-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LB38spO6iqJjfZ9LeWAlpqXFypsDMHyKLtb3r+M+KP/INsG5Rh5/Uj+MNgON6S2P VfBxlRP5upaCqWtOtZz4SA== 0000891092-96-000154.txt : 19960816 0000891092-96-000154.hdr.sgml : 19960816 ACCESSION NUMBER: 0000891092-96-000154 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEOTEK COMMUNICATIONS INC CENTRAL INDEX KEY: 0000844843 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 222358635 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11620 FILM NUMBER: 96614345 BUSINESS ADDRESS: STREET 1: 20 CRAIG ROAD CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2019309305 MAIL ADDRESS: STREET 1: 20 CRAIG ROAD CITY: MONTVALE STATE: NJ ZIP: 07465 FORMER COMPANY: FORMER CONFORMED NAME: GEOTEK INDUSTRIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- Form 10Q (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, 1996 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 0-17581 GEOTEK COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in Charter) DELAWARE 22-2358635 (State or other jurisdiction (I.R.S. Employer Identification) of incorporation or organization) 20 Craig Road, Montvale, New Jersey 07645 (Address of Principal Executive Office) (Zip Code) (201) 930-9305 (Registrant's Telephone Number Including Area Code) Indicate by check 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___ COMMON STOCK OUTSTANDING AT JULY 31, 1996: 58,729,680 SHARES GEOTEK COMMUNICATIONS, INC. FORM 10-Q TABLE OF CONTENTS PART I: Financial Information Item 1: Financial Statements Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations PART II: Other Information Item 4: Submission of Matters to a Vote of Security-Holders Item 6: Exhibit and Reports on Form 8-K CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains certain "forward-looking" statements. The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of such safe harbor with respect to all of such forward-looking statements. Examples of forward-looking statements contained herein include the Company's projections with respect to: (a) the commercial implementation of GEONET and the timing of the roll-out of GEONET; (b ) the Company's future financial results, capital needs and sources of financing; and (c ) the effect of certain legislation and governmental regulations on the Company. The Company's ability to predict any such projected results or to predict the effect of any legislation or other pending events on the Company's operating results is inherently uncertain. Therefore, the Company wishes to caution each reader of this report to carefully consider the specific factors discussed with such forward-looking statements and contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 as such factors in some cases have affected, and in the future (together with other factors) could affect, the ability of the Company to achieve its projected results and may cause future actual results to differ materially from those expressed herein. 2 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Note 1) June 30, 1996 December 31, (Unaudited) 1995 -------- -------- ASSETS Current Assets: Cash and cash equivalents $157,639 $ 61,428 Temporary investments 7,945 Restricted cash 16,577 36,971 Accounts receivable trade, net 15,499 14,028 Inventories, net 15,604 10,483 Deposits for spectrum licenses 6,616 11,500 Prepaid expenses and other 7,803 5,621 -------- -------- Total current assets 219,738 147,976 Investments in affiliates 2,417 3,078 Property, plant and equipment, net 88,982 66,110 Intangible assets, net 69,680 68,181 Other assets 21,011 7,219 -------- -------- $401,828 $292,564 ======== ======== See notes to consolidated financial statements. 3 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Note 1) June 30, 1996 December 31, (Unaudited) 1995 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, trade $ 19,718 $ 17,948 Accrued expenses and other 35,323 23,005 Notes payable, banks and other 9,228 8,285 Current maturities, long-term debt 10,469 29,577 -------- -------- Total current liabilities 74,738 78,815 -------- -------- Long-term debt 180,474 95,875 Other noncurrent liabilities 1,088 1,217 Minority interest 498 395 Redeemable preferred stock 40,000 40,000 Commitments and Contingencies Shareholders' equity: Preferred stocks, $.01 par value 11 11 Common stock, $.01 par value: authorized 135,000,000; issued 58,310,000 and 55,251,000 respectively; outstanding 58,072,000 and 55,013,000, respectively 583 553 Capital in excess of par value 360,663 272,456 Foreign currency translation adjustment (750) 1,012 Accumulated deficit (254,091) (196,384) Treasury stock, at cost (1,386) (1,386) -------- -------- 105,030 76,262 -------- -------- $401,828 $292,564 ======== ======== See notes to consolidated financial statements. 4 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited) (Note 1)
Six Months Ended Three Months Ended June 30, June 30, -------------------------- -------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Revenues: Net sales $ 28,228 $ 26,318 $ 14,380 $ 13,520 Service income 15,688 13,186 7,983 6,786 ----------- ----------- ----------- ----------- Total revenues 43,916 39,504 22,363 20,306 ----------- ----------- ----------- ----------- Costs and expenses: Cost of goods sold 19,933 15,256 11,173 7,857 Cost of services 15,603 7,604 8,339 4,020 Research and development 16,350 14,331 8,327 5,746 Marketing 15,950 11,382 8,948 6,434 General and administrative 17,409 10,842 7,615 5,322 Amortization of intangibles 2,518 1,882 1,320 971 Equity in losses of investees 1,020 2,078 584 883 Interest Expense 15,323 3,583 8,651 2,079 Interest Income (3,171) (1,313) (1,709) (725) Other income (795) (950) (187) (483) ----------- ----------- ----------- ----------- Total costs and expenses 100,140 64,695 53,061 32,104 ----------- ----------- ----------- ----------- Loss from operations before taxes on income and minority interest (56,224) (25,191) (20,698) (11,798) Taxes on income (1,380) (744) (580) (470) Minority interest (103) (180) 3 (125) ----------- ----------- ----------- ----------- Net loss $ (57,707) $ (26,115) $ (31,275) $ (12,393) ----------- ----------- ----------- ----------- Preferred dividends (2,706) (1,606) (1,428) (940) ----------- ----------- ----------- ----------- Loss applicable to common stock $ (60,413) $ (27,721) $ (32,703) $ (13,333) =========== =========== =========== =========== Weighted average number of common shares outstanding 57,064,000 51,450,000 57,756,000 51,534,000 =========== =========== =========== =========== Per common share: Net loss applicable to common shares $ (1.06) $ (0.54) $ (0.57) $ (0.26) =========== =========== =========== ===========
See notes to consolidated financial statements 5 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the six months ended June 30, 1996 (In Thousands) (Unaudited)
Foreign Capital in Currency Preferred Stock Common Stock Excess of Translation Accumulated Treasury Shares Amount Shares Amount Par Value Adjustment Deficit Stock --------- ------ ------ ------ ----------- ----------- ----------- --------- Balances, January 1, 1996 1,063 $11 55,251 $553 $272,456 $1,012 $(196,384) $(1,386) Issuance of common stock: Exercise of warrants and options 407 4 1,798 Issuance of shares to Vanguard pursuant to management consulting agreement 149 1 1,548 Issuance of shares in connection with debt conversion 2,297 23 18,668 Issuance of shares in connection with the acquisition of SMR license 191 2 1,998 Issuance of shares for preferred dividend 15 151 Issuance of Series N 55 53,350 Preferred Stock Issuance of warrants in 13,400 connection with long-term credit facility Preferred dividend (2,706) Changes in currency (1,762) Net Loss (57,707) ----- --- ------ ---- -------- ------ --------- ------- Balances, June 30, 1996 1,118 $11 58,310 $583 $360,663 $(750) $(254,091) $(1,386) ===== === ====== ==== ======== ===== ========= =======
See notes to consolidated financial statements. 6 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) (Note 1) Six Months Ended June 30, --------------------- 1996 1995 -------- -------- Cash flows from operating activities: Net loss $(57,707) $(26,115) Adjustments to reconcile net loss to net cash used in operating activities: Minority interest 103 180 Depreciation and amortization 7,513 4,613 Post acquisition adjustment for utilization of acquired net operating loss carry forward 875 Non cash interest expense 10,243 Equity in net loss of investees 1,020 2,078 Non cash management consulting expense 1,549 1,263 Issuance of shares in connection with research and development project 2,032 Changes in operating assets and liabilities: Increase in accounts receivable (1,471) (798) Increase in inventories (5,121) (649) Increase in prepaid expenses and other assets (3,228) (1,411) Increase (decrease) in accounts payable and accrued expenses 14,088 (334) Other 552 (35) -------- -------- Net cash used in operating activities (31,584) (19,176) -------- -------- Cash flows from investing activities: Acquisition of spectrum licenses (400) (4,501) Spectrum license deposit return from FCC 1,784 Net decrease in temporary investments 7,945 21,960 Acquisitions of property and equipment (25,966) (7,288) Cash invested in unconsolidated subsidiaries (350) (371) Decrease (increase) in contract deposits - other current assets 1,046 (4,637) Decrease in restricted cash 20,394 -------- -------- Net cash provided by investing activities 4,453 5,163 -------- -------- See notes to consolidated financial statements. 7 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued (Dollars in thousands) (Unaudited) (Note 1) Six Months Ended June 30, --------------------- 1996 1995 -------- -------- Cash flows from financing activities: Net borrowings (repayments) under line-of-credit agreements 1,100 (784) Proceeds from issuance of convertible notes 75,000 Proceeds from issuance of senior secured notes and related warrants 36,000 Net proceeds from issuance of Preferred Stock 53,350 26,011 Deferred financing costs (2,213) Repayments of secured note (25,000) Repayment of capital lease obligation (244) Repayments of debt (800) Exercise of warrants and options 1,752 678 Payment of preferred dividends (2,555) (1,606) Financing costs (810) Other (333) 1,165 -------- -------- Net cash provided by financing activities 124,247 36,464 -------- -------- Effect of exchange rate changes on cash (905) (98) -------- -------- Increase in cash and equivalents 96,211 (22,353) Cash and equivalents, beginning of period 61,428 27,531 -------- -------- Cash and equivalents, end of period $157,639 $ 49,884 ======== ======== Supplemental schedule of non cash investing and financing activities: Management consulting fee paid in common stock $ 1,549 $ 1,223 Issuance of shares in connection with research and development project $ 2,032 Issuance of shares in connection with debt conversion $ 18,691 Issuance of shares in connection with acquisition of SMR license $ 2,000 Issuance of shares for preferred dividend $ 151 See notes to consolidated financial statements. 8 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 Basis of Presentation: The consolidated balance sheet of Geotek Communications, Inc. and Subsidiaries (the "Company") as of December 31, 1995 has been derived from the audited consolidated balance sheet contained in the Company's Form 10-K and is presented for comparative purposes. In the opinion of management, all significant adjustments including normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The results of operations for interim periods are not necessarily indicative of the operating results for the full year. Certain 1995 amounts have been reclassified to conform with the 1996 presentation. Footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the most recent fiscal year, and previously filed 10-Q's. Note 2 Long Term Debt: In April 1996, the Company and S-C Rig Investments - III, L.P. ("S-C Rig"), a significant stockholder of the Company and an investment group affiliated with George Soros, entered into a Senior Loan Agreement whereby S-C Rig made a $40.0 million unsecured credit facility (the"S-C Rig Credit Facility") available to the Company beginning in June 1996. Under the terms of the S-C Rig Credit Facility, all borrowings are required to be made within two years from the establishment of the credit facility. The borrowings will accrue interest at a rate of 10% per annum and will mature four years from the date of the final borrowing thereunder. The Company is obligated to pay S-C Rig a fee equal to 3% of each borrowing under the S-C Rig Credit Facility at the time of such borrowing. Borrowings under the S-C Rig Credit Facility will constitute senior indebtedness of the Company. At June 30, 1996, there were no outstanding loans under the S-C Rig Credit Facility. In connection with the establishment of the credit facility, the Company issued to S-C Rig a five year warrant to purchase approximately 4.2 million shares of Common Stock (subject to adjustment in certain circumstances) at an exercise price of $9.50 per share (subject to adjustment in certain circumstances). This warrant is exercisable at any time. In accordance with APB Opinion No.14, "Accounting for Convertible Debt Issued With Stock Purchase Warrants", the Warrants, which have been valued at $13.4 million, are recorded in other assets and are being amortized over the five years. In March 1996, the Company issued $75.0 million aggregate principal amount of Senior Subordinated Convertible Notes ("Convertible Notes"), due 2001. Each Convertible Notes is in the principal amount of $1,000, and beginning on March 5, 1997 may be converted by the holders into shares of the Company's common stock, par value $.01, at a conversion price equal to $9.50 per share. Cash interest on the Convertible Notes accrues at a rate of 12% per annum and is payable semi-annually on each February 15 and August 15 commencing August 15, 1996. The Convertible Notes are unsecured senior subordinated obligations of the Company. The Convertible Notes can be converted at the option of the Company after 18 months if the closing price of the Company's common stock for 20 of the 30 trading days and for the five trading days before conversion is at least $15.20 per share. 9 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 2 Long Term Debt: continued The Company's Senior Secured Notes due 1998 (the "Replacement Notes") are convertible into shares of the Company's Common Stock (subject to daily limits and certain other restrictions) at 87.5% of the average trading price of the Company's Common Stock on the respective conversion dates. During the six months ended June 30, 1996, $19.5 million was converted into 2,297,000 shares of common stock. In connection with the conversion, the Company incurred $810,000 in financing costs. In July 1995, the Company placed approximately $40.5 million in a restricted cash account as security for the Company's obligation under the Replacement Notes. As the Replacement Notes are converted, a proportionate amount of the restricted cash becomes unrestricted and as of June 30, 1996, $ 10.5 million remains restricted. This amount is included in the balance sheet of the Company, as restricted cash, and is expected to satisfy the remaining principal balance of $ 8.5 million and total interest on the remaining unconverted Replacement Notes. Note 3 Equity Transactions: In June 1996, the Company sold 55,000 shares of Series N Cumulative Convertible Preferred Stock ("Series N Stock") at an aggregate purchase price of $55 million, to entities affiliated with the Charles R. Bronfman Family Trust, the Kolber Trust, The Renaissance Fund and certain existing shareholders of the Company. The Series N Stock pays dividends in Common Stock at a rate of 10% per annum. Additionally, the Series N Stock is immediately convertible into shares of the Company's Common Stock at $11.00 per share. In connection with this transaction, the Company issued warrants to purchase approximately 1.65 million shares of the Company's Common Stock at $11.00 per share. In addition, the Company incurred financing fees equal to 3% of the aggregate purchase price, and has recorded this as a reduction to the net proceeds of the issuance. In April 1996, the Company purchased 100% of the outstanding stock of MacDermott Communications, Inc., a private company whose only asset was a SMR License, for 190,988 shares of the Company's Common Stock. The value of the Common Stock issued, was approximately $2.0 million. Note 4 Formation of Joint Ventures: In April 1996, the Company and RWE Telliance A.G. ("RWE") entered into a letter of intent to merge their respective German mobile radio networks as of August 31, 1996. Under the terms of this letter of intent, each of RWE and the Company will own 50% of the merged entity. There can be no assurances that the Company and RWE will execute a formal agreement based on this letter of intent as this transaction is subject to, among other things, completion of satisfactory due diligence, regulatory approvals, and approvals of each company's board of directors. Also in April 1996, Industry Canada, the Canadian agency responsible for spectrum allocation, approved in principle an award of certain 900 MHz frequencies in Ontario, Quebec, British Columbia and Alberta to a joint venture consisting of the Company, Cogeco Cable, Inc. ("Cogeco") and Techcom, Inc., a Canadian SMR operator. These entities had entered into a letter of intent to form such joint venture in Canada to launch mobile wireless communications services based on the Company's proprietary FHMATM technology. In July 1996, the Company announced that it had been unable to reach a final agreement with Cogeco and that the Company is actively negotiating with other potential Canadian partners to replace Cogeco, so as to comply with Canadian foreign ownership and regulatory requirements. There can be no assurance that the Company will be able to identify such a partner or, if such a partner is identified, that an agreement can be reached on terms favorable to the Company. Any failure on the part of the Company to enter into such an arrangement could have a material adverse effect on the Company's prospects in Canada. 10 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 4 Formation of Joint Ventures: continued In June 1996, the Korean Ministry of Information and Communications awarded a consortium Anam Telecom Co. Ltd. ("Anam Telecom"), in which the Company holds a 21% interest, a license to operate a nationwide trunked radio system in Korea. Anam Telecom, also includes approximately 53 Korean companies, among them Anam Industrial Co. Ltd. (the Company's joint venture partner in Korea), Hyundai Electronics, Korean Mobile Telecom, Ssangyong Corporation and Korea Express. The license covers a geographic area with a population of approximately 45 million people and is based on the implementation of the Company's FHMATM system on an 800 MHz frequency. The Company's FHMATM system currently operates in the 900 MHz frequency band. Although the Company believes that it will successfully adapt its FHMATM system to the 800 MHz frequency, such adaptation is subject to a number of contingencies and the manufacture of certain equipment required in connection therewith. There can be no assurance that the Company will be able to successfully adapt its FHMATM system to the 800 MHz frequency on a timely basis. Any failure on the part of the Company to successfully adapt its FHMATM technology pursuant to the terms of the Korean license could have a material adverse effect on the Company's prospects in Korea. In addition, the Company will provide FHMATM related infrastructure equipment and broad business and engineering support for the design, implementation and operation of the network in Korea. Finally, the development of a FHMATM based digital system in Korea will be subject to the same risks attendent to the development of the Company's GEONETTM system in the United States. In July 1996, the Company contributed approximately $9.6 million to Anam Telecom which represents the Company's portion of the initial capitalization of Anam Telecom and related Spectrum licenses. Note 5 Commitments and Contingent Liabilities: FCC Waiver The Company was granted a waiver (the "Waiver") by the Federal Communication Commission ("FCC") which permits it to construct and activate certain systems on a delayed construction schedule. The Waiver is relevant to the Company's designated frequency area ("DFA") licenses which were acquired prior to the FCC's 900 MHZ specialized mobile radio ("SMR") spectrum auctions, conducted during 1995 and 1996. For those licenses acquired by the Company through the spectrum auctions, e.g. major trading area ("MTA") licenses, and for previously acquired DFA licenses authorized for overlapping frequencies with the Company's new MTA licenses, the Waiver is inapplicable. Instead, construction requirements for these MTA and DFA licenses will be satisfied if a portion of the market's population is served after three years, which increases after five years. Litigation In June 1994, the Company filed a lawsuit against Harris Adacom Corporation B.V. ("Harris"), a Dutch Corporation, to enforce the Company's right to repayment of a $3.5 million loan made to Harris in January 1994. In or about May 1994, creditors placed Harris into bankruptcy. In response to the Company's lawsuit, Harris and its subsidiaries filed a lawsuit against the Company in the courts of the State of Israel, requesting a declaratory judgment that the Company entered into a binding agreement for the purchase by the Company of a significant interest in certain wireless communication business assets owned by Adacom Technologies Ltd., ("ATL"), an affiliate of Harris and an Israeli publicly traded company, and subsequently breached such agreement. The plaintiffs in such action have stated an intention to file a separate claim for monetary damages and have estimated their losses to be several million dollars. The Company believes none of plaintiffs' claims in such action have any merit and are only an attempt to delay efforts to collect Harris's debt to the Company. The Company intends to defend such action vigorously. The Company is subject to other various legal proceedings arising in the ordinary course of business. In the opinion of management, all such matters are without merit or are of such kind, or involve such amounts, as would not have a significant adverse effect on the financial position, results of operations or cash flows of the Company. 11 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 6 Certain Related Party Transactions: In connection with the issuance of common shares and options to Vanguard in February 1994, the Company entered into a five-year management consulting agreement with Vanguard, pursuant to which Vanguard provides operational and marketing support to the Company for an aggregate of 1.5 million shares of common stock. For each of the six months ended June 30, 1996 and 1995, Vanguard earned approximately 149,000 shares pursuant to this agreement. These shares have been recorded in the six months ended June 30, 1996 and 1995 at approximately $1.6 million, and $1.2 million, respectively, which amounts are included in marketing expenses. The Company incurred expenses of $150,000 in each of the six month periods ended June 30, 1996 and 1995, pursuant to its consulting agreement with the Soros Group, the holders of the Company's Series H Redeemable Preferred Shares, Series I Convertible Preferred Shares and $5.0 million of the Company's Series N Preferred Stock. As indicated in Note 2, in April 1996, the Soros Group made an additional commitment to the Company. PST has entered into a subcontractor agreement with Rafael, a shareholder of the Company, under which Rafael will partake in the enhancement and continued development of the digital wireless communications system to be deployed by the Company in the United States. Research and development expense for the six months ended June 30, 1996 and 1995, includes approximately $2.9 million and $1.9 million, respectively, for research performed by Rafael under this agreement. PST has also entered into agreements with Rafael under which Rafael will manufacture the infrastructure equipment to be used by the Company in its U.S. network. Through June 30, 1996 the Company had placed firm orders for equipment totaling $33.9 million of which $20.0 million has been paid to Rafael to date. Note 7 Other Events: In June 1996, the United Kingdom Department of Trade and Industry awarded the Company's United Kingdom operating subsidiary a license to operate a digital Public Access Mobile Radio ("PAMR") network in the United Kingdom. Under the terms of the new digital license, the operating subsidiary will receive up to two megahertz of spectrum in the 410-430 MHz band for the construction of a network based on the new Trans European Trunked Radio ("TETRA") standard. Currently, there are no TETRA systems available for commercial application. While some potential vendors have indicated an interest in supplying a TETRA-based system to National Band Three Limited, the Company's United Kingdom subsidiary ("NB3"), management of the company and NB3 cannot accurately estimate the availability, quality and costs associated with the implementation of a TETRA-based network. Management is continuing to work with potential vendors and regulatory authorities in the United Kingdom regarding implementation of such system. However, there can be no assurance that NB3 will be able to implement such a system or, if implemented, when NB3 will be in a position to roll-out a TETRA-based system. Finally, the development of a TETRA-based system in the United Kingdom will be subject to the same risks attendent to the development of the Company's GEONETTM system in the United States. The Company expects that the digital network to be implemented by the Company in the United Kingdom will offer a full range of mobile voice and data services, including telephony, digital dispatch, automatic vehicle location and packet data The Company hopes to commence commercial operations of such a digital network in 1998. The Company's United Kingdom operating subsidiary already provides PAMR services to over 60,000 business subscribers throughout the United Kingdom. Note 8 Subsequent Events: In July 1996, through the FCC's 900 MHZ Spectrum auctions, the Company purchased 181 10-channel blocks in 42 regional service areas known as Major Trading Areas at an aggregate cost of approximately $30.9 million. After a partial return by the FCC of the Company's original deposit, the Company had $6.2 million on deposit with the FCC on June 30, 1996. The remainder was paid with existing cash resources. 12 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 9 Condensed Consolidating Financial Information For Guarantors ("Guarantor Information"): In July and August 1995, the Company issued, in a private offering, $227.7 million aggregate principal amount at maturity of 15% Senior Secured Discount Notes due July 15, 2005 ("the Notes"). Gross proceeds of the Notes was approximately $110.0 million. The Notes were issued with 6,831,000 detachable warrants ("the Warrants"). Each Warrant entitles the holder to purchase one share of Company common stock at an exercise price of $9.90 per share. The Warrants have been valued at approximately $32.1 million and have been recorded as a discount on the Notes. The Notes accrue interest until maturity at a rate of 15% per annum. Interest on the Notes will be payable semi-annually, in cash, on July 15 and January 15, commencing January 15, 2001. In connection with the Note offering, PowerSpectrum, Inc. and its U.S. domestic subsidiaries as well as MetroNet Systems, Inc. (collectively referred to as the "Guarantor Subsidiaries") fully and unconditionally guarantee such Notes jointly and severally. The Guarantor Subsidiaries are wholly owned by the Company. In addition, the Notes are collateralized by a pledge of the capital stock owned by the Company in National Band Three Ltd., PowerSpectrum, Inc. and Subsidiaries, MetroNet Systems, Inc., Geotek GmbH Holding Corporation and BCI, the entity through which, effective August 1995, the Company owns its interests in Bogen Communications, Inc. and Speech Design GmbH. The Guarantor Information of Geotek Communications, Inc. and Subsidiaries has been presented on pages 13 through 18 in order to present the Guarantor Subsidiaries pursuant to the Guarantor relationship. The Guarantor Information is presented as management does not believe that separate financial statements of the Guarantor Subsidiaries would be meaningful. This Guarantor Information should be read in conjunction with the Consolidated Financial Statements. The Notes include covenants that put restrictions on the Company primarily related to making certain investments, paying dividends, and incurring additional debt. Basis of Presentation - To conform with the terms and conditions of the Notes, the combining Guarantor Information of the Guarantor Subsidiaries are presented on the following basis: (1) Geotek Communications, Inc. -Investments in consolidated subsidiaries are (Parent Company) accounted for by the Parent Company on the cost basis for purposes of the Guarantor Information. Operating results of Subsidiaries are therefore not reflected in the Parent's investment accounts or earnings. (2) Guarantor Subsidiaries -For purposes of the Guarantor Information, Guarantor Subsidiaries includes all U.S. wireless subsidiaries of PowerSpectrum, Inc. ("PSI") combined with MetroNet Systems, Inc. and ANSA Communications, Inc., both direct wholly owned subsidiaries of the Parent Company. For purposes of the Guarantor Information, PSI does not contain the consolidated financial statements of PST, a subsidiary of PSI, since PST is not a Guarantor Subsidiary. Such statements of PST are included with Non- Guarantor Subsidiaries. (3) Non-Guarantor Subsidiaries -This includes the Company's subsidiaries that are not Guarantor Subsidiaries. (4) Reclassification and -Certain reclassifications were made to Eliminations conform all of the Guarantor Information to the financial presentation of the Company's consolidated financial statements. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. 13 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9 Condensed Consolidating Financial Information For Guarantors ("Guarantor Information"): continued CONDENSED CONSOLIDATING BALANCE SHEET As of June 30, 1996 (Dollars in thousands, except per share data) (Unaudited)
Geotek Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc. Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries -------- -------- -------- --------- -------- ASSETS (1) (2) (3) (4) CURRENT ASSETS Cash and cash equivalents $152,896 $ 362 $ 4,381 $ 157,639 Restricted cash 14,936 1,641 16,577 Accounts receivable net 127 15,372 15,499 Inventories 4,719 10,885 15,604 Deposits for spectrum licenses 6,616 6,616 Prepaid expenses and other assets 1,014 1,320 5,469 7,803 -------- -------- -------- --------- -------- Total current assets 168,846 13,144 37,748 219,738 -------- -------- -------- --------- -------- Inter-company account 203,795 37,137 286 ($241,218) Investments in affiliates 2,580 (163) 2,417 Property, plant and equipment, net 1,170 55,371 41,204 (8,763) 88,982 Intangible assets, net 11,987 22,239 35,454 69,680 Other assets 20,309 238 2,220 (1,756) 21,011 Investments in subsidiaries, at cost 90,427 (90,427) -------- -------- -------- --------- -------- Total Assets $499,114 $128,129 $116,912 $(342,327) $401,828 ======== ======== ======== ========= ======== LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities Accounts payable - trade $ 1,674 $ 6,221 $ 11,823 $ 19,718 Accrued expenses and other 4,992 3,591 26,740 35,323 Notes payable, banks and other 9,321 ($ 93) 9,228 Current maturities, long-term debt 8,562 1,398 509 10,469 -------- -------- -------- --------- -------- Total current liabilities 15,228 11,210 48,393 (93) 74,738 -------- -------- -------- --------- -------- Long-term debt 173,288 9,260 (2,074) 180,474 Intercompany accounts 195,461 45,757 (241,218) Other non current liabilities (154) 2,406 (1,164) 1,088 Minority interest 498 498 Redeemable preferred stock 40,000 40,000 Shareholders' equity: Preferred stocks, $.01 par value 11 11 Common stock, $.01 par value: 583 583 Capital in excess of par value 333,442 40,621 75,454 (88,854) 360,663 Foreign currency translation (750) (750) adjustment Accumulated deficit (61,898) (119,163) (64,106) (8,924) (254,091) Treasury stock, at cost (1,386) (1,386) -------- -------- -------- --------- -------- 270,752 (78,542) 10,598 97,778 105,030 -------- -------- -------- --------- -------- $499,114 $128,129 $116,912 $(342,327) $401,828 ======== ======== ======== ========= ========
14 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9 Condensed Consolidating Financial Information For Guarantors ("Guarantor Information"): continued CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 1995 (Dollars in thousands, except per share data)
Geotek Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc. Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries -------- -------- -------- --------- -------- ASSETS (1) (2) (3) (4) CURRENT ASSETS: Cash and cash equivalents $ 53,128 $ 522 $ 7,778 $ 61,428 Temporary investments 7,945 7,945 Restricted cash 35,230 1,741 36,971 Accounts receivables trade, net 21 14,007 14,028 Inventories 1,328 9,155 10,483 Deposits for spectrum licenses 3,500 8,000 11,500 Prepaid expenses and other assets 1,051 317 4,253 5,621 -------- -------- -------- --------- -------- Total current assets 100,854 10,188 36,934 147,976 Inter-Company account 142,286 37,154 4,893 $(184,333) Investments in affiliates 3,241 (163) 3,078 Property, plant and equipment, net 1,088 28,962 39,487 (3,427) 66,110 Intangible assets, net 12,313 19,171 36,697 68,181 Other assets 7,684 174 3,845 (4,484) 7,219 Investments in subsidiaries, at cost 90,427 (90,427) -------- -------- -------- --------- -------- $357,893 $95,649 $121,856 $(282,834) $292,564 ======== ======= ======== ========= ======== LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 508 $ 2,447 $ 14,993 $ 17,948 Accrued expenses and other 1,250 5,835 15,920 23,005 Notes payable, banks and other 8,604 ($319) 8,285 Current maturities, long-term debt 28,913 664 29,577 -------- -------- -------- --------- -------- Total current liabilities 30,671 8,282 40,181 (319) 78,815 -------- -------- -------- --------- -------- Inter-company account 138,107 46,226 (184,333) Long-term debt 86,090 2,003 12,356 (4,574) 95,875 Other non current liabilities (152) 2,533 (1,164) 1,217 Minority interest 395 395 Redeemable preferred stock 40,000 40,000 Shareholders' equity: Preferred stocks, $.01 par value 11 11 Common stock, $.01 par value 553 553 Capital in excess of par value 245,234 40,621 75,455 (88,854) 272,456 Foreign currency translation adjustment 1,012 1,012 Accumulated deficit (43,128) (93,364) (56,302) (3,590) (196,384) Treasury stock, at cost (1,386) (1,386) -------- -------- -------- --------- -------- 201,284 (52,743) 20,165 (92,444) 76,262 -------- -------- -------- --------- -------- $357,893 $ 95,649 $121,856 $(282,834) $292,564 ======== ======== ======== ========= ========
15 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9 Condensed Consolidating Financial Information for Guarantors ("Guarantor Information"): continued CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1996 (Dollars in thousands) Unaudited
Geotek Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc. Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries -------- -------- -------- --------- -------- (1) (2) (3) (4) REVENUES Net sales $ 220 $ 47,259 $ (19,251) $ 28,228 Service income 88 15,600 15,688 -------- -------- --------- -------- Total revenues 308 62,859 (19,251) 43,916 -------- -------- --------- -------- Costs and expenses: Cost of goods sold 3,082 30,620 (13,769) 19,933 Cost of services 6,441 9,376 (214) 15,603 Research and development 5,502 10,860 (12) 16,350 Marketing $ 150 7,369 8,431 15,950 General and administrative 5,443 3,826 8,140 17,409 Amortization of intangibles 966 578 974 2,518 Equity in losses of investees 1,020 1,020 Interest expense 14,464 58 1,329 (528) 15,323 Interest income (3,195) (162) (342) 528 (3,171) Other income (78) (589) (206) 78 (795) -------- -------- -------- --------- -------- Total Costs and expenses 18,770 26,105 69,182 (13,917) 100,140 -------- -------- -------- --------- -------- Loss from operations before taxes on income and minority interest (18,770) (25,797) (6,323) (5,334) (56,224) Taxes on income (1,380) (1,380) Minority interest (103) (103) -------- -------- -------- --------- -------- Net loss $(18,770) $(25,797) $ (7,806) $ (5,334) $(57,707) ======== ======== ======== ========= ========
16 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9 Condensed Consolidating Financial Information for Guarantors ("Guarantor Information"): continued CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1995 (Dollars in thousands) Unaudited
Geotek Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc. Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries -------- -------- -------- --------- -------- (1) (2) (3) (4) REVENUES Net sales $ 49 $ 28,184 $ (1,915) $ 26,318 Service income 1,089 12,097 13,186 -------- -------- --------- -------- Total revenues 1,138 40,281 (1,915) 39,504 -------- -------- --------- -------- Costs and expenses: Cost of goods sold 41 16,868 (1,653) 15,256 Cost of services 1,201 6,403 7,604 Research and development $ 316 4,973 9,042 14,331 Marketing 150 2,794 8,438 11,382 General and administrative 3,558 2,897 4,387 10,842 Amortization of intangibles 323 505 1,054 1,882 Equity in losses of investees 410 1,668 2,078 Interest Expense 2,839 202 1,222 (680) 3,583 Interest Income (1,720) (33) (240) 680 (1,313) Other Income (861) (89) (950) -------- -------- -------- --------- -------- Total Costs and expenses 5,876 11,719 48,753 (1,653) 64,695 Loss from continuing operations before Taxes on income and minority interest (5,876) (10,581) (8,472) (262) (25,191) Taxes on income (744) (744) Minority interest (186) 6 (180) -------- -------- -------- --------- -------- Net loss $ (6,062) $(10,581) $ (9,210) $ (262) $(26,115) ======== ======== ======== ========= ========
17 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9 Condensed Consolidating Financial Information For Guarantors ("Guarantor Information"): continued CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 1996 (Dollars in thousands) Unaudited
Geotek Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc. Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries -------- -------- -------- --------- -------- (1) (2) (3) (4) Cash Flows From Operating Activities: Net loss $(18,770) $(25,797) $ (7,806) $ (5,334) $(57,707) Adjustment to reconcile net loss to net cash used in operating activities: Minority interest 103 103 Depreciation & amortization 988 1,788 4,870 (133) 7,513 Equity in net loss of investees 1,020 1,020 Non cash management consulting expense 1,549 1,549 Post acquisition adjustment for utilization of acquired net operating loss carry forward 875 875 Non cash interest expense 10,243 10,243 Changes in operating assets and liabilities: Accounts receivable (106) (1,365) (1,471) Inventories (3,391) (1,730) (5,121) Prepaid expenses 37 (1,003) (2,262) (3,228) Accounts payable & accrued expenses 4,908 1,530 7,650 14,088 Other 50 502 552 -------- -------- -------- --------- -------- Net cash (used in) provided by operating activities (1,524) (25,430) 837 (5,467) (31,584) -------- -------- -------- --------- -------- Cash flows from investing activities: Net decrease in temporary investments 7,945 7,945 Acquisition of spectrum licenses (400) (400) Spectrum license deposit return 1,784 1,784 Acquisitions of property & equipment (104) (24,535) (6,661) 5,334 (25,966) Cash invested in unconsolidated subsidiaries (350) (350) Decrease contract deposits - other current assets 1,046 1,046 Decrease in restricted cash 20,394 20,394 -------- -------- -------- --------- -------- Net cash (used in) investing activities 27,885 (23,151) (5,615) 5,334 4,453 -------- -------- -------- --------- -------- Cash flows from financing activities: Net borrowings under line of credit agreements 1,100 1,100 Proceeds from issuance of convertible notes 75,000 75,000 Deferred financing costs (2,213) (2,213) Net proceeds from issuance of Preferred stock 53,350 53,350 Repayments of debt (605) (195) (800) Repayment of capital lease obligations (30) (214) (244) Exercise of warrants & options 1,752 1,752 Payment of preferred dividends (2,555) (2,555) Financing costs (810) (810) Other (333) (333) Capital contributed from parent (51,087) 49,026 1,928 133 -------- -------- -------- --------- -------- Net cash provided by financing activities 73,407 48,421 2,286 133 124,247 -------- -------- -------- --------- -------- Effect of exchange rate changes on cash (905) (905) Increase (decrease) in cash & equivalents 99,768 (160) (3,397) 96,211 Cash & equivalents, beginning of period 53,128 522 7,778 61,428 -------- -------- -------- --------- -------- Cash & equivalents, end of period $152,896 $ 362 $ 4,381 -- $157,639 ======== ======== ======== ========= ========
18 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9 Condensed Consolidating Financial Information For Guarantors ("Guarantor Information"): continued CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 1995 (Dollars in thousands) Unaudited
Geotek Geotek Guarantor Non-Guarantor Reclassifications Comm,Inc. Comm,Inc. Subsidiaries Subsidiaries & Eliminations & Subsidiaries -------- -------- -------- --------- -------- (1) (2) (3) (4) Cash Flows From Operating Activities: Net loss $(6,062) $ (10,581) $ (9,210) $ (262) $(26,115) Adjustment to reconcile net loss to net cash used in operating activities: Minority interest 186 (6) 180 Depreciation & amortization 340 865 3,408 4,613 Equity in net loss of investees 409 1,669 2,078 Non cash management consulting expense 41 1,222 1,263 Issuance of stock for management consulting fee 2,032 2,032 Changes in operating assets and liabilities: Accounts receivable 18 (816) (798) Inventories 8 (919) 262 (649) Prepaid expenses and other assets 679 (3,034) 944 (1,411) Accounts payable & accrued expenses 1,719 (864) (1,189) (334) Other (2,734) 2,699 (35) -------- -------- -------- --------- -------- Net cash (used in) provided by operating activities (2,688) (13,068) (3,420) -- (19,176) -------- -------- -------- --------- -------- Cash flows from investing activities: Acquisition of licenses (4,499) (2) (4,501) Net decrease in temporary investments 21,960 21,960 Acquisitions of property & equipment (45) (4,329) (2,914) (7,288) Cash invested in acquisition of subsidiaries, net (371) (3,330) 3,330 (371) Contract deposits (4,637) (4,637) -------- -------- -------- --------- -------- Net cash provided by (used in) investing activities 21,544 (13,465) (6,246) 3,330 5,163 -------- -------- -------- --------- -------- Cash flows from financing activities: Net borrowings, (repayments) under line of credit agreements (784) 784 Proceeds from issuance of senior secured note & related warrants 36,000 36,000 Repayments of debt (25,000) (25,000) Net proceeds from issuance of preferred stock 26,011 26,011 Exercise of warrants & options 678 678 Payment of preferred dividends (1,606) (1,606) Capital contributed from parent (31,184) 26,512 8,002 (3,330) Other 1,165 1,165 -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities 6,064 26,512 7,218 (3,330) 36,464 -------- -------- -------- --------- -------- Effect of exchange rate changes on cash (98) (98) Increase (decrease) in cash & equivalents 24,920 (21) (2,546) 22,353 Cash & equivalents, beginning of year 21,222 418 5,891 27,531 -------- -------- -------- --------- -------- Cash & equivalents, end of year $ 46,142 $ 397 $ 3,345 -- $ 49,884 ======== ======== ======== ========= ========
19 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto, included elsewhere in this report. Results of Operations General Over the past four years, the Company has devoted and expects to continue to devote substantial financial and management resources to the development and deployment of a low cost, high quality integrated digital voice and data wireless communications network in the United States ("GeoNetTM"). The Company, through its subsidiaries and joint ventures, intends to deploy similar networks internationally. Although Management believes these activities will have a positive effect on the Company's results of operations in the long term, it is expected to have a substantial negative effect on the Company's results of operations in the short term. The Company expects to incur substantial losses and have negative cash flow from operations for the foreseeable future, attributable primarily to the operating, sales, marketing, general and administrative expenses relating to the roll-out of GeoNet TM as well as to a high investment in research and development related to its wireless communications activities. There can be no assurance that the Company will operate at profitable levels or have positive cash flow from operations. The Company currently groups its operations primarily into three types of activities: wireless communications, communications products and corporate. The Company's wireless communications subsidiaries are currently engaged primarily in providing trunked mobile radio services in the United Kingdom and Germany utilizing analog equipment, developing and selling wireless data solutions, implementing a digital wireless communications system for the United States that will provide integrated wireless communications services, and implementing digital wireless communications systems internationally. The Company is presently in the process of commencing the roll-out of GeoNetTM. The Company started providing commercial services in Philadelphia, Washington, DC, Baltimore, and New York during the first quarter of 1996 and in Boston, Miami and Dallas in the second quarter of 1996. The Company intends to offer GeoNet TM in over 35 markets by the end of 1997. However, the Company's roll-out schedule may be reviewed and revised from time to time in light of changing conditions. In April 1996, the Company and RWE Telliance A.G. ("RWE") entered into a letter of intent to merge their respective German mobile radio networks as of August 31, 1996. Under the terms of this letter of intent, each of RWE and the Company will own 50% of the merged entity. There can be no assurances that the Company and RWE will execute a formal agreement based on this letter of intent as this transaction is subject to, among other things, completion of satisfactory due diligence, regulatory approvals, and approvals of each company's board of directors. Also in April 1996, Industry Canada, the Canadian agency responsible for spectrum allocation, approved in principle an award of certain 900 MHz frequencies in Ontario, Quebec, British Columbia and Alberta to a joint venture consisting of the Company, Cogeco Cable, Inc. ("Cogeco") and Techcom, Inc., a Canadian SMR operator. These entities had entered into a letter of intent to form such joint venture in Canada to launch mobile wireless communications services based on the Company's proprietary FHMATM technology. In July 1996, the Company announced that it had been unable to reach a final agreement with Cogeco and that the Company is actively negotiating with other potential Canadian partners to replace Cogeco, so as to comply with Canadian foreign ownership and regulatory requirements. There can be no assurance that the Company will be able to identify such a partner or, if such a partner is identified, that an agreement can be reached on terms favorable to the Company. Any failure on the part of the Company to enter into such an arrangement could have a material adverse effect on the Company's prospects in Canada. In June 1996, the Korean Ministry of Information and Communications awarded a consortium Anam Telecom Co. Ltd. ("Anam Telecom"), in which the Company holds a 21% interest, a license to operate a nationwide trunked radio system in Korea. Anam Telecom also includes approximately 53 Korean companies, among them Anam Industrial Co. Ltd. (the Company's joint venture partner in Korea), Hyundai Electronics, Korean Mobile Telecom, Ssangyong Corporation and Korea Express. The license covers a geographic area with a population of approximately 45 million people and is based on the implementation of the Company's FHMATM system on an 800 MHz frequency. The Company's FHMATM system currently operates in the 900 MHz frequency band. Although the Company believes that it will successfully adapt its FHMATM system to the 800 MHz frequency, such adaptation is subject to a number of contingencies and the manufacture of certain equipment required in connection therewith. There can be no assurance that the Company will be able to successfully adapt its FHMATM system to the 800 MHz frequency on a timely basis. Any failure on the part of the Company to successfully adapt its FHMATM technology pursuant to the terms of the Korean license could have a material adverse effect on the Company's prospects in Korea. In addition, the Company will provide FHMATM related infrastructure equipment and broad business and engineering support for the design, implementation and operation of the network in Korea. Finally, the development of a FHMATM based digital system in Korea will be subject to the same risks attendent to the development of the Company's GEONETTM system in the United States. In June 1996, the United Kingdom Department of Trade and Industry awarded the Company's United Kingdom operating subsidiary a license to operate a digital Public Access Mobile Radio ("PAMR") network in the United Kingdom. Under the terms of the new digital license, the operating subsidiary will receive up to two megahertz of spectrum in the 410-430 MHz band for the construction of a network based on the new Trans European Trunked Radio ("TETRA") standard. Currently, there are no TETRA systems available for commercial application. While some potential vendors have indicated an interest in supplying a TETRA-based system to National Band Three Limited, the Company's United Kingdom subsidiary ("NB3"), management of the company and NB3 cannot accurately estimate the availability, quality and costs associated with the implementation of a TETRA-based network. Management is continuing to work with potential vendors and regulatory authorities in the United Kingdom regarding implementation of such system. However, there can be no assurance that NB3 will be able to implement such a system or, if implemented, when NB3 will be in a position to roll-out a TETRA-based system. Finally, the development of a TETRA-based system in the United Kingdom will be subject to the same risks attendent to the development of the Company's GEONETTM system in the United States. The Company expects that the digital network to be implemented by the Company in the United Kingdom will offer a full range of mobile voice and data services, including telephony, digital dispatch, automatic vehicle location and packet data The Company hopes to commence commercial operations of such a digital network in 1998. The Company's United Kingdom operating subsidiary already provides PAMR services to over 60,000 business subscribers throughout the United Kingdom. 20 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Continued The Company's communications products subsidiaries are primarily engaged in the development, manufacturing, and marketing of telephone peripherals and sound and communications equipment. The Corporate Group includes the Company's Corporate headquarters and Geotest, Inc. subsidiary. Summary of Operations The Summary of Operations provides an analysis of the three month and six month periods ended June 30, 1996, compared to the same periods in 1995. For purposes of this discussion, year to date represents the six month period ending June 30. Consolidated Consolidated revenues increased by 10% in the second quarter of 1996, and by 11% year to date 1996, respectively, principally due to the inclusion of the German networks, whose operating results were consolidated with the Company's operating results beginning in July and December 1995, as well as subscriber growth of the National Band Three Network ("NBTL"). Consolidated operating expenses increased by 65% in the second quarter of 1996, and by 55% year to date, respectively, principally due to increased cost of service, marketing, and general and administrative expenses related to the roll-out of the U.S. Network. On a consolidated basis, interest expense for the three and six months ended June 30, 1996 increased due to the 15% Senior Secured Discount Notes issued in July 1995 and the Company's 12% $75 million Convertible Notes issued in March 1996. Interest income increased for the three and six months ended June 30, 1996 due to greater cash and cash equivalents which resulted from the issuance of the Senior Secured Discount Notes and Convertible Notes. Consolidated losses from operations increased by $18.9 million for the second quarter to $30.7 million and by $31.0 million to $56.2 million year to date. Wireless Communications Activities The tables below set forth certain information with respect to the results of the Company's Wireless Communications activities for the three months ended June 30, 1996 and 1995. The North American column includes the U.S. Digital Wireless Network as well as Geotek Technologies, Inc. (which includes Geotek Technologies Israel, Ltd., formerly PowerSpectrum Technology and GMSI, Inc.). For the Three Months Ended June 30, 1996 (Dollars in Thousands) German North America NBTL Networks Total ---------------------------------------------- Revenues $2,540 $6,939 $909 $10,388 Gross profit (4,958) 4,726 (25) (257) % of revenues (195%) 68% (3%) (2%) Research and Development 7,523 7,523 Marketing 5,039 1,383 165 6,587 General and Administrative 1,391 890 926 3,207 Other (income) expenses (222) 17 (205) (Loss) income before interest and amortization & depr. (18,689) 2,453 (1,133) (17,369) Amortization and depreciation 1,337 1,061 940 3,338 (Loss) income before interest (20,026) 1,392 (2,073) (20,707) Net (loss) income ($20,143) $874 ($2,175) ($21,444) Subscribers, end of period 500 60,500 13,100 74,100 21 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Continued For the Three Months Ended June 30, 1995 (Dollars in Thousands) German North America NBTL Networks Total --------------------------------------------- Revenues $1,810 $6,129 $7,939 Gross profit (55) 3,932 3,877 % of revenues 3% 64% 49% Research and Development 5,224 5,224 Marketing 2,451 1,308 3,759 General and Administrative 3,024 816 3,840 Equity in loss of less than 50% owned entities $731 731 Other income (860) (42) (902) (Loss) income before interest and amortization & depr. (9,894) 1,850 (731) (8,775) Amortization and depreciation 537 1,042 311 1,890 (Loss) income before interest (10,431) 808 (1,042) (10,665) Net (loss) income ($10,788) $730 ($1,042) ($11,100) Subscribers, end of period 52,400 8,100 60,500 Revenues from wireless communications increased by $2.4 million or 31% for the quarter ended June 30, 1996. This increase is primarily due to the inclusion of the German networks on a consolidated basis in 1996, the increase in the number of subscribers using the NBTL network (which totaled approximately 60,500 and 52,400 at June 30, 1996 and 1995, respectively), as well as, an increase in GMSI, Inc.'s revenue due to its contract related to the Singapore taxi fleet. Negative gross profit for North America is a result of direct costs related to the roll-out of the U.S. Network which are currently not covered by revenue. Average revenue per subscriber on the NBTL network remained constant. Gross profit as a percent of revenues, for NBTL, increased as costs are primarily fixed thus, allowing subscriber growth to increase the gross profit percentage. Research and development expenses (net of government grants) related to the digital wireless system and subscriber unit were $7.5 million for the three months ended June 30, 1996 compared to $5.2 million for the same period of 1995. The increase in the 1996 expense is primarily attributable to costs related to the development of the commercial subscriber unit and enhancements to GeoNetTM, including system software. The Company expects significant research and development expenses to continue in the future in connection with enhancements to GeoNetTM, development of the portable subscriber unit, and development of international digital wireless systems. The Company is beginning to offer wireless service over its proprietary network in many markets in the United States and accordingly continues to establish its marketing, engineering, operations and administrative staff and systems. Marketing expenses increased by approximately $2.8 million or 74% due to the marketing effort and increase in staff needed to execute the roll-out of the U.S. wireless network. The Company's equity in losses of less than 50% owned entities for the quarter ended June 30, 1995 relate to the Company's investment in the PBG and DBF German networks. In July 1995 and December 1995, the Company acquired the remaining shares of the DBF and PBG German networks, respectively, and began consolidating these subsidiaries. These networks have only recently begun operations and subscriber revenues do not cover operating expenses. It is expected that these networks will continue to generate losses in the near future. The number of subscribers on these networks as of June 30, 1996 was approximately 13,100. As discussed above, the Company has entered into a letter of intent to merge these networks with RWE's network. 22 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Continued Wireless activities generated a loss before net interest expense, taxes, amortization and depreciation of $ 17.4 million for the quarter ended June 30, 1996 compared to $8.8 million in 1995. This increase is primarily due to costs related to the commencement of the roll-out of the digital wireless communication system for the U.S. network and the inclusion of the German networks on a consolidated basis in 1996. The tables below set forth certain information with respect to the results of the Company's Wireless Communications activities for the six months ended June 30, 1996 and 1995. The North American column includes the U.S. Digital Wireless Network as well as Geotek Technologies, Inc. (which includes Geotek Technologies Israel, Ltd., formerly PowerSpectrum Technology and GMSI, Inc.). For the Six Months Ended June 30, 1996 (Dollars in Thousands) German North America NBTL Networks Total --------------------------------------------- Revenues $4,604 $13,398 $1,884 $19,886 Gross profit (7,357) 9,081 (64) 1,660 % of revenues (160%) 68% (3%) 8% Research and Development 14,738 14,728 Marketing 8,154 2,580 404 11,138 General and Administrative 4,637 1,755 1,944 8,336 Other income (785) (785) (Loss) income before interest and amortization & depr. (34,101) 4,746 (2,412) (31,767) Amortization and depreciation 2,351 2,229 1,678 6,258 (Loss) income before interest (36,452) 2,517 (4,090) (38,025) Net (loss) income ($36,129) $1,547 ($4,348) ($38,930) Subscribers, end of period 500 60,500 13,100 74,100 For the Six Months Ended June 30, 1995 (Dollars in Thousands) German North America NBTL Networks Total --------------------------------------------- Revenues $3,296 $11,865 $15,141 Gross profit 437 7,256 7,693 % of revenues 13% 61% 51% Research and Development 13,165 13,165 Marketing 3,498 2,590 6,088 General and Administrative 6,350 1,615 7,965 Equity in loss of less than 50% owned entities $1,668 1,668 Other income (860) (89) (949) (Loss) income before interest and amortization & depr. (21,716) 3,140 (1,668) (20,244) Amortization and depreciation 998 2,051 598 3,647 (Loss) income before interest (22,714) 1,089 (2,266) (23,891) Net (loss) income ($22,688) $943 ($2,266) ($24,011) Subscribers, end of period 52,400 8,100 60,500 23 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Continued Revenues from wireless communications increased by $4.7 million or 31% for the six months ended June 30, 1996. This increase is primarily due to the inclusion of the German networks on a consolidated basis in 1996, the increase in the number of subscribers using the NBTL network (which totaled approximately 60,500 and 52,400 at June 30, 1996 and 1995, respectively), as well as, an increase in GMSI, Inc.'s revenue due to its contract related to the Singapore taxi fleet. Negative gross profit for North America is a result of direct costs related to the roll-out of the U.S. Network which are currently not covered by revenue. Average revenue per subscriber on the NBTL network remained constant. Gross profit as a percent of revenues, for NBTL, increased as costs are primarily fixed thus, allowing subscriber growth to increase the gross profit percentage. Research and development expenses (net of government grants) related to the digital wireless system and subscriber unit were $14.7 million for the six months ended June 30, 1996 compared to $13.2 million for the same period of 1995. The 1995 expenses included approximately $2.0 million for shares issued in connection with a research and development project. The increase in the 1996 expense is primarily attributable to costs related to the development of the commercial subscriber unit and enhancements to GeoNetTM, including system software. Marketing expenses increased by approximately $5.0 million or 82% due to the marketing effort and increase in staff needed to execute the roll-out of the U.S. wireless network. The Company's equity in losses of less than 50% owned entities for the six months ended June 30, 1995 relate to the Company's investment in the PBG and DBF German networks. In July 1995 and December 1995, the Company acquired the remaining shares of the DBF and PBG German networks, respectively, and began consolidating these subsidiaries. Wireless activities generated a loss before net interest expense, taxes, amortization and depreciation of $ 31.8 million for the six month ended June 30, 1996 compared to $20.2 million in 1995. This increase is primarily due to costs related to the commencement of the roll-out of the digital wireless communication system for the U.S. network and the inclusion of the German networks on a consolidated basis in 1996. Communications Products Activities The table below sets forth certain information with respect to the results of operations of Bogen Communications International ("BCI"), as consolidated by the Company, for the three months and six months ended June 30, 1996 and 1995. (Dollars in Thousands) Three Months Ended Six Months Ended June 30 June 30 1996 1995 1996 1995 -------- -------- -------- -------- Revenues $ 10,332 $ 11,616 $ 21,690 $ 22,461 Gross profit 4,787 5,144 9,592 9,823 % of revenue 46% 44% 44% 44% Research and Development 688 486 1,342 1,101 Marketing 2,070 2,435 4,193 4,769 General and Administration 1,011 881 1,925 1,710 Other expenses (income) 35 (7) (5) Income before interest, tax, minority interest, amortization & depreciation 983 1,349 2,132 2,248 Amortization & depreciation 219 383 575 760 Interest expense, tax & minority interest 265 826 933 1,352 Net income $ 499 $ 140 $ 624 $ 136 24 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Continued Revenues from communications products activities decreased by $1.3 million, or 11% to $10.3 million for the quarter ended June 30, 1996 and $0.8 million or 3.6 % to $21.7 million year to date. The decrease in sales is primarily due to a $1.2 million decrease in the office automation ("OAS") product line sales, which product line is being phased out beginning December 1995. Gross profit as a percentage of revenues increased from 44% to 46% in the second quarter of 1996 compared to the same period in 1995. The increase primarily resulted from the decrease in sales of OAS products which have lower profit margins than core products. The decrease in marketing expenses for the three and six months ended June 30, 1996 compared to the same periods of 1995 is due to the reduction of marketing and payroll expenses related to the OAS product line. Corporate Group The Corporate Group generated losses before net interest expense, amortization, depreciation, and other charges of $3.4 million and $6.9 million for the second quarter and year to date 1996 compared to losses of $0.6 million and $0.3 million for the same periods in 1995. These increases are primarily due to approximately $5.2 million of expenses associated with the expansion of the Corporate headquarters. Revenues from corporate group subsidiaries were $1.6 million and $2.3 million for the second quarter and year to date 1996, respectively compared to revenues of $0.8 million and $1.9 million for the same periods in 1995. Liquidity and Capital Resources The Company requires significant capital to implement its wireless communications strategy. In order to effect its strategy, the Company increased its debt borrowing and entered into a series of transactions, including the sale of convertible notes and convertible preferred stock during the six months ended June 30, 1996. At June 30, 1996, the Company had $157.6 million of cash, and cash equivalents as well as $64.5 million available under line of credit facilities. The Company's short term cash needs are primarily for capital expenditures related to the digital FHMATM system which the Company's U.S. network is beginning to deploy and the other costs of rolling out the U.S. network. One of the advantages of the Company's FHMATM system is its modularity, which allows the Company to execute a flexible roll-out plan requiring a relatively low investment in infrastructure in a given geographical area (compared to other wireless communications systems) in order to provide commercial service. Additionally, the Company expects to serve customers which require primarily local or regional coverage. Management believes therefore that the Company has additional flexibility in controlling its resources by accelerating or slowing down the rate at which the U.S. network is rolled out in various markets without materially impacting the business results of its then operating city or regional networks. The Company estimates that a minimum average investment of approximately $5 million is required to roll-out its U.S. network in an average target market. Additional expenditures will be required later in a given market if and when increased subscriber capacity or coverage is needed. In addition, the Company estimates that it will continue its present level of research and development expenses during the next 12 months in connection primarily with enhancements to the system and the development of a portable subscriber unit and other related projects. The Company is planning to raise capital during the next 12 months to continue financing its current operating plan. The Company's long term capital needs include the planned roll-out of the U.S. network in over 35 cities, the repayment of convertible debt and redeemable preferred stock (if such are not converted into equity), the repayment of the Company's Senior Secured Discount Notes due 2005, to finance international digital wireless networks, and to make acquisitions of business in the field of telecommunications and of spectrum in the United States and internationally. The Company is currently pursuing various alternatives for raising capital including issuance of equity and debt securities, vendor financing as well as, a combination thereof and other sources. There can be no assurance that the Company will be able to obtain any such financing on acceptable terms, or at all. The failure to obtain such financing may cause the Company to significantly alter its GeoNetTM rollout plan and financing its international digital wireless networks. 25 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Continued In July 1996, through the Federal Communication Commission's (the "FCC") 900 MHZ Spectrum auctions, the Company purchased 181 10-channel blocks in 42 regional service areas known as Major Trading Areas at an aggregate cost of approximately $30.9 million. After the partial return by the FCC of the Company's original deposit, the Company had $6.2 million on deposit at June 30, 1996. The remainder was paid with existing cash resources. In July 1996, the Company contributed approximately $9.6 million to Anam Telecom which represents the Company's portion of the initial capitalization of Anam Telecom and related Spectrum license. The following discussion of liquidity and capital resources, among other things, compares the Company's financial and cash position as of June 30, 1996, to the Company's financial and cash position as of December 31, 1995. During the first six months of 1996, cash and cash equivalents increased by $96.2 million to $157.6 million, while working capital increased by $75.8 million to $145.0 million as of June 30, 1996. Cash utilized in connection with operating activities for the six months ended June 30, 1996, amounted to $31.6 million. Cash outflows from investing activities, exclusive of decrease in temporary investments of $7.9 million and the decrease in restricted cash of $20.4 million, were $23.9 million. The Company expended $26.0 million on acquisitions of equipment during the first two quarters of 1996. In March 1996, the Company issued $75.0 million aggregate principal amount of Senior Subordinated Convertible Notes ("Convertible Notes"), due 2001. Each Convertible Notes is in the principal amount of $1,000, and beginning on March 5, 1997 may be converted by the holders into shares of the Company's common stock, par value $.01, at a conversion price equal to $9.50 per share. Cash interest on the Convertible Notes accrues at a rate of 12% per annum and is payable semi-annually on each February 15 and August 15 commencing August 15, 1996. The Convertible Notes are unsecured senior subordinated obligations of the Company. The Convertible Notes can be converted at the option of the Company after 18 months if the closing price of the Company's common stock for 20 of the 30 trading days and for the five trading days before conversion is at least $15.20 per share. In April, 1996, the Company and S-C Rig Investments - III, L.P. ("S-C Rig"), a significant stockholder of the Company, which is affiliated with George Soros, entered into an agreement whereby S-C Rig made a $40.0 million unsecured credit facility the ("S-C Rig Credit Facility") available to the Company beginning June 1996. Under the terms of the S-C Rig Credit Facility, all borrowings are required to be made prior to April 5, 1998. All borrowings under the S-C Rig Credit Facility will accrue interest at a rate of 10% per annum and will mature four years from the date of the final borrowing thereunder. The Company will be obligated to pay S-C Rig a fee equal to 3% of each borrowing under the credit facility at the time of such borrowing. Borrowings under the S-C Rig Credit Facility will constitute senior indebtedness of the Company. At June 30, 1996, there were no outstanding loans under the S-C Rig Credit Facility. In connection with the establishment of the S-C Rig Credit Facility, the Company issued to S-C Rig a five-year warrant to purchase 4.2 million shares of Common Stock at an exercise price of $9.50 per share (subject to adjustment in certain circumstances). This warrant is exercisable at any time. In June 1996, the Company sold 55,000 shares of Series N Cumulative Convertible Preferred Stock ("Series N Stock") at an aggregate purchase price of $55 million, to entities affiliated with the Charles R. Bronfman Family Trust, the Kolber Trust, the Renaissance Fund, and certain existing shareholders of the Company. The Series N Stock pays dividends in Common Stock at a rate of 10% per annum. Additionally, the Series N Stock is immediately convertible into shares of the Company's Common Stock at $11.00 per share. In connection with this transaction, the Company issued warrants to purchase approximately 1.65 million shares of the Company's Common Stock at $11.00 per share. In addition, the Company incurred financing fees equal to 3% of the aggregate purchase price and has recorded this amount as a reduction to the net proceeds of the issuance. 26 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Continued In April 1996, the Company purchased 100% of the outstanding stock of MacDermott Communications, Inc., a private company whose only asset was a SMR License, for 190,988 shares of the Company's Common Stock. The value of the Common Stock issued was approximately $2.0 million. The Company paid cash dividends totaling approximately $2.6 million on its outstanding preferred stocks during the first two quarters of 1996. Proceeds from the exercise of warrants and options totaled approximately $1.7 million in the first two quarters of 1996. 27 GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES Part II. Other Information Item 4: Submission of Matters to a Vote of Security-Holders (a) On June 3, 1996, the Company held its Annual Meeting of Stockholders. As of the record date the total number of votes eligible to cast at the Annual Meeting was 65,473,938. The following proposals were presented for a vote by the Company's stockholders: PROPOSAL I - Election of Eleven (11) Directors PROPOSAL II - Amendment to the Company's Restated Certificate of Incorporation to Increase the Number of Authorized Shares to 135,000,000 Shares of Common Stock. PROPOSAL III - Ratification of the Appointment of Coopers & Lybrand L.L.P. as the Company's independent auditors for the 1996 fiscal year. Each such proposal was approved by the Company's stockholders as set forth in 4(c) below. (b) N/A (c ) PROPOSAL I - Election of Directors Name of Nominee Votes for Votes Withheld --------------- --------- -------------- Walter Auch 51,622,349 148,498 George Calhoun 51,626,524 144,323 Purnendu Chatterjee 51,616,283 154,564 Winston Churchill 51,621,477 149,370 Jonathan C. Crane 51,621,539 149,308 Yaron Eitan 51,620,582 150,265 Haynes G. Griffin 51,626,649 144,198 Richard Krants 51,618,524 152,323 Richard Liebhaber 51,618,574 152,273 Kevin Sharer 51,625,567 145,280 William Spier 51,617,617 153,230 PROPOSAL II Amendment to the Company's Restated Certificate of Incorporation to Increase the Number of Authorized Shares to 135,000,000 Shares of Common Stock. Votes Against Non-Vote Abstain ----- ------- -------- ------- 48,779,899 1,837,170 1,047,100 106,678 PROPOSAL III Ratification of the Appointment of Coopers & Lybrand L.L.P. as the Company's independent auditors for the 1996 fiscal year. Votes for Against Abstain --------- ------- ------- 51,589,627 63,427 117,793 Item 6. Exhibit and Reports on Form 8-K (a) Exhibit: 12 - Computation of Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K The following reports on Form 8-K were filed by the Company during the second quarter of 1996. (I) Current Report on Form 8-K filed May 15, 1996 reporting the employment contract of Jonathan Crane, the President & CEO - Geotek U.S. Operations. (II) Current Report on Form 8-K filed June 27, 1996 reporting the sale of 55,000 units of Series N Cumulative Convertible Preferred Stock (Series N Stock) on June 20, 1996 for an aggregate purchase price of $55 million. Each unit consists of (a) one share of Series N Stock with a value of $1,000 per share and (b) warrants to purchase 30 shares of the Company's common stock. 28 GEOTEK COMMUNICATIONS, INC. 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. GEOTEK COMMUNICATIONS, INC. Date: August 14, 1996 /s/ Michael R. McCoy ---------------------------- Michael R. McCoy Sr. Vice President and Chief Financial Officer Date: August 14, 1996 /s/ Michael H. Carus ---------------------------- Michael H. Carus Chief Accounting Officer and Corporate Controller 29 EX-12 2 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Earnings include income before income taxes plus fixed charges less capitalized interest. Fixed charges include interest and one-third of rent expense (representing the estimated interest component of operating leases). The dollar amount of the deficiency in earnings to fixed charges was $58.9 million for the six months ended June 30, 1996. EX-27 3 FDS --
5 (Replace this text with the legend) 1,000 6-MOS Dec-31-1996 Jan-01-1996 Jun-30-1996 157,639 0 15,409 0 15,499 219,738 126,450 37,468 401,828 74,738 180,474 40,000 11 583 104,436 401,828 43,916 43,916 35,536 53,247 (795) 0 15,323 (56,327) 1,380 (57,707) 0 0 0 15,707 (1.06) (1.06)
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