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 June 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 20814
(Address of principal executive office)
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: 51,706,456 shares of common
stock were outstanding as of August 8, 1997.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Note 1)
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OMNIPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
June 30 December 31,
1997 1996
--------------- ----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $124,844 $215,029
Short term investments 27,635 46,827
Escrow deposit 51,244 43,516
Accounts receivable, net of allowances of $622 as of
June 30, 1997 5,572 47
Inventory 22,878 37,490
Prepaid expenses and other current assets 7,677 1,748
--------------- ----------------
Total current assets 239,850 344,657
Fixed assets, net 372,085 186,851
FCC licensing costs, net of accumulated amortization of $22,148
and $17,804 as of June 30, 1997 and
December 31,1996, respectively 851,861 752,189
FCC deposit - 60,000
Unissued license payment (Note 4) 15,932 -
Escrow deposit 24,528 48,466
Deferred financing costs and other intangible assets, net of
accumulated amortization of $3,473 and $2,089
as of June 30, 1997 and December 31, 1996,
respectively 25,837 27,047
Other long-term assets 2,074 262
--------------- ----------------
Total assets $1,532,167 $1,419,472
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 119,558 73,878
Accrued expenses 15,105 12,333
Accrued interest payable 35,652 12,072
FCC license obligations-current portion 26,002 -
Deferred revenue 2,067 -
Loan payable under financing agreement - current portion 16,851 -
Capital lease obligations-current portion 23 59
--------------- ----------------
Total current liabilities 215,258 98,342
Capital lease obligations-long term portion 98 -
Loans payable under financing agreements 97,628
-
Senior notes 19,175 18,617
11 5/8% Senior and Series A Notes due 2006 458,577 458,886
FCC license obligations-long term portion 725,697 709,853
Commitments and contingencies (Note 6)
Stockholders' equity :
Common stock, par value, $.01 per share; authorized
75,000,000 shares; 51,567,661 shares issued and outstanding
at June 30, 1997 and 50,969,300 shares issued and outstanding
at December 31, 1996 516 510
Additional paid-in capital 332,310 329,772
Accumulated deficit (307,097) (186,428)
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Unearned compensation (7,942) (8,883)
Notes receivable (2,053) (1,197)
--------------- ----------------
Total stockholders' equity 15,734 133,774
--------------- ----------------
Total liabilities and stockholders' equity 1,532,167 1,419,472
=============== ================
See notes to consolidated financial statements
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<CAPTION>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- -------------------------------
1997 1996 1997 1996
--------------- ------------------- -------------------------------
Service and handset revenues:
<S> <C> <C> <C> <C>
License fees $ - $ - $ 4,500 $ -
Handset and service revenues 6,862 - 9,949 -
--------------- ------------------- ---------------- --------------
Total revenues 6,862 - 14,449 -
Operating expenses:
Research and development 5,237 8,507 12,944 13,418
Sales, general, and
administrative 42,405 5,019 70,295 10,039
Depreciation and
amortization 12,650 3,094 23,069 6,595
--------------- ------------------- ---------------- -------------
Total operating expenses 60,292 16,620 106,308 30,052
Loss from operations (53,430) (16,620) (91,859) (30,052)
Other income (expense):
Interest and other
income 3,986 1,313 8,647 2,711
Interest expense (18,862) (6,203) (37,457) (10,072)
--------------- ------------------- ----------------- -------------
Net loss $ (68,306) $ (21,510) $ (120,669) $ (37,413)
=============== =================== ================= =============
Loss per share $ (1.33) $ (0.47) $ (2.35) $ (0.87)
=============== =================== ================= =============
Weighted average common
shares outstanding 51,457 45,620 51,367 43,045
=============== =================== ================= =============
</TABLE>
See notes to consolidated financial statements
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<TABLE>
<CAPTION>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
June 30,
---------------------------------------
1997 1996
-------------------- ------------------
Cash flows used in operating activities:
<S> <C> <C>
Net loss $ (120,669) $ (37,413)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and depreciation 23,069 6,595
Inventory writedown to replacement cost 5,166 -
Allowance for doubtful accounts 622 -
Compensation expense from stock grants 1,261 114
Increase in employee notes receivable and related accrued
interest (65) (42)
Forgiveness of employee notes receivable 146 -
Payment in kind interest on financing agreement - 1009
Accrued interest 25,567 (262)
Interest expense associated with amortization of discount,
premium and issuance costs 4,577 1,147
Delivery of pilot system equipment funded by financing
agreement - 1,321
Interest income associated with restricted cash (2,068) -
Changes in assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable (6,146) -
Prepaid expenses and other assets (7,742) 559
Inventory 9,446 (437)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 48,451 (426)
Unearned revenue 2,067 -
-------------------- ------------------
Net cash used in operating activities (16,318) (27,835)
-------------------- ------------------
Cash flows used in investing activities:
Purchase of equipment (203,034) (10,508)
Down payments for FCC licenses (62,065) (25,457)
Refund of FCC deposit 60,000 40,000
Capitalized interest on C Block licenses (19,982) -
Purchase of investment securities (21,324) -
Sales of investment securities 40,516 -
Proceeds from held to maturity investments 18,278 -
-------------------- ------------------
Net cash used in (provided by) investing activities (187,611) 4,035
-------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,287 586
Proceeds from financing agreements 112,493 13,300
Payments of obligations under capital leases (36) (119)
Payments on credit agreement - (36,500)
Proceeds from initial public offering, net of expenses - 118,437
Dividends accrued and paid - (1,536)
Costs associated with secondary public offering (665)
-------------------- ------------------
Net cash provided by financing activities 113,744 93,503
-------------------- ------------------
Net increase (decrease) in cash and cash equivalents (90,185) 69,703
Cash and cash equivalents at beginning of period 215,029 57,784
-------------------- ------------------
Cash and cash equivalents at end of period $ 124,844 $ 127,487
==================== ==================
</TABLE>
See notes to consolidated financial statements
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<CAPTION>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except share data)
Total
Common Stock Additional Accumulated Unearned Notes Stockholders'
Shares Amount Paid-in Capital Deficit Compensation Receivable Equity
--------------------------------------------------------------------------------------
<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 432,052 4 350 - - - 354
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 - - 447 - (447) - -
Amortization of
unearned compensation - - - - 1,261 - 1,261
Cancellation of unearned
compensation - - (127) - 127 - -
Interest on employee
notes receivable - - - - - (65) (65)
Forgiveness of notes
receivable - - - - - 146 146
Net loss - - - (120,669) - - (120,669)
--------------------------------------------------------------------------------------------------
Balance, June 30, 1997 51,567,661 $ 516 $ 332,310 $(307,097) $ (7,942) $ (2,053) $ 15,734
==================================================================================================
</TABLE>
See notes to consolidated financial statements
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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 six month presentation.
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2. INVENTORY:
----------
Inventory consists of the following for June 30, 1997 (unaudited) and
December 31 1996:
June 30, December 31,
1997 1996
----------------- -----------------
(in thousands)
<S> <C> <C>
Raw Materials
761 1,102
GSM Handsets
18,225 33,343
Accessories & SIM Cards
3,892 3,045
----------------- -----------------
$ 22,878 $ 37,490
================= =================
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<TABLE>
<CAPTION>
3. FIXED ASSETS:
------------
Fixed assets including equipment under capital leases consist of the
following at June 30, 1997 (unaudited) and December 31, 1996:
June 30, December 31,
1997 1996
------------------ ------------------
(In thousands)
<S> <C> <C>
Building and building improvements $ 12,312 $ 7,751
Machinery, office and computer equipment 45,082 30,680
Network infrastructure equipment 157,443 67,252
Vehicles 452 452
------------------ ------------------
$ 215,289 $ 106,135
Less: accumulated depreciation (25,655) (8,317)
------------------ ------------------
$ 189,634 $ 97,818
Construction in progress 182,451 89,033
------------------ ------------------
$ 372,085 $ 186,851
================== ==================
</TABLE>
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OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Depreciation expense for the period ended June 30, 1997 and for the year
ended December 31, 1996 was $17.9 and $5.9, respectively. Approximately
$9.2 million of capitalized interest has been included in network
infrastructure equipment that was previously or continues to be
construction in progress.
4. D, E AND F 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. 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 represents 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. FCC F Block debt
has a face value of $49.2 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 $39.7. 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.
5. REGISTRATION OF SERIES A SENIOR NOTES:
On February 19, 1997, the Company offered to exchange its 11 5/8% Series A
Senior Notes due 2006, which have been registered under the Securities Act
of 1933, as amended, for any and all of its outstanding 11 5/8% Series A
Senior Notes. The interest rate and covenants of the registered notes are
substantially identical to the interest rate and covenants with respect to
the 11 5/8% Series A Senior Notes. The registered notes are obligations of
the Company evidencing the same indebtedness as the 11 5/8% Series A Senior
Notes and are governed by the same indenture as the 11 5/8% Series A Senior
Notes.
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.
7. SUBSEQUENT EVENTS:
On July 14, 1997, the Company made a payment of $59.9 million for the D and
E Block licenses and $1.3 million for the F Block licenses. The Company
will record the remaining FCC debt, face value of $11.5 million, at the
appropriate discounted value during the third quarter.
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 proceeds of which were used to make an inter-company loan to the
Company). 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.
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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 second quarter loss of $68.3 million or $1.33 per
share, an increase of 217.7%, or approximately $46.8 million, compared to the
same quarter in 1996. For the six months ended June 30, 1997, the Company
reported a loss of $120.7 million, or $2.35 per share, an increase of 222.7%, or
approximately $83.3 million, compared to the same period in 1996. The 1996
second quarter loss was $21.5 million, or $0.47 per share, and a six month 1996
loss of $37.4 million, or $0.87 per share.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues for the three months ended June 30, 1997 were $6.9 million,
compared to no revenues in the second quarter of 1996. Revenues for the second
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 38.8%, or approximately $3.3
million, to $5.2 million for the three months ended June 30, 1997, compared to
$8.5 million for the three months ended June 30, 1996. The decrease was due to a
decrease of $0.9 million in research and development components, $1.6 million in
payroll and related expenses, employee benefits and employee recruiting costs,
and $0.8 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 748%, or
approximately $37.4 million, to $42.4 million for the three months ended June
30, 1997, compared to $5.0 million for the three months ended June 30, 1996. Of
this increase, $9.2 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 increases of
$15.2 million in marketing and equipment cost of sales, $2.9 million in
consulting fees, and $4.1 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 309.7%, or approximately $9.6
million to $12.7 million for the three months ended June 30, 1997, compared to
$3.1 million for the three months ended June 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 approximately $2.7 million, to $4.0 million for
the three months ended June 30, 1997 compared to $1.3 million for the three
months ended June 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 two tranches of 11 5/8% Senior
Notes due 2006 (the "1996 Senior Notes") in August and December of 1996.
Interest expense increased by 204.8%, or approximately $12.7 million, to
$18.9 million for the three months ended June 30, 1997 compared to $6.2 million
for the three months ended June 30, 1996. The increase was primarily due to
$12.9 million of interest expense incurred in 1997 for the 1996 Senior Notes.
The Company capitalized interest of $14.1 million during the second quarter of
1997.
Net loss increased by 217.7%, or approximately $46.8 million to $68.3
million for the three months ended June 30, 1997 compared to $21.5 million for
the three months ended June 30, 1996. This increase was primarily due to a
general increase in operating expenses, as well as an increase of $10.0 million
in net interest expense.
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Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997, were $14.4 million,
compared to no revenues in the six months ended June 30, 1996. Revenues for the
first six months consisted of 4.5 million for license fees and $9.9 million of
service and handset revenues associated with the operation of the New York MTA
PCS networks.
Research and development expenses decreased by 3.7%, or approximately $0.5
million, to $12.9 million for the six months ended June 30, 1997 compared to
$13.4 million for the six months ended June 30, 1996. An increase of $1.5
million for payroll and related costs associated with the Company's continued
development of the IS-661 technology is offset by a decrease of $1.3 million in
cellsite expenses, $0.6 million in equipment rental and purchases, and $0.4
million in consulting.
Sales, general and administrative expenses increased by 603%, or
approximately $60.3 million, to $70.3 million for the six months ended June 30,
1997 compared to $10.0 million for the six months ended June 30, 1995. Of this
increase, $17.7 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 increases of
$26.5 million in marketing and equipment cost of sales, $4.5 million in
consulting fees, $2.2 million in legal, accounting and other professional fees,
and $7.4 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 250.0%, or approximately $16.5
million, to $23.1 million for the six months ended June 30, 1997 compared to
$6.6 million for the six months ended June 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 approximately $5.9 million, to $8.6 million for
the six months ended June 30, 1997 compared to $2.7 million for the six months
ended June 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 two tranches of 11 5/8% Senior Notes
due 2006 ( the "1996 Senior Notes") in August and December of 1996.
Interest expense increased by 271.3%, or approximately $27.4 million, to
$37.5 million for the six months ended June 30, 1997 compared to $10.1 million
for the six months ended June 30, 1996. The interest expense for the six months
ended June 30, 1997 was primarily due to $25.5 million of interest expense
incurred in 1997 for the 1996 senior notes. The company capitalized interest of
$26.3 million.
Net loss increased by, 222.7%, or approximately $83.3 million to $120.7
million for the six months ended June 30, 1997 compared to $37.4 million for the
six months ended June 30, 1996. This increase was primarily due to a general
increase in operating expenses, as well as an increase of $21.5 million in net
interest expense.
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LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1997, the Company financed its operations
and met its capital requirements primarily through vendor financing. Total
financing activities provided net cash of $113.7 million for the six months
ended June 30, 1997, compared to $93.5 million for the six months ended June 30,
1996. Operating activities used net cash of $16.3 million for the six months
ended June 30, 1997, compared to $27.8 million for the six months ended June 30,
1996. The decrease resulted primarily from increases in accounts payable,
accrued expenses and non cash charges related to depreciation and amortization
and inventory write downs to replacement costs. Investing activities used net
cash of $187.6 million for the six months ended June 30, 1997, compared to a
surplus of $4.0 million for the six months ended June 30, 1996. The increase in
investing activities consists of $192.6 million for purchases of network
infrastructure related items and lab equipment used in engineering and
manufacturing, and $36.6 million for payments on the D, E and F Block licenses
and $20.0 million in capitalized interest relating to the C Block licenses;
offset by cash provided of $20.0 million for the refund of the FCC deposits,
$19.2 million of net investment sales from short and long term investments, and
$18.3 million from the proceeds of the escrow deposit used to pay interest on
the 11 5/8% Senior Notes.
As of June 30, 1997, the Company had working capital of approximately $24.6
million. On March 25, 1997, the Company borrowed $73.8 million from its existing
NT Credit Facility. Associated with the $73.8 million draw on the NT Credit
Facility, the Company paid for $46.7 million of outstanding invoices in a net
transaction. On June 30, 1997, the Company borrowed $38.7 million from its
existing Ericsson Credit Facility, as defined below. 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 $8.1
million quarterly interest payment on the C Block licenses. The exact timing of
this interest payment is still undetermined. The April 1, notice will also
postpone future quarterly installments until further notice. On February 15,
1997, the Company used $18.3 million of proceeds from its escrow deposit to pay
interest on the 11 5/8% Senior and Series A Notes due 2006.
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 Company also has an OEM agreement to sell certain
equipment, hardware and software to Northern Telecom at its normal selling
prices, which will result in licensing fees and revenues.
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 June 30, 1997, OCI had approximately $58.9
million outstanding under the non-working capital portions of the facility.
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 September 30, 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 June
30, 1997, the Company had an outstanding balance of approximately $16.9 million
of the NT Credit Facility.
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.
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<PAGE>
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 June 30,
1997, the company had approximately $38.7 million outstanding under the
non-working capital portion of the facility.
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 proceeds of which were used to
make an inter-company loan to the Company). 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
requirments. 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 all 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 (which
interest may be accreted until August 4, 2003).
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, and the Ericsson B & M 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. Prices for the Company's Senior Notes due 2006
have declined significantly since year end,
- 12 -
<PAGE>
resulting in an increase in the Notes effective yield to approximately 12.13%.
The price decline is expected to be temporary, but would significantly increase
the Company's borrowing costs if it decided to issue new debt.
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.
- 13 -
<PAGE>
Part II -- Other Information
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on May 29, 1997.
(b) At the Annual Meeting of Stockholders, all eight members of the Company's
Board of Directors, Richard L. Fields, Paul J. Finnegan, Evelyn Goldfine,
Arjun Gupta, James N. Perry, Jr., James J. Ross, George F. Schmitt and
Douglas G. Smith (the "Nominees") were elected to serve until the 1998
Annual Meeting of Stockholders, or until their respective successors are
elected and duly qualified.
(c) The following matters were voted upon at the Annual Meeting of
Stockholders:
(iv) All Nominees were elected as directors to serve until the 1998 Annual
Meeting of Stockholders, or until their respective successors are
elected and duly qualified, with at least 95.4% of the voting shares
cast for each Nominee;
<TABLE>
<CAPTION>
For Withhold Authoriy
--- -----------------
<S> <C> <C>
Douglas G. Smith 42,756,619 497,288
George G. Schmitt 43,145,909 107,998
Evelyn Goldfine 42,737,570 516,337
Richard L. Fields 43,145,659 108,248
Paul J. Finnegan 41,279,741 1,974,166
Arjun Gupta 41,267,993 1,985,914
James N. Perry, Jr. 43,145,559 108,348
James J. Ross 43,025,459 288,448
</TABLE>
(ii) The Company's 1997 Omnibus Stock Plan and the reservation of 2,500,000
shares of Common Stock for issuance thereunder were approved by 85.0%
of the voting shares (votes for: 36,750,000; votes against or
withheld: 6,350,000); and
(iii)The appointment of Coopers & Lybrand L.L.P. as the Company's
independent auditors was ratified by 99.9% of the voting shares (votes
for: 43,211,000; votes against or withheld: 42,800).
- 14 -
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(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.
10.34@ Memorandum of Understanding, dated April 21, 1995, by and
between the Registrant and Pacific Bell Mobile Services.
- 15 -
<PAGE>
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
</TABLE>
- ----------
<TABLE>
<S> <C>
@ 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
None.
- 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: August 14, 1997 /s/ Bradley E. Sparks
Bradley E. Sparks
Chief Financial Officer
- 17 -
<PAGE>
EXHIBIT 11.1
OMNIPOINT CORPORATION
STATEMENT OF COMPUTATION OF LOSS PER SHARE
( In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
(unaudited) (unaudited)
----------------------------------- ----------------------------------
1997 1996 1997 1996
---------------- --------------- ---------------- ----------------
Calculation of primary loss per share:
<S> <C> <C> <C> <C>
Net loss $ (68,306) $ (21,510) $ (120,669) $ (37,413)
================ =============== ================ ================
Common shares outstanding 51,457 45,620 51,367 43,045
---------------- --------------- ---------------- ----------------
Total shares - primary 51,457 45,620 51,367 43,045
================ =============== ================ ================
Primary loss per share:
Net loss per share $ (1.33) $ (0.47) $ (2.35) $ (0.87)
================ =============== ================ ================
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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 124,844
<SECURITIES> 27,635
<RECEIVABLES> 6,194
<ALLOWANCES> (622)
<INVENTORY> 22,878
<CURRENT-ASSETS> 239,850
<PP&E> 397,840
<DEPRECIATION> (25,655)
<TOTAL-ASSETS> 1,532,167
<CURRENT-LIABILITIES> 215,258
<BONDS> 477,752
0
0
<COMMON> 516
<OTHER-SE> 15,218
<TOTAL-LIABILITY-AND-EQUITY> 1,532,167
<SALES> 9,949
<TOTAL-REVENUES> 14,449
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 106,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,457
<INCOME-PRETAX> (120,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120,669)
<EPS-PRIMARY> (2.35)
<EPS-DILUTED> (2.35)
<PAGE>
</TABLE>
