its second payment of $33.2 million for the D, E, & F Block licenses issued
on April 28, 1997. The $33.2 million payment is comprised of the second 10% down
payment for the F Block licenses or $6.2 mi1lion, and the remaining 80% of the D
and E licenses, or $27.0 million. The Company made a payment f $59.9 million for
the D and E Block licenses, and $1.3 million for the F Block licenses, issued in
July, 1997. FCC F Block debt has a face value of $59.4 million and is payable
over a 10 year period. However, favorable financing terms require the Company to
record the debt at a net present value of $39.2. The F Block licenses require
interest-only payments for the first two years at the 10-year Treasury Bill rate
of 6.61%. Principal and interest will be due over the remaining eight years. On
October 16, 1997, the FCC issued an order that allowed for accrued interest
payments to be paid ratably over eight quarters beginning March 31, 1998.
5. ERICSSON CREDIT FACILITIES
On August 7, 1997, Omnipoint MB Holdings, Inc. ("OMB") entered into a
credit facility agreement with Ericsson Inc. to provide financing to the
Company for up to $352.5 million for the purpose of financing the buildout
of networks in the Boston and Miami markets, (the "Ericsson B & M
Facility"). The Ericsson B & M Facility provides the immediate availability
of $202.5 million, of which $100.0 million was funded to OMB at closing.
The remaining $150.0 million is dependent on a loan guarantee
from a governmental agency. If the loan guarantee is completed before
February 4, 1998, the Company will grant Ericsson a five year exclusive
right to supply network equipment for the Boston and Miami markets.
On September 9, 1997, OPCS Philadelphia Holdings, Inc. ("OPCS")
entered into a credit facility agreement with Ericsson Inc. to provide
financing to the Company for up to $120.0 million for general corporate and
working capital purposes, including the payment of interest associated with
the Philadelphia market.
6. COMMITMENTS AND CONTINGENCIES:
The Company, through its subsidiary OCI, is in various stages of
negotiation for handsets, accessories and services from various suppliers.
These new contracts could require minimum purchase commitments from the
Company. Management believes that the Company will fulfill these
commitments in the normal course of business.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, the "Risk Factors" set forth in the
Company's Registration Statement on Form S-1 (File No. 333-03739).
OVERVIEW
Omnipoint reported a 1997 third quarter loss of $81.2 million, or $1.57 per
share, an increase of 191%, or approximately $53.3 million, compared to the same
quarter in 1996. For the nine months ended September 30, 1997, the Company
reported a loss of $201.8 million, or $3.92 per share, an increase of 209%, or
approximately $136.5 million, compared to the same period in 1996. The 1996
third quarter loss was $27.9 million, or $0.55 per share, and the nine month
1996 loss was $65.3 million, or $1.44 per share.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Revenues for the three months ended September 30, 1997 were $13.8 million,
compared to no revenues in the third quarter of 1996. Revenues for the third
quarter of 1997 consisted primarily of service and handset revenue associated
with the operation of the New York MTA PCS network.
Research and development expenses decreased by 27.7%, or approximately $2.3
million, to $6.0 million for the three months ended September 30, 1997, compared
to $8.3 million for the three months ended September 30, 1996. The decrease was
due to $0.6 million for costs associated with the buildout of the IS-661 pilot,
a decrease of $0.9 million in research and development components, and a
decrease of $0.5 million in equipment rental and purchases. R&D expenses are
associated with the Company's continued growth and development of the IS-661
technology.
Sales, general and administrative expenses increased by 398.2%, or
approximately $45.4 million, to $56.8 million for the three months ended
September 30, 1997, compared to $11.4 million for the three months ended
September 30, 1996. Of this increase, $11.1 million was due to payroll and
payroll related expenses associated with increases in headcount resulting from
the expansion of the Company's operations. The remaining increase consists
primarily of $22.1 million in marketing and handset and accessories cost of
sales, $1.9 million in consulting fees, and $9.0 million in interconnect and
cellsite operating costs relating to network operations. The Company expects
that such expenses will continue to increase significantly during the remainder
of 1997 as the Company continues to expand its operations.
Depreciation and amortization increased by 335.7%, or approximately $9.4
million to $12.2, million for the three months ended September 30, 1997,
compared to $2.8 million for the three months ended September 30, 1996. The
increase in the 1997 period was due to a general increase in depreciation
related to expansion of the Company's commercial PCS networks.
Interest income decreased by 29%, or approximately $0.9 million, to $2.2
million for the three months ended September 30, 1997 compared to $3.1 million
for the three months ended September 30, 1996. The decrease was due to the
decrease in the amount of interest bearing cash and cash equivalents and
short-term investments.
Interest expense increased by 160%, or approximately $13.6 million, to
$22.1 million for the three months ended September 30, 1997 compared to $8.5
million for the three months ended September 30, 1996. The increase was
primarily due to $10.5 million of interest expense incurred in 1997 for the 11
5/8% Senior and Series A Senior Notes due 2006 (the "1996 Senior Notes"), and
$3.1 million of interest expense relating to vendor financing. The Company
capitalized interest of $12.3 million relating to the PCS licesnes and $4.0
million relating to the construction in progress, during the third quarter of
1997.
Net loss increased by 191%, or approximately $53.3 million to $81.2 million
for the three months ended September 30, 1997 compared to $27.9 million for the
three months ended September 30, 1996. This increase was primarily due to a
general increase in operating expenses, as well as an increase of $14.6 million
in net interest expense.
-9-
<PAGE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Revenues for the nine months ended September 30, 1997 were $28.3 million,
compared to no revenues in the nine months ended September 30, 1996. Revenues
for the first nine months consisted of $4.5 million for license ees and $23.8
million of service and handset revenues associated with the operation of the New
York MTA PCS network.
Research and development expenses decreased by 12.9%, or approximately $2.8
million, to $18.9 million for the nine months ended September 30, 1997 compared
to $21.7 million for the nine months ended September 30, 1996. The decrease was
due to $1.8 million for costs associated with the buildout of the IS-661 pilot,
$11.0 million in research and development components, and $1.2 in
equipment rental and purchases, offset by an increase of $1.5 million of payroll
and payroll related expenses.
Sales, general and administrative expenses increased by 491.2%, or
approximately $105.6 million, to $127.1 million for the nine months ended
September 30, 1997 compared to $21.5 million for the nine months ended September
30, 1995. Of this increase, $28.8 million was due to payroll and payroll related
expenses associated with increases in headcount resulting from the expansion of
the Company's operations. The remaining increase consists primarily of $48.7
million in marketing and equipment cost of sales, $6.4 million in consulting
fees, $2.6 million in legal, accounting and other professional fees, and $16.5
million in interconnect and cell site operating costs. The Company expects that
such expenses will continue to increase significantly during 1997, as the
Company continues to expand its operations.
Depreciation and amortization increased by 275.5%, or approximately $26.9
million, to $35.3 million for the nine months ended September 30, 1997, compared
to $9.4 million for the nine months ended September 30, 1996. The increase in
the 1997 period was due to a general increase in depreciation related to the
Company's research and development and network infrastructure equipment.
Interest income increased by 86.2%, or approximately $5.0 million, to $10.8
million for the nine months ended September 30, 1997 compared to $5.8 million
for the nine months ended September 30, 1996. The increase was due to the
increase in interest earned on interest bearing cash and cash equivalents and
short-term investments. The increase in cash and cash equivalents resulted from
a follow-on public offering in July 1996, and proceeds from sales of the 1996
Senior Notes, in August and December of 1996.
Interest expense increased by 220.4%, or approximately $41.0 million, to
$59.6 million for the nine months ended September 30, 1997, compared to $18.6
million for the nine months ended September 30, 1996. The interest expense for
the nine months ended September 30, 1997 was primarily due to $32.7 million of
interest expense incurred in 1997 for the 1996 Senior Notes, $20.2 of interest
expense on the A Block license obligations, and $2.9 million of interesr expense
relating to vendor financing. The company capitalized interest of $32.3 million
relating to PCS licenses and $10.3 million relating to construction in progress,
during the period in 1997.
Net loss increased by 209%, or approximately $136.5 million to $201.8
million for the nine months ended September 30, 1997 compared to $65.3 million
for the nine months ended September 30, 1996. This increase was primarily due to
a general increase in operating expenses, as well as an increase of $36.0
million in net interest expense.
-10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, the Company financed its
operations and met its capital requirements primarily through vendor financing.
Total financing activities provided net cash of $302.9 million for the nine
months ended September, 30, 1997, compared to $360.0 million for the nine months
ended September 30, 1996. Operating activities used net cash of $80.7 million
for the nine months ended September 30, 1997, compared to $56.5 million for the
nine months ended September 30, 1996. The increase resulted primarily from the
Company's loss growing $136.5 million for the nine months ended September 30,
1997 as compared to the same period in 1996. Offsetting the large increase in
the net loss, the Company experienced increases in accounts payable, accrued
expenses, accrued interest and non cash charges related to depreciation and
amortization. Investing activities used net cash of $352.5 million for the nine
months ended September 30, 1997, compared to $199.7 million for the nine months
ended September 30, 1996. The increase in investing activities consists of
$262.8 million for purchases of network infrastructure related items and lab
equipment used in engineering and manufacturing, $71.0 million for payments on
the D, E and F Block licenses and $32.3 million in capitalized interest relating
to the C and F Block licenses. These increases were offest by a $20.0 million
refund of the FCC deposits, $86.9 million of net investment sales from short and
long term investments, and $44.4 million from the proceeds of the escrow deposit
used to pay interest on the 1996 Senior Notes.
As of September 30, 1997, the Company had negative working capital of
approximately $53.6 million. During the nine months ended September 30, 1997,
the Company has drawn down on its various Nortel and Ericsson vendor financing
facilities, described below. The Company has drawn $146.3 from the NT Credit
Facility, including $4.5 million in accrued interest on this facility through
September 30, 1997. Additionally, the Company has drawn $159.7 million from the
various Ericsson facilities, including $1.0 million in accrued interest on these
credit facitlities through September 30, 1997. The FCC's D, E and F Block
auctions ended in January 1997. The Company used its $60 million deposit to make
its initial down payment of $28.8 million. The remaining $31.2 million was
refunded to the Company in January 1997. The FCC issued a stay on broadband PCS
payments on April 1, 1997. This notice effectively postponed the Company's
quarterly interest payments on the C and F Block licenses. On October 16, 1997,
the FCC issued an order requiring the Company to reissue payments on its C and F
Block licenses beginning on March 31, 1998. The Company will make all interest
payments on the C and F Blcok licenses due and owing on and after March 31,
1998, in accordance with the terms of the original notes. One-eighth of the
interest accrued during the Suspension Period is payable on March 31, 1998, and
one-eighth of the Suspended Interest is payable with each regular installment
payment made thereafter, until the Suspension Interest is paid in full. On
February 15, 1997, the Company used $18.3 million of proceeds from its escrow
deposit to pay interest on the 1996 Senior Notes. On August 15, 1997, the
Company used $26.2 million of proceeds from its escrow deposit to pay interest
on the 1996 Senior Notes.
The Company has an agreement to purchase $250.0 million of equipment and
services over the next five years from Northern Telecom. The Company has a
$382.5 million credit facility with Northern Telecom, the "NT Credit Facility,"
to finance future purchases and installations of telecommunications equipment,
engineering services, certain related construction costs, third-party equipment
and other expenses.
The NT Credit Facility is secured by a pledge of all capital stock of
Omnipoint Communications, Inc. ("OCI"), that is owned by a wholly-owned
subsidiary of the Company (which constitutes a 95.58% ownership interest) and
substantially all of OCI's assets. Under the terms of the NT Credit Facility,
OCI is subject to certain financial and operational covenants including
restrictions on OCI's ability to pay dividends, restrictions on indebtedness and
certain financial maintenance requirements. Additionally, the NT Credit Facility
provides that, among other events, the failure of OCI to pay when due amounts
owing the FCC shall constitute an event of default. Interest on the NT Credit
Facility is payable quarterly.
The principal amount of the non-working capital portions of the NT Credit
Facility is payable in installments beginning in 2000, with the final payment
due on December 31, 2004. As of September 30, 1997, OCI had approximately $126.9
million outstanding under the non-working capital portions of the facility.
-11-
<PAGE>
A portion of the NT Credit Facility, which may be used for working capital
purposes including interest payments on the principal of such facility,
originally matured on June 30, 1997. The Company negotiated with Northern
Telecom to extend the maturity date of the borrowings to December 31, 1997.
Borrowings for working capital purposes which are repaid may be subsequently
borrowed for the other purposes allowed under the NT Credit Facility. As of
September 30, 1997, the Company had an outstanding balance of approximately
$19.4 million on the working capital portion of the NT Credit Facility.
-12-
<PAGE>
Northern Telecom has executed a non-binding commitment letter to extend the
NT Credit Facility from $382.5 million to $612.0 million on substantially the
same terms. Such extension is subject to approval by the Board of Directors of
Northern Telecom. If a definitive agreement is reached, the Company expects to
use these funds in the New York MTA or other markets which the Company acquired
in subsequent FCC auctions.
The Company entered into a credit facility with Ericsson, dated as of
August 7, 1996, to provide financing to the Company for up to $132.0 million for
the purpose of financing the purchase of equipment and services from Ericsson
for the New York MTA market (the "Ericsson Credit Facility). A portion of the
Ericsson Credit Facility, which may be used for interest payments accruing under
such facility, and a portion which may be used to purchase handsets, mature on
June 30, 1998. The principal amount on other portions of the facility is payable
in installments beginning in 2000, with the final payment due on December 31,
2004. Amounts borrowed and repaid are not available for reborrowing except for
the $2.1 million repaid by the Company during the third quarter of 1996.
Interest on the Ericsson Credit Facility is payable quarterly. As of September
30, 1997, the company had approximately $38.7 million outstanding under the long
term portion of the facility and $1.0 million under the short term portion.
Under the terms of the Ericsson Credit Facility, OCI is subject to certain
financial and operational covenants including restrictions on OCI's ability to
pay dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the Ericsson Credit Facility provides that, among
other events, the failure of OCI to pay when due amounts owing the FCC shall
constitute an event of default. The Ericsson Credit Facility is secured by
substantially all of the assets of OCI, including a pledge of all capital stock
of OCI, that is owned by a wholly-owned subsidiary of the Company (which
constitutes a 95.58% ownership interest). All collateral is held by a collateral
agent and is shared on a pari pasu basis with Northern Telecom pursuant to an
inter-creditor arrangement.
On August 7, 1997, Omnipoint MB Holdings, Inc. ("OMB") entered into a
credit facility agreement with Ericsson Inc. to provide financing to the Company
for up to $352.5 million for the purpose of financing the buildout of networks
in the Boston and Miami markets, (the "Ericsson B & M Facility"). The Ericsson B
& M Facility provides the immediate availability of $202.5 million, of which
$100.0 million was funded to OMB at closing. The remaining $150.0 million is
dependent on a loan guarantee from a governmental agency. If the loan guarantee
is completed before February 4, 1998, the Company will grant Ericsson a five
year exclusive right to supply network equipment for the Boston and Miami
markets.
Under the terms of the Ericsson B & M Facility, OMB is subject to certain
financial and operational covenants including restrictions on OMB's ability to
pay dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the Ericsson B & M Facility provides that, among
other events, the failure of OMB to pay when due amounts owing to the FCC shall
constitute an event of default. The Ericsson B & M Facility is secured by
substantially all of the assets of OMB and each of the license and operating
subsidiaries for the Boston and Miami markets, including a pledge of all capital
stock of each such license and operating subsidiaries as well as capital stock
of OMB.
The principal amount of portions of the facility financing equipment
purchases from Ericsson, and certain eligible soft costs, is repayable in
installments beginning 2001, with a final payment due on August 4, 2006.
Interest on such amount is payable quarterly (of which a portion of the loan
proceeds are available to finance such interest payments). The $100 million
portion funded at closing, which has no required principal amortization, matures
on August 4, 2007. Interest on such portion is payable semi-annually (of which
interest may be accreted until August 4, 2003).
On September 9, 1997, OPCS Philadelphia Holdings, Inc. ("OPCS") entered
into a credit facility agreement with Ericsson Inc. to provide financing to the
Company for up to $120.0 million for general corporate and working capital
purposes, including the payment of interest associated with the Philadelphia
market, (the "Ericsson Philadelphia Facility").
-13-
<PAGE>
Under the terms of the Ericsson Philadelphia Facility, OPCS is subject to
certain financial and operational covenants including restrictions on OPCS's
ability to pay dividends, restrictions on indebtedness and certain financial
maintenance requirements. Additionally, the Ericsson Philadelphia Facility
provides that, among other events, the failure of OPCS to pay when due amounts
owing to the FCC shall constitute an event of default. The Ericsson Philadelphia
Facility is secured by substantially all of the assets of OPCS and each of the
license and operating subsidiaries for the Philadelphia markets, including a
pledge of all capital stock of each such license and operating subsidiaries as
well as capital stock of OPCS.
The principal amount of portions of the facility financing equipment
purchases from Ericsson, and certain eligible soft costs, is repayable in
installments beginning 2001, with a final payment due on December 31, 2005.
Interest on such amount is payable quarterly (of which a portion of the loan
proceeds are available to finance such interest payments).
In the recently completed auction by the FCC of the D, E and F Block BTA
licenses, the Company won 109 licenses for an aggregate of $181.4 million (net
of the 25% small business discount). In January 1997, the Company made a down
payment of approximately $28.8 million to the FCC. In June 1997, the Company
made an additional payment of $33.2 million related to the licenses issued April
28, 1997. On July 14, 1997, the company made its final payment (excluding debt
service for the F block) of $59.9 million. The remaining $59.4 million for the F
Block licenses is payable over the next ten years.
The Company believes that access to capital and financial flexibility are
necessary to successfully implement its strategy. The Company believes the
proceeds from the sale of the 1996 Senior Notes, in combination with the NT
Credit Facility, the Ericsson Credit Facility, the Ericsson M & B Facility, and
the Ericsson Philadelphia Facility, will be sufficient to fund operating losses,
capital expenditures and working capital necessary for the initial buildout of
the Company's PCS networks during the next twelve months. To the extent that the
buildout of these networks is faster than expected, the costs are greater than
anticipated or the Company takes advantage of other opportunities, including
those that may arise through current and future FCC auctions, the Company may
require additional funding to implement its business strategy.
The Company's future capital requirements will depend upon many factors,
including the successful development of new products, the extent and timing of
acceptance of the Company's equipment in the market, requirements to maintain
adequate manufacturing facilities, the progress of the Company's research and
development efforts, expansion of the Company's marketing and sales efforts, the
Company's results of operations and the status of competitive products. The
Company believes that cash and cash equivalents on hand, anticipated revenues,
vendor financing and additional strategic partnerships will be adequate to fund
its operations and its network buildout for the next 12 months. There can be no
assurance, however, that the Company will not require additional financing prior
to such date to fund its operations. The Company believes that it will require
substantial amounts of additional capital over the next several years and
anticipates that this capital will be derived from a mix of public offerings and
private placements of debt or equity securities or both.
-14-
<PAGE>
Part II -- Other Information
<TABLE>
<CAPTION>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<S> <C>
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2@@@ Amended and Restated Bylaws of the Registrant.
4.2 See Exhibit 3.1.
10.1@ Registrant's Amended and Restated 1990 Stock Option Plan.
10.2@ Form of Incentive Stock Option Agreement under Registrant's 1990 Stock Option Plan.
10.3@ Form of Stock Option Agreement under Registrant's 1990 Stock Option Plan for non-qualified
options.
10.4@ Form of Stock Option Agreement outside scope of Registrant's 1990 Stock Option Plan for
non-qualified options.
10.5@ Warrant Certificate, dated August 2, 1991, by and between the
Registrant and Allen & Company Incorporated.
10.6@ Warrant Certificate, dated August 2, 1991, by and between the
Registrant and Allen & Company Incorporated.
10.7@ Letter agreement, dated June 29, 1995, by and between the
Registrant and Allen & Company Incorporated (relating to
Exhibit 10.6).
10.8**** Letter Agreement of Warrant Extension, dated November 1, 1996,
by and between the Registrant and Allen & Company Incorporated
(relating to Exhibit 10.6).
10.9@ Common Stock Purchase Warrant issued March 10, 1995, granted to Madison Dearborn Capital
Partners, L.P.
10.10@ Common Stock Purchase Warrant issued March 10, 1995, granted to Madison Dearborn Capital Partners, L.P.
10.11@ Employment Agreement, effective October 1, 1995, by and between the Registrant, Omnipoint
Communications Inc. and George F. Schmitt.
10.12@ Promissory Note, dated October 1, 1995, by George F. Schmitt.
10.13@ Stock Restriction Agreement, dated October 1, 1995, by and between the Registrant and George F.
Schmitt.
10.14@ Employment Agreement, dated April 17, 1995, by and between the Registrant and Bradley E. Sparks.
10.15@ Promissory Note, dated April 17, 1995, by Bradley E. Sparks.
10.16@ Stock Restriction Agreement, dated April 17, 1995, by and between the Registrant and Bradley E.
Sparks.
10.17*** Employment Agreement, dated November 3, 1996, by and between the
Registrant and Kjell S Andersson.
10.18*** Promissory Note, dated February 24, 1997, by Kjell S. Andersson.
10.19*** Stock Restriction Agreement, dated February 24, 1997, by and between the Registrant and Kjell S.
Andersson.
10.20@ Series B Convertible Preferred Stock Purchase Agreement, dated
August 9, 1993, by and among the Registrant and Madison Dearborn
Capital Partners, L.P.
10.21@ Amendment No. 1 to Series B Convertible Preferred Stock Purchase Agreement, dated June 29, 1995,
by and between the Registrant and Madison Dearborn Capital Partners, L.P.
10.22@ Series C Convertible Preferred Stock Purchase Agreement, dated
June 29, 1995, by and among the Registrant and the other parties
named therein.
10.23@ Amended and Restated Registration Rights Agreement, dated June
29, 1995, by and among the Registrant and the parties named
therein.
10.24@ First Amended and Restated Voting Agreement, dated June 29, 1995,
by and among the Registrant and the other parties named therein.
10.25@ OEM Supply Agreement for Omnipoint PCS (Personal Communication
Systems) Products, dated September 22, 1994, by and between the
Registrant and Northern Telecom Inc
10.26@ Manufacturing License and Escrow Agreement for Personal Communication Service Products, dated
February 28, 1995, by and between the Registrant and Northern Telecom Inc.
10.27@ Collaborative Development Agreement, dated March 1, 1995, by
and between the Registrant and Northern Telecom Inc.
10.28@ Reciprocal OEM Agreement Memorandum of Understanding, dated March
30, 1995, by and between the Registrant and Northern Telecom Inc.
10.29@ Supply Agreement, dated September 22, 1994, by and between Omnipoint Communications Inc. and
Northern Telecom Inc.
10.30@ Amendment No. 1 to Supply Agreement, dated July 21, 1995, by and between Omnipoint
Communications Inc. and Northern Telecom Inc.
10.31
10.32### Amended and Restated Loan Agreement, dated August 7, 1996, by and between Omnipoint
Communications Inc. and Northern Telecom Inc.
10.33### Loan Agreement, date as of August 7, 1996, by and between Omnipoint Communications Inc.
and Ericsson Inc., as amended.
-15-
<PAGE>
10.34@ Memorandum of Understanding, dated April 21, 1995, by and
between the Registrant and Pacific Bell Mobile Services.
10.35@ Note and Warrant Purchase Agreement dated November 22, 1995,
between the Registrant and the purchasers named therein.
10.36@ Senior Note Due 2000 issued by the Registrant on November 22, 1995 to the holder identified therein.
10.37@ Senior Note Due 2000 issued by the Registrant on November 22, 1995 to the holder identified therein.
10.38@# Memorandum of Understanding, dated November 22, 1995, by and between the Registrant and
Ericsson Inc.
10.39@ Letter Agreement, dated January 24, 1996, by and between the Registrant and between Ericsson Inc.
10.40@ Letter of Intent, dated October 26, 1995, by and between the Registrant and Ericsson Inc.
10.41@ Contract for Sale of Real Estate, dated August 30, 1995, by and between F&R Bari Realty, Ltd., Inc.
and Omnipoint Communications Inc.
10.42@ Lease Agreement, dated October 15, 1995, by and between the Registrant and Baetis Properties, Inc.
10.43**## Acquisition Agreement for Ericsson CMS 40 Personal Communications Systems (PCS) Infrastructure
Products, dated as of April 16, 1996, by and between Ericsson Inc. and Omnipoint Communications Inc.
10.44**## Acquisition Supply and License Agreement for Omnipoint Personal Communications Systems (PCS)
Infrastructure Products, dated as of April 16, 1996, by and between Ericsson Inc. and the Registrant.
10.45**## Agreement for Purchase and Sale of Ericsson Inc. Masko Terminal Units, dated as of April 16, 1996,
by and between Ericsson Inc. and Omnipoint Communications Inc.
10.46**## Memorandum of Understanding, dated April 2, 1996, by and between Orbitel Mobile
Communications Inc. and the Registrant.
10.47@@ Letter of Intent, dated November 20, 1995, by and between the
Registrant and Western Wireless Corporation.
10.48@@ Letter of Intent, dated February 26, 1996, by and between Omnipoint Communications Inc. and
American Portable Telecom, Inc.
10.49@@ Letter of Intent, dated March 22, 1996, by and between Omnipoint Communications, Inc. and
American Personal Communications.
10.50@@ Letter of Intent, dated May 13, 1996, by and between the Registrant
and InterCel, Inc. 10.51@@ License agreement dated March 22, 1996 by and
between the Registrant and Bender & Company, Inc. 10.52@@ Second License
Agreement, dated April 17, 1996, by and between the Registrant and Bender &
Company, Inc.
10.53@@ Lease Agreement, dated March 1, 1996, by and between Omniset Corporation and Roots Stone
Limited Partnership.
10.54*** Agreement dated as of February 24, 1997, between the
Registrants and Kjell S. Andersson, amending Employment
Agreement dated November 3, 1996.
11.1 Statement of computation of loss per share.
21.1@ Subsidiaries of the Registrant.
27 Financial Data Schedule
- - ----------
@ Incorporated herein by reference to the Company's Registration Statement on Form S-1, No. 33-98360
@@ Incorporated herein by reference to the Company's Registration Statement Form S-1, No. 33-03739.
@@@ Incorporated by reference to the Company's Registration Statement on Form S-4, No. 333-19895.
* Incorporated herein by reference to Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
** Incorporated herein by reference to the Company's Current Report on Form 8-K, filed May 3, 1996.
*** Incorporated herein by reference to Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
**** Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1997.
# Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission
pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 406 of the Act, which
application was granted by the Commission.
## Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission
pursuant to the Registrant's Application Requesting Confidential Treatment under Rule 24b-2 under the Exchange
Act of 1934, filed May 3, 1996.
### Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission
pursuant to the Registrant's Application Requesting Confidential Treatment under
Rule 24b-2 under the Exchange Act of 1934, filed March 31, 1997.
- - ----------
</TABLE>
(b) Reports on Form 8-K
On August 27, 1997 a Form 8-K, Items 5 and 7, was filed relating to the
Company's credit facility agreement, dated as of July 25, 1997, with Ericsson
Inc. and certain other lenders, pursuant to which the lenders have agreed to
provide up to $352.2 million in financing for the purpose of financing the
buildout of networks in the Boston and Miami markets.
-16-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMNIPOINT CORPORATION
Date: November 14, 1997 /s/ Bradley E. Sparks
---------------------
Bradley E. Sparks
Chief Financial Officer
-17-
<PAGE>
================================================================================
================================================================================
EXHIBIT 11.1
<TABLE>
<CAPTION>
OMNIPOINT CORPORATION
STATEMENT OF COMPUTATION OF LOSS PER SHARE
( In thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
(unaudited) (unaudited)
---------------------------------- ---------------------------------
1997 1996 1997 1996
--------------- -------------- --------------- ---------------
Calculation of primary loss per share:
<S> <C> <C> <C> <C>
Net loss $ (81,161) $ (27,851) $ (201,830) $ (65,264)
=============== ============== =============== ===============
Common shares outstanding 51,587 50,278 51,440 45,458
--------------- -------------- --------------- ---------------
Total shares - primary
51,587 50,278 51,440 45,458
=============== ============== =============== ===============
Primary loss per share:
Net loss per share $ (1.57) $ (0.55) $ (3.92) $ (1.44)
=============== ============== =============== ===============
Note: The computation of fully diluted earnings per share is identical to that of primary earnings per share for
the periods presented above and therefore is not included separately herein.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND INCOME STATEMENT OF OMNIPOINT CORPORATION AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.)
</LEGEND>
<CIK> 0001002532
<NAME> OMNIPOINT CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 84,913
<SECURITIES> 22,053
<RECEIVABLES> 13,111
<ALLOWANCES> (1,938)
<INVENTORY> 19,607
<CURRENT-ASSETS> 195,511
<PP&E> 521,029
<DEPRECIATION> (34,300)
<TOTAL-ASSETS> 1,652,579
<CURRENT-LIABILITIES> 249,089
<BONDS> 477,915
0
0
<COMMON> 516
<OTHER-SE> (65,018)
<TOTAL-LIABILITY-AND-EQUITY> 1,652,579
<SALES> 23,778
<TOTAL-REVENUES> 28,278
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 181,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,549
<INCOME-PRETAX> (201,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> (201,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (201,830)
<EPS-PRIMARY> (3.92)
<EPS-DILUTED> (3.92)
</TABLE>
