================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
TRESCOM INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
COMMISSION FILE NUMBER : 0-27594
FLORIDA
(State or Other Jurisdiction of 65-0454571
Incorporation or Organization) (I.R.S. Employer Identification No.)
200 EAST BROWARD BOULEVARD
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
(954) 763-4000
(Registrant's Telephone Number, Including Area Code)
---------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
CLASS OUTSTANDING
----- -----------
Common Stock, par value $0.0419 11,632,145 shares
per share. as of November 11, 1996
================================================================================
<PAGE>
TRESCOM INTERNATIONAL, INC.
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30,
1996 (Unaudited) and December 31, 1995 ................ 2
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996 (Unaudited),
the Three Months Ended September 30, 1995
(Unaudited), the Nine Months Ended September
30, 1996 (Unaudited), and the Nine Months Ended
September 30, 1995...................................... 4
Consolidated Statements of Shareholder's Equity
at September 30, 1996 (Unaudited) ...................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 (Unaudited)
and the Nine Months Ended September 30, 1995 ........... 6
Notes to Consolidated Financial Statements
(Unaudited) ............................................ 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 17
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. Legal Proceedings....................................... 21
ITEM 2. Changes in Securities................................... 21
ITEM 3. Default Upon Senior Securities.......................... 21
ITEM 4. Submission of Matters to a Vote of Security-Holders..... 21
ITEM 5. Other Information....................................... 21
ITEM 6. Exhibits and Reports on Form 8-K........................ 21
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .............................................................. $ 6,069 $ 2,052
Short term investments ................................................................. 1,007 --
Accounts receivable, net of allowance for doubtful accounts
of $5,748 and $4,140, respectively .................................................. 28,056 17,054
Other current assets ................................................................... 2,499 1,302
-------- --------
Total current assets ................................................................ 37,631 20,408
Property and equipment, at cost:
Transmission and communications equipment ........................................... 20,706 14,001
Furniture, fixtures and other ....................................................... 5,655 3,494
-------- --------
26,361 17,495
Less accumulated depreciation and amortization ......................................... (4,633) (2,716)
-------- --------
21,728 14,779
OTHER ASSETS:
Customer bases, net of accumulated amortization of $1,174
and $6,612, respectively ............................................................ 2,679 3,092
Excess of cost over net assets of business acquired, net of
accumulated amortization of $2,114 and $1,371,
respectively ........................................................................ 32,569 33,313
Other .................................................................................. 647 1,038
-------- --------
Total assets ........................................................................... $95,254 $ 72,630
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable .................................................................. $ 1,709 $ 1,613
Accrued network costs ............................................................. 18,042 11,585
Other accrued expenses ............................................................ 3,817 3,459
Long-term obligations due within one year ......................................... 719 25,290
Notes payable to shareholder ...................................................... -- 8,179
Other current liabilities ....................................................... 182 294
--------- ---------
Total current liabilities ..................................................... 24,469 50,420
Long term obligations (Notes 3 and 4) ................................................ 3,671 702
Shareholders' equity
Redeemable preferred stock, $.01 par value, 1,000,000
shares authorized including accrued undeclared
dividends (Notes 5 and 9 )
Series A, no shares authorized, issued and
outstanding; 180,617 shares authorized,
issued and outstanding .................................................... -- 21,807
Series B, no shares authorized, issued and
outstanding; 200,000 shares authorized,
104,444 shares issued and outstanding ..................................... -- 11,620
Series C, no shares authorized, issued and
outstanding; 151,421 shares authorized,
issued and outstanding .................................................... -- 16,750
Common stock, $.0419 par value; 50,000,000 shares
authorized, 11,632,145 shares issued and outstanding;
2,386,663 shares issued and outstanding ......................................... 487 100
Deferred compensation ............................................................. (927) (657)
Additional paid-in capital ........................................................ 104,610 4,124
Accumulated deficit ............................................................... (37,056) (32,236)
--------- ---------
Total shareholders' equity ........................................................... 67,114 21,508
--------- ---------
Total liabilities and shareholders' equity ........................................... $ 95,254 $ 72,630
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------------------------------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.......................................................... $ 36,007 $ 28,168 $ 101,859 $ 75,046
Cost of services 27,188 20,192 77,446 54,864
-------- -------- -------- --------
Gross profit...................................................... 8,819 7,976 24,413 20,182
Selling, general and administrative 7,975 6,733 22,289 19,699
Depreciation and amortization..................................... 1,236 1,041 3,493 2,741
Expenses related to Hurricane Marilyn............................. - 2,500 - 2,500
Settlement with a major customer.................................. - - - 4,069
-------- -------- -------- --------
Operating loss.................................................... (392) (2,298) (1,369) (8,827)
Interest (income) expense, net.................................... (103) 635 808 1,782
-------- -------- -------- --------
Net loss before extraordinary items.............................. (289) (2,933) (2,177) (10,609)
Extraordinary items............................................... - - 1,956 -
-------- -------- -------- --------
Net loss.......................................................... $ (289) $ (2,933) $ (4,133) $(10,609)
======== ======== ======== ========
Per Share Data:
Loss per share of common stock and
common stock equivalents before
extraordinary items............................................. $ (0.02) $ (0.39) $ (0.19) $ (1.42)
Extraordinary items per share..................................... - - $ (0.17) -
-------- ------- -------- --------
Loss per share of common stock and
common stock equivalents after
extraordinary items............................................. $ (0.02) $ (0.39) $ (0.36) $ (1.42)
========= ======= ======== ========
Weighted average number of common
stock and common stock
equivalents outstanding......................................... 12,200 7,489 11,533 7,489
========= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Redeemable Preferred Stock
-------------------------------------------------
Accrued
Undeclared Stock
Shares Amount Dividends Subscriptions
-------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 ................ 436,482 $ 43,648 $6,529 $--
================================================
Conversion of Redeemable Preferred Stock to
Common Stock ............................. (436,482) (43,648) -- --
Accrued dividends on Redeemable Preferred
Stock .................................... -- -- 687 --
Conversion of accrued dividends on Redeemable
Preferred Stock to Common Stock .......... -- -- (7,216) --
Initial public offering of Common Stock ..... -- -- -- --
Costs associated with initial public
offering of Common Stock ................. -- -- -- --
Grant of stock options ...................... -- -- -- --
Exercise of stock options ................... -- -- -- --
Net loss .................................... -- -- -- --
------------------------------------------------
Balance at March 31, 1996 ................... -- $ -- $ -- $--
Exercise of stock options ................... -- -- -- --
Forfeiture of stock options ................. -- -- -- --
Costs associated with initial public
offering of Common Stock ................. -- -- -- --
Net loss .................................... -- -- -- --
------------------------------------------------
Balance at June 30, 1996 .................... -- $ -- $ -- $--
Exercise of stock options ................... -- -- -- --
Costs associated with initial public
offering of Common Stock ................. -- -- -- --
Net loss .................................... -- -- -- --
-----------------------------------------------
Balance at September 30, 1996 ............... -- $--- $--- $--
===============================================
Common Stock
----------------------------------
Additional
Paid-in
Shares Amount Capital
----------------------------------
Balance at December 31, 1995 ................ 2,386,663 $100 $ 4,124
===================================
Conversion of Redeemable Preferred Stock to
Common Stock ............................. 3,911,129 164 43,484
Accrued dividends on Redeemable Preferred
Stock .................................... -- -- --
Conversion of accrued dividends on Redeemable
Preferred Stock to Common Stock .......... 646,482 27 7,189
Initial public offering of Common Stock ..... 4,545,455 190 50,537
Costs associated with initial public
offering of Common Stock ................. -- -- (1,739)
Grant of stock options ...................... -- -- 1,701
Exercise of stock options ................... 39,458 2 13
Net loss .................................... -- -- --
-----------------------------------
Balance at March 31, 1996 ................... 11,529,187 $483 $105,309
Exercise of stock options ................... 21,461 1 8
Forfeiture of stock options ................. -- -- (236)
Costs associated with initial public
offering of Common Stock ................. -- -- (286)
Net loss .................................... -- -- --
-----------------------------------
Balance at June 30, 1996 .................... 11,550,648 $484 $104,795
Exercise of stock options ................... 81,497 3 32
Costs associated with initial public
offering of Common Stock ................. -- -- (217)
Net loss .................................... -- -- --
-----------------------------------
Balance at September 30, 1996 ............... 11,632,145 $487 $104,610
===================================
Total
Deferred Accumulated Stockholders'
Compensation Deficit Equity
------------------------------------------
Balance at December 31, 1995 ................ $ (657) $(32,236) $21,508
========================================
Conversion of Redeemable Preferred Stock to
Common Stock ............................. -- -- --
Accrued dividends on Redeemable Preferred
Stock .................................... -- (687) --
Conversion of accrued dividends on Redeemable
Preferred Stock to Common Stock .......... -- -- --
Initial public offering of Common Stock ..... -- -- 50,727
Costs associated with initial public
offering of Common Stock ................. -- -- (1,739)
Grant of stock options ...................... (1,029) -- 672
Exercise of stock options ................... -- -- 15
Net loss .................................... -- (3,407) (3,407)
---------------------------------------
Balance at March 31, 1996 ................... $(1,686) $(36,330) $67,776
Exercise of stock options ................... 65 -- 74
Forfeiture of stock options ................. 236 -- --
Costs associated with initial public
offering of Common Stock ................. -- -- (286)
Net loss .................................... -- (437) (437)
----------------------------------------
Balance at June 30, 1996 .................... $(1,385) $(36,767) $67,127
Exercise of stock options ................... 458 -- 493
Costs associated with initial public
offering of Common Stock ................. -- -- (217)
Net loss .................................... -- (289) (289)
----------------------------------------
Balance at September 30, 1996 ............... $ (927) $(37,056) $67,114
========================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
--------- ----------
(UNAUDITED)
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (4,133) $(10,609)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,493 2,741
Non-cash interest on derivative instruments 302 -
Non-cash interest on note to shareholder 297 -
Non-cash compensation 1,195 125
Extraordinary item: early retirement of revolving credit facility 431 -
Extraordinary item: early retirement of note to shareholder 1,524 -
Changes in operating assets and liabilities, net:
Accounts and note receivable (11,002) (6,628)
Other current assets (2,608) (861)
Accounts payable 96 (1,103)
Accrued network costs 6,457 7,961
Other accrued expenses 63 (286)
Other current liabilities (112) -
-------- --------
Net cash used in operating activities (3,997) (8,930)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (8,866) (4,777)
Expenditures for line installations (60) (353)
-------- --------
Net Cash used in investing activities (8,926) (5,130)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock 50,727 915
Net proceeds from the issuance of preferred stock - 14,778
Costs relating to initial public offering (1,954) -
Repayment of revolving credit facility (24,173) -
Repayment of seller's note (1,000) -
Repayment of notes payable to shareholder (10,000) -
Repayment of derivative instruments (302) -
Proceeds from exercise of stock options 59 -
Repayment of cash overdraft - (382)
Repayment of debt - (23)
Proceeds from capital lease 3,701 -
Principal payments on capital lease obligations (118) (128)
-------- --------
Net cash provided by financing activities 16,940 15,160
-------- --------
Net change in cash 4,017 1,100
Cash and cash equivalents at beginning of period 2,052 -
-------- --------
Cash and cash equivalents at end of period $ 6,069 $ 1,100
======== ========
Interest paid $ 424 2,066
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS
ORGANIZATION AND BASIS OF PRESENTATION
TresCom International, Inc. (the "Company") was incorporated in Florida on
December 8, 1993 as TeraCom Communications, Inc. Effective June 30, 1994, the
Company changed its name to TresCom International, Inc. The Company was
considered a development stage enterprise from its inception until February 22,
1994, the date revenues were first generated. During the development stage, the
Company incurred a net loss of $319.
The Company is a facilities based long distance telecommunications carrier
focused on international long distance traffic originating in the United States.
The Company offers telecommunications services, including long distance, calling
cards, prepaid debit cards, international toll-free calling and bilingual
operator services.
The Company has a limited operating history and has sustained net losses
since its inception. In addition, the Company had a working capital deficiency
of approximately $33,012 at December 31, 1995 but had working capital of
approximately $13,162 at September 30, 1996. The Company generated negative cash
flows from operations of $8,930 during the nine months ended September 30, 1995
and $3,997 for the nine months ended September 30, 1996. Further, since its
formation, the Company has experienced growth and its operations have required
substantial additional capital. The Company's growth has placed, and will
continue to place, significant demands on the Company's financial and other
resources. In connection with these demands, the Company successfully completed
an initial public offering of its Common Stock, par value $.0419 per share (the
"Common Stock") in February 1996 (the "Initial Public Offering") for net
proceeds of approximately $48,600 as described in Note 9.
The 1995 Annual Report on Form 10-K for the Company and subsidiaries includes
a summary of significant accounting policies and should be read in conjunction
with this Quarterly Report on Form 10-Q. The consolidated financial statements
at September 30, 1996 and the quarter then ended are unaudited and the balance
sheet at December 31, 1995 is derived from audited financial statements. These
financial statements do not include all disclosures required by generally
accepted accounting principles. In the opinion of management, all material
adjustments necessary to present fairly the results of operations for such
periods have been included. All such adjustments are of a normal recurring
nature. Results of operations for any interim period are not necessarily
indicative of the results of operations for the entire fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are recorded at
cost, which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization is
provided for financial reporting purposes using the straight-line method over
the following estimated useful lives:
Transmission and communications equipment 3 to 10 years
Furniture, fixtures and other 3 to 7 years
The costs of software and software upgrades purchased for internal use
are capitalized.
ADVERTISING
The Company expenses advertising costs as incurred, except for
direct-response advertising, which is capitalized and amortized over its
expected period of future benefit. Direct-response advertising consists of fees
paid to various telemarketing entities and agents. The capitalized costs are
amortized over a nine month period beginning in the month revenues associated
with those costs are first generated.
At September 30, 1996, advertising costs totaling $976 were recorded as
assets. Advertising expense for the year ended December 31, 1995 and the three
and nine months ended September 30, 1996 were $1,431, $742 and $1,881,
respectively.
OTHER ASSETS
The excess of costs over net assets of businesses acquired represents the
excess of the consideration paid over the fair value of the net assets and is
amortized on a straight-line basis over 35 years. Customer bases are recorded at
the estimated value of the customer bases acquired in the acquisition of
businesses and are amortized on a straight-line basis over 7 years. In
accordance with Company policy, intangible assets that are fully amortized are
netted against the asset.
Legal expenses and other direct costs incurred in connection with obtaining
financial agreements are deferred and amortized over the life of the financial
agreements. Such costs amounted to $533 during the year ended December 31, 1995.
Subsequent to the Initial Public Offering, all existing financial agreements
were paid off in their entirety. Accordingly, any remaining unamortized portion
of the costs were expensed in the first quarter of 1996. Of the expense incurred
relating to these costs, $148 was ordinary and $431 was extraordinary.
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUES
Revenues from long distance telecommunications services are recognized when
the services are provided.
COST OF SERVICES
Cost of services includes payments to local exchange carriers ("LECs"),
interexchange carriers and post, telegraph and telephone organizations primarily
for access and transport charges.
CONCENTRATIONS OF CREDIT RISK
The Company derives a majority of its operating revenues from commercial
customers in Florida, New York, St. Thomas and Puerto Rico. Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of accounts receivable. The Company's allowance for
doubtful accounts is based upon management's estimates and historical
experience. In situations where the Company deems appropriate, prepayment and/or
cash deposits are required for the provision of services.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred income taxes are recorded to reflect the net tax
effects of the temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for income tax
purposes.
PER SHARE DATA
The computation of fully diluted pro forma net loss per share of Common Stock
was antidilutive; therefore, the amounts reported for primary and fully diluted
are the same.
Pro forma net loss per share was computed by dividing net loss by the
weighted average number of shares of Common Stock outstanding after giving
retroactive effect to the conversion, in February 1996, of all the Company's
Series A Preferred Stock, $.01 par value per share (the "Series A Preferred
Stock"), Series B Preferred Stock, $.01 par value per share (the "Series B
Preferred Stock") and Series C Preferred Stock, $.01 par value per share (the
"Series C Preferred Stock"), and related accrued and unpaid dividends thereon,
into Common Stock in connection with the consummation of the Initial
Public Offering, plus cheap stock as defined below. Pursuant to Securities and
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Exchange Commission Staff Accounting Bulletin No. 83, common stock, common stock
equivalents and other potentially dilutive securities (including preferred
stock) issued at prices below the assumed initial public offering price per
share ("cheap stock") during the twelve month period immediately preceding the
initial filing date of the Company's Registration Statement for the Initial
Public Offering have been included as outstanding for all periods presented
(using the treasury stock method at the assumed Initial Public Offering Price)
even though the effect is to reduce loss per share. Pro forma net loss per share
was $(0.02) and $(0.36) for the three and nine months ended September 30, 1996,
respectively. Historical losses per share have not been presented because such
amounts are not deemed meaningful due to the significant change in the Company's
capital structure which occurred in connection with the Initial Public Offering.
NEW ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company is
now evaluating the carrying value of its long-lived assets and identifiable
intangibles, including goodwill, in accordance with SFAS No. 121 in light of
events or changes in circumstances which might indicate that the carrying amount
of such assets may not be recoverable. In 1996, the Company also adopted the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The
Company does not expect the effect of adopting these statements to be material.
3. LONG-TERM OBLIGATIONS
A summary of long-term obligations is as follows:
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- ------------
<S> <C> <C>
Credit facility ............................................. $ --- $ 24,173
Note payable to former shareholder of business acquired,
bearing 5% simple interest, due February 1996 ............ --- 1,000
Loans payable to the Small Business Administration, bearing
interest at 4%, due in monthly principal and interest
payments of $3 through February 2015, collateralized
by a security agreement covering certain assets .......... 422 432
Capital leases bearing interest at rates ranging from 9% to
11% and payable in monthly installments totaling $91 ..... 3,966 383
Other........................................................ 2 4
-----------------------------------
4,390 25,992
-----------------------------------
Less amounts due within one year ............................ 719 25,290
-----------------------------------
$3,671 $ 702
===================================
</TABLE>
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
In November 1994, a wholly-owned subsidiary of the Company obtained from a
bank a revolving credit facility (the "Credit Facility") with an aggregate
commitment of $27,000, which expired on June 30, 1996. Outstanding advances
under the Credit Facility accrued interest at the Eurodollar Rate (as defined),
plus certain specified percentages, depending on the Company's leverage ratio.
At December 31, 1995, the rate was 10.375%. The Company was required to pay a
quarterly commitment fee of 0.5% of the annualized average daily unused amount
of the credit line.
On February 16, 1996, the Company repaid all outstanding amounts borrowed
under the Credit Facility. During the first quarter of 1996, the Company
recorded a charge to interest expense in the amount of $479 to reflect, as a
liability, the current net settlement value of the Instruments (as hereinafter
defined).
Under the terms of the Credit Facility, the Company was required to
maintain at least 50% of its debt on a fixed rate basis and, as a result,
entered into an interest rate swap agreement and an interest rate cap agreement
(the "Instruments") with the lending bank to convert variable interest rate
payments to fixed payments. The estimated fair value (i.e., the net present
value of the amount the Company was required to pay the counterpart over the
remaining term of the agreement) of the Instruments, based upon the quoted
market price provided by the bank, which was a party to the Instruments, was
$562 at December 31, 1995. On September 18, 1996, when the net settlement value
was $302, the Instruments were paid off in full.
In October and November 1995, the Company borrowed $7,000 and $3,000,
respectively, under one-year notes bearing interest at 12% compounded quarterly
from a major shareholder of the Company. In connection with these notes, the
Company issued a warrant to purchase 358,034 shares of the Company's Common
Stock at an exercise price of $.42 per share. The warrants are exercisable
immediately and expire on October 2, 2007. Of the $10,000 in borrowings,
approximately $2,400 has been allocated to the value of the warrants. On
February 14, 1996, the Company repaid the entire balance relating to the notes
and the warrants. Extraordinary interest expense in the amount of $1,524 was
recognized in the first quarter of 1996.
Principal payments on all long term obligations are:
For the three months ended December 31, 1996................$ 173
1997 ....................................................... 738
1998 ....................................................... 820
1999 ....................................................... 827
2000 ....................................................... 863
2001 ....................................................... 634
Thereafter ................................................. 335
----------
$ 4,390
==========
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. LEASE OBLIGATIONS
The Company occupies office facilities and leases certain equipment and
software under noncancelable operating leases. Rental expense for the year ended
December 31, 1995 and for the three and nine months ended September 30, 1996 was
$1,341, $423 and $1,261, respectively.
The Company did not acquire communication equipment under capital lease
obligations during the year ended December 31, 1995. During the quarter ended
September 30, 1996, the Company acquired communication equipment of
approximately $3,701 under capital lease obligations. Asset balances for
property acquired under capital leases consists of:
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Transmission and communication equipment........ $ 4,106 405
Furniture, fixtures and other................... 270 270
------------- ------------
4,376 675
Accumulated amortization........................ (215) (141)
------------- ------------
$ 4,161 534
============= ============
The present value of minimum lease payments are included in the balance sheet
as a part of long-term obligations. Future minimum lease payments for all
noncancelable leases at September 30, 1996 are:
CAPITAL OPERATING
LEASES LEASES TOTAL
--------- --------- ------------
Three months ended December 31, 1996.... $ 273 $ 344 $ 617
1997.................................... 1,094 1,276 2,370
1998.................................... 1,094 1,242 2,336
1999.................................... 1,013 966 1,979
2000.................................... 961 737 1,698
2001.................................... 643 566 1,209
Thereafter.............................. --- 608 608
--------------------------------
Total future minimum lease payments..... 5,078 $5,739 $10,817
====================
Less amounts representing interest...... (1,112)
----------
Present value of net minimum lease payments. $ 3,966
==========
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. CAPITALIZATION
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue up to 1,000,000
shares of Preferred Stock, $.01 par value per share, in one or more series and
to fix the powers, voting rights, designations and preferences of each series.
During 1994, the Board of Directors authorized two series of Preferred Stock:
179,420 shares of Series A Preferred Stock and 200,000 shares of Series B
Preferred Stock. Both provided for 10% cumulative dividends per annum,
compounded semi-annually.
On August 9, 1995, the Board of Directors authorized 151,421 shares of Series
C Preferred Stock. In addition, the Board of Directors authorized an additional
1,197 shares of Series A Preferred Stock. The dividend rate on Series A
Preferred Stock was increased to 12% beginning August 1, 1995, with dividend
accruals compounded quarterly beginning October 15, 1995. The dividend rate on
the Series C Preferred Stock provided for 12% cumulative dividends per annum,
compounded quarterly, computed retroactively from February 23, 1995.
The Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock required mandatory redemption of preference value plus dividends upon the
earlier of the closing of an underwritten public offering of shares of Common
Stock or in three equal annual installments beginning February 1, 2002, in the
case of Series A Preferred Stock and Series C Preferred Stock, or February 1,
2003, in the case of Series B Preferred Stock. Under certain circumstances
outside the control of the Company, upon the effective date of an initial public
offering, the holders of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock were required to exchange their shares for shares of
Common Stock; the number of shares of Common Stock was calculated based on the
redemption value of the Preferred Stock dividend by the Initial Public Offering
price less underwriting discounts and commissions. The Company was entitled to
redeem, at its option, Series A Preferred Stock and Series C Preferred Stock in
whole or Series B Preferred Stock in whole or in part at the redemption price.
The Preferred Stock had a preference value of $100 per share for purposes of
calculating dividends and redemption value.
On February 5, 1996, the terms of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock were amended such that mandatory
redemption was not required. In connection with the Initial Public Offering, on
February 7, 1996, the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock were converted into 4,557,895 shares of Common Stock.
On February 13, 1996, the Company effected a reverse stock split of Common
Stock at a ratio of approximately 4.19-to-1. The share and per share amounts in
the financial statements have been adjusted for the reverse stock split.
STOCK OPTION PLAN
The Company has a stock option plan under which a total of 936,432 options
to purchase shares of Common Stock may be granted to officers, key employees,
consultants and directors. The Stock Option Plan
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
allows the granting of incentive stock options, which may not have an exercise
price below the greater of par value or the market value on the date of grant,
and non-qualified stock options, which have no restrictions as to exercise price
other than the exercise price cannot be below par value. All options must be
exercised no later than 10 years from the date of grant. No option may be
granted under the plan after February 22, 2004.
The following table summarizes all option activity for the year ended
December 31, 1995 and the nine months ended September 30, 1996.
Number of options
Issued
------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF TRESCOM INTERNATIONAL, INC. AT SEPTEMBER 30,
1996, AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,069
<SECURITIES> 1,007
<RECEIVABLES> 33,804
<ALLOWANCES> 5,748
<INVENTORY> 0
<CURRENT-ASSETS> 37,631
<PP&E> 26,361
<DEPRECIATION> 4,633
<TOTAL-ASSETS> 95,254
<CURRENT-LIABILITIES> 24,469
<BONDS> 3,671
0
0
<COMMON> 487
<OTHER-SE> 66,627
<TOTAL-LIABILITY-AND-EQUITY> 95,254
<SALES> 101,859
<TOTAL-REVENUES> 101,859
<CGS> 77,446
<TOTAL-COSTS> 22,289
<OTHER-EXPENSES> 3,493
<LOSS-PROVISION> (1,369)
<INTEREST-EXPENSE> 808
<INCOME-PRETAX> (2,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,956
<CHANGES> 0
<NET-INCOME> (4,133)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
