<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) AUGUST 14, 1997 DATE OF REPORT
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TELEGROUP, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COMMISSION FILE NO. 000-29284
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IOWA 42-1344121
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(State of incorporation or organization) (IRS Employer Identification No.)
2098 NUTMEG AVENUE, FAIRFIELD, IOWA 52556
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 472-5000
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
PRO FORMA CONDENSED FINANCIAL STATEMENTS
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The following unaudited pro forma consolidated balance sheet and consolidated
statement of operations are based on historical results of Telegroup, Inc. and
its subsidiaries (the "Company") and PCS Telecom, Inc. ("PCS Telecom") giving
effect to the Company's initial public offering ("IPO") and the Company's
acquisition of PCS Telecom's common stock (the "PCS Telecom acquisition")
accounted for as a purchase in accordance with generally accepted accounting
principles. Pro forma adjustments, and the assumptions on which they are based,
are described in the accompanying footnotes to the pro forma consolidated
financial statements. The accompanying pro forma consolidated balance sheet as
of June 30, 1997 contains those pro forma adjustments necessary to reflect the
IPO and the PCS Telecom acquisition as if each was consummated on that date.
The accompanying pro forma consolidated statements of operations for the year
ended December 31, 1996 and the six months ended June 30, 1997 contain those pro
forma adjustments necessary to reflect the IPO and the PCS Telecom acquisition
as if each was consummated on January 1, 1996. Because these pro forma financial
statements are prepared utilizing certain assumptions, the pro forma
consolidated financial statements may not be indicative of actual financial
position or results of operations as of the date and for the periods presented,
respectively.
TELEGROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Telegroup, Inc. Pro forma adjustments
and Subsidiaries giving effect to the IPO Pro forma
ASSETS (Historical) Debit Credit for IPO
---------------- ------- ------ -----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents 5,769,631 39,785,000 (a) -- 45,554,631
Accounts receivable and unbilled services,
less allowance for credit losses 45,005,876 -- -- 45,005,876
Income tax recoverable 962,793 -- -- 962,793
Deferred taxes 1,786,038 -- -- 1,786,038
Prepaid expenses and other other assets 1,297,344 -- -- 1,297,344
Receivables from shareholders 44,120 -- -- 44,120
Receivables from employees 124,441 -- -- 124,441
----------- ----------- ----------- -----------
Total current assets 54,990,243 39,785,000 -- 94,775,243
----------- ----------- ----------- -----------
Net property and equipment 17,883,071 -- -- 17,883,071
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Other assets:
Deferred tax asset -- -- -- --
Deposits and other assets 1,352,436 -- -- 1,352,436
Goodwill 967,689 -- -- 967,689
Capitalized software, net of amortization 2,022,540 -- -- 2,022,540
Debt issuance costs, net of amortization 1,333,412 -- -- 1,333,412
----------- ----------- ----------- -----------
5,676,077 -- -- 5,676,077
----------- ----------- ----------- -----------
Total assets 78,549,391 39,785,000 -- 118,334,391
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 42,165,647 -- -- 42,165,647
Accrued expenses 10,694,232 -- -- 10,694,232
Unearned revenue 146,593 -- -- 146,593
Income taxes payable -- -- -- --
Customer deposits 704,221 -- -- 704,221
Current portion of long-term debt 101,109 -- -- 101,109
Current portion of capital lease obligations 127,804 -- -- 127,804
----------- ----------- ----------- -----------
Total current liabilities 53,939,606 -- -- 53,939,606
Deferred taxes 977,915 -- -- 977,915
Capital lease obligations 233,235 -- -- 233,235
Long-term debt 11,205,356 -- -- 11,205,356
Minority interest -- -- -- --
Shareholders' equity 12,193,279 -- 39,785,000 (a) 51,978,279
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity 78,549,391 -- 39,785,000 118,334,391
=========== =========== =========== ===========
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<CAPTION>
Pro forma adjustments
giving effect for
PCS Telecom, Inc. PCS Telecom acquisition
ASSETS (Historical) Debit Credit Pro forma
----------------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents 9,300 - 1,340,000 (b) 44,223,931
Accounts receivable and unbilled services,
less allowance for credit losses 349,600 - - 45,355,476
Income tax recoverable - - - 962,793
Deferred taxes - - - 1,786,038
Prepaid expenses and other other assets 29,000 - - 1,326,344
Receivables from shareholders - - - 44,120
Receivables from employees - - - 124,441
----------------- ---------- --------- -----------
Total current assets 387,900 - 1,340,000 93,823,143
----------------- ---------- --------- -----------
Net property and equipment 405,600 - - 18,288,671
----------------- ---------- --------- -----------
Other assets:
Deferred tax asset 185,000 - - 185,000
Deposits and other assets 2,400 - 750,000 (c) 604,836
Goodwill - 2,398,800 (b) - 3,366,489
Capitalized software, net of amortization - - - 2,022,540
Debt issuance costs, net of amortization - - - 1,333,412
----------------- ---------- --------- -----------
187,400 2,398,800 750,000 7,512,277
----------------- ---------- --------- -----------
Total assets 980,900 2,398,800 2,090,000 119,624,091
================= ========== ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 611,800 - - 42,777,447
Accrued expenses 34,200 - - 10,728,432
Unearned revenue 750,000 750,000 (c) - 146,593
Income taxes payable 173,700 - - 173,700
Customer deposits - - - 704,221
Current portion of long-term debt - - - 101,109
Current portion of capital lease obligations - - - 127,804
----------------- ---------- --------- -----------
Total current liabilities 1,569,700 750,000 - 54,759,306
Deferred taxes - - - 977,915
Capital lease obligations - - - 233,235
Long-term debt - - - 11,205,356
Minority interest - - - -
Shareholders' equity (588,800 - 1,058,800 (b) 52,448,279
----------------- ---------- --------- -----------
Total liabilities and shareholders' equity 980,900 750,000 1,058,800 119,624,091
================= ========== ========= ===========
</TABLE>
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NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet reflects the
historical financial position at June 30, 1997, with pro forma adjustments as if
the IPO and the PCS Telecom acquisition had taken place on June 30, 1997. The
unaudited pro forma consolidated statements of operations for the year ended
December 31, 1996 and the six months ended June 30, 1997 reflect the historical
results of operations with pro forma IPO and PCS Telecom acquisition adjustments
based on the assumption the IPO and the PCS Telecom acquisition were effective
as of January 1, 1996. The following adjustments give pro forma effect to the
IPO and the PCS Telecom acquisition (in addition to certain reclassifications to
conform presentations):
(a) Represents net proceeds of $35,600,000 and $4,185,000, received
from the IPO and the exercise of the underwriters' overallotment
option, respectively.
(b) The PCS Telecom acquisition will be accounted for as a purchase.
The Company gave $1,340,000 in cash and 40,000 shares of common stock
in consideration for 60 percent of the common stock of PCS Telecom.
The Company believes the fair value of PCS Telecom's assets and
liabilities to approximate the historical carrying value.
<TABLE>
<CAPTION>
<S> <C>
Value of shares issued based on market price of $11.75
each share on August 14, 1997 $ 470,000
Actual amount paid in cash 1,340,000
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Total cost of acquisition 1,810,000
Estimated fair value of assumed
liabilities 1,569,700
Estimated fair value of assets acquired (980,900)
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Excess of cost over estimated fair value $2,398,800
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The minority interest deficit has been included in the
excess of cost over estimated fair value as provided
above.
Pro forma adjustments to shareholders' equity as a result
of the PCS Telecom acquisition:
Value of shares issued based on
market price $ 470,000
Elimination of PCS Telecom
shareholders' deficit 588,800
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$1,058,800
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</TABLE>
(c) The elimination in consolidation of the Company's advance to PCS
Telecom for the development of future card platforms.
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(d) The elimination in consolidation of sales of network equipment
by PCS Telecom to the Company.
(e) The amortization of goodwill created from the acquisition of
PCS Telecom over the estimated useful life of 15 years.
(f) The tax effect of the pro forma adjustments using a 36 percent
tax rate.
(g) Represents the 40 percent minority interest in share of earnings
from PCS Telecom for the year ended December 31, 1996.
(h) Earnings (loss) per common and common equivalent share have been
computed using the weighted-average number of shares of common
stock outstanding during each period as adjusted for the effects
of the Securities and Exchange Commission Staff Accounting
Bulletin No. 83. Accordingly, options and warrants to purchase
common stock granted within one year of the Company's initial
public offering, which have exercise prices below the assumed
initial public offering price per share, have been included in the
calculation of common equivalent shares, using the treasury stock
method, as if they were outstanding for all periods presented.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
TELEGROUP, INC.
Dated: October 28, 1997 By: /s/ John P. Lass
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John P. Lass
Chief Operating Officer
