FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 2, 1997
INTELLICALL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-10588 75-1993841
(Commission (IRS Employer
File Number) Identification No.)
2155 Chenault, Suite 410, Carrollton, Texas 75006
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 416-0022
--------------
NONE
(Former name or former address, if changed since last report).
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On September 2, 1997 (the "Closing Date") ILD Teleservices, Inc.
("ILD"), a majority-owned subsidiary of the Registrant, purchased the operator
services business and related assets from Worldcom, Inc. ("Worldcom") pursuant
to an Asset Purchase Agreement dated February 27, 1997 as amended by an
Amendment No. 1 dated August 29, 1997 (collectively, the "Purchase Agreement").
The assets acquired by ILD pursuant to the Purchase Agreement included
(i) all corrections, payphone and hospitality customer contracts held by
Worldcom's operator services U.S. division (the "Business"), (ii) certain assets
relating to a billing and collections business operated by Worldcom, (iii) four
telecom switches and (iv) related and miscellaneous fixed assets and software.
ILD intends to utilize the assets acquired in the same business as before.
The purchase price (herein so called) for the assets acquired by ILD
pursuant to the Purchase Agreement was $21,392,040 paid as follows: (a) ILD paid
$9,696,020 in cash to Worldcom on the Closing Date and (b) ILD issued to
Worldcom $11,196,020 in redeemable preferred stock of ILD and $500,000 in common
stock of ILD. ILD and Worldcom agreed to certain post-closing adjustments to the
Purchase Price which the Registrant does not believe will be material to the
acquisition.
The cash portion of the Purchase Price was financed through additional
equity contributions to ILD made by non-affiliated parties to the Registrant and
loan proceeds from a Loan and Security Agreement dated as of August 29, 1997
(the "Loan Agreement") by and between ILD, an ILD subsidiary and NationsBank,
N.A. (the "Bank"). Pursuant to the Loan Agreement, the Bank agreed to loan ILD
up to $25 million, $20 million as a revolving credit facility and $5 million as
a term loan. Advances under the Loan Agreement bear interest at a variable rate
based on NationsBank Prime Rate or LIBOR. The revolving credit facility
terminates February 2001 (unless extended). The term loan requires eight
quarterly payments of principal of $300,000 commencing March 31, 1998, and five
quarterly payments of principal of $420,000 each commencing March 31, 2000.
Interest on all advances is payable monthly.
All advances under the Loan Agreement are secured by the grant of a
first lien in principally all of the assets of ILD including receivables,
inventory, contract rights, intangibles, equipment and deposit accounts (the
"Collateral").
The Loan Agreement contains other obligations and covenants of ILD
including post-closing financing requirements. See Item 7. Financial Statements
and Exhibits for a complete listing of all documents filed with this Form 8-K,
all of which should be reviewed in full.
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
(A) The following financial statements of the business
acquired are filed herewith:
(i) Report of Independent Accountants F-1
(ii) Balance Sheets at December 31, 1995 F-2
and 1996 and at June 30, 1997 (unaudited)
(iii) Statements of Operations for the three F-3
years ended December 31, 1996 and the six
months ended June 30, 1996 (unaudited) and
June 30, 1997 (unaudited)
(iv) Statements of Changes in Equity for the three F-4
years ended December 31, 1996
and for the six months ended June 30, 1996
(unaudited) and June 30, 1997 (unaudited)
(v) Statements of Cash Flows for the three F-5
years ended December 31, 1996 and the six
months ended June 30, 1996 (unaudited) and
June 30, 1997 (unaudited)
(vi) Notes to Financial Statements F-6
(B) Pro Forma financial statements
(i) Statement of Operations P-1
for the year ended December 31, 1996
(ii) Statement of Operations for the nine P-2
months ended September 30, 1997
(iii) Notes to Pro Forma Financial Statements P-3
<PAGE>
SIGNATURES
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 hereunto duly authorized.
INTELLICALL, INC.
Date: November 14, 1997 /s/ William O. Hunt
-------------------------
Chief Executive Officer
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
INDEX TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Page
Report of Independent Accountants F-1
Financial Statements:
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
<PAGE>
Report of Independent Accountants
October 31, 1997
To the Board of Directors
and Management of Intellicall, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in equity and of cash flows present fairly, in all
material respects, the financial position of WorldCom - San Antonio as defined
and described in Note 1 (the "Business") at December 31, 1995 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Business'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying balance sheet of the Business as of June 30, 1997 and the
statements of operations, of changes in equity and of cash flows for the six
month periods ending June 30, 1996 and 1997 were not audited by us and,
accordingly, we do not express an opinion on them.
F-1
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
BALANCE SHEETS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 220 $ 108 $ 253
Receivables, net of allowance for doubtful accounts 23,194 11,051 10,162
Customer advances and other 1,804 2,060 2,809
Total current assets 25,218 13,219 13,224
Fixed assets, net 3,248 3,820 3,042
Goodwill, net 211,087 -- --
Deferred income taxes 2,438 1,689 2,114
Other assets 144 92 80
--- -- --
$ 242,135 $18,820 $ 18,460
========= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 312 $ 152 $ 71
Customer commissions payable 3,482 3,291 2,611
Accrued operator services provider costs 509 781 437
Accrued billing and collection costs 2,107 1,339 1,380
Accrued line costs 1,241 1,074 956
Other current liabilities 1,043 643 229
----- ---- ---
Total current liabilities 8,694 7,280 5,684
Commitments and contingencies -- -- --
Equity - WorldCom-San Antonio, as defined (Note 1) 233,441 11,540 12,776
------- ------ ------
$242,135 $ 18,820 $ 18,460
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
STATEMENTS OF OPERATIONS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operator services revenue $ 149,823 $ 119,322 $ 88,005 $ 45,799 $ 35,243
Operator services revenue from affiliate 2,901 4,824 5,494 2,299 3,664
----- ----- ----- ----- -----
Total operator services revenue 152,724 124,146 93,499 48,098 38,907
Cost of operator services revenue 110,999 94,003 72,838 38,134 29,809
------- ------ ------ ------ ------
Gross profit 41,725 30,143 20,661 9,964 9,098
Selling, general and administrative expenses 12,963 12,455 9,142 4,678 4,146
Depreciation and amortization 6,442 6,904 2,829 2,092 778
Provision to reduce carrying value of goodwill - - 209,635 209,635 -
Provision for doubtful accounts 6,554 12,482 6,099 3,017 2,083
----- ------ ----- ----- -----
Operating income (loss) 15,766 (1,698) (207,044) (209,458) 2,091
Interest income (357) (295) (303) (162) (171)
---- ---- ---- ---- ----
Income before provision for income taxes 16,123 (1,403) (206,741) (209,296) 2,262
Income taxes 7,985 1,631 1,608 804 837
----- ----- ----- --- ---
Net income (loss) $ 8,138 $(3,034) $(208,349) $(210,100) $ 1,425
========== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
STATEMENTS OF CHANGES IN EQUITY
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
1994 1995 1996 1996 1997
-------- ------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 244,458 $ 241,878 $ 233,441 $ 233,441 $ 11,540
Net income (loss) 8,138 (3,034) (208,349) (210,100) 1,425
Advances to affiliate, net (10,718) (5,403) (13,552) (6,209) (189)
------- ------ ------- ------ ----
Balance, end of period $ 241,878 $ 233,441 $ 11,540 $ 17,132 $ 12,776
========== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
STATEMENTS OF CASH FLOWS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,138 $(3,034) $(208,349) $(210,100) $ 1,425
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,442 6,904 2,829 2,092 778
Provision to reduce carrying value of goodwill - - 209,635 209,635 -
Provision for doubtful accounts 1,128 1,522 (2,469) (4,635) 1,011
Changes in operating assets and liabilities:
Decrease (increase) in receivables (4,792) 4,626 14,612 10,864 (122)
Increase in customer advances and
other current assets (813) (778) (256) (361) (749)
Decrease (increase) in deferred income taxes (305) (541) 749 375 (425)
Increase (decrease) in accounts payable 80 (111) (160) (85) (81)
Increase (decrease) in customer commissions
payable 121 (2,208) (191) (119) (680)
Increase (decrease) in operator service
provider costs 170 (62) 272 461 (344)
Increase (decrease) in accrued billing and
collection costs 240 (390) (768) (835) 41
Increase (decrease) in accrued line costs 43 (829) (167) 118 (118)
Increase (decrease) in other current liabilities 382 664 (400) (299) (414)
-------- --------- ---------- --------- ---------
Net cash provided by operating activities: 10,834 5,763 15,337 7,111 322
Cash flows from investing activities:
Capital expenditures (422) (705) (1,948) (1,132) -
Decrease in other assets 304 463 51 112 12
-------- --------- ---------- --------- ---------
Net cash used in investing activities (118) (242) (1,897) (1,020) 12
Cash flows from financing activities
Advances to affiliate (net) (10,718) (5,403) (13,552) (6,209) (189)
-------- --------- --------- --------- ---------
Net cash used in financing activities (10,718) (5,403) (13,552) (6,209) (189)
------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents (2) 118 (112) (118) 145
Cash and cash equivalents at beginning of period 104 102 220 220 108
------- --------- --------- -------- ---------
Cash and cash equivalents at end of period $ 102 $ 220 $ 108 $ 102 $ 253
======= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying financial statements represent the activities of the
WorldCom, Inc.("WorldCom" or "affiliate") operator services business based
in San Antonio, Texas (the "Business") and exclude all other activities of
WorldCom. These financial statements represent the business being acquired
by ILD Communications, Inc. (a subsidiary of Intellicall, Inc.) pursuant to
a purchase agreement dated September 1, 1997 (the "Acquisition").
The Business provides automated and live operator services for private
payphone providers, local exchange carrier (LEC) payphones, and the
hospitality and inmate services industry. The Business also resells direct
dial long distance services principally to its hospitality customers and
provides a billing and collection service to third party operator service
and one plus companies. Collectively, these revenues are classified as
"operator services revenue."
Throughout the period covered by the financial statements, the Business was
accounted for in several divisions within WorldCom. Financial statements
have not been previously prepared for the Business. These financial
statements have been prepared from WorldCom's historical accounting records
and reflect no adjustments arising from the Acquisition described above.
The Statements of Operations include all revenue and costs directly
attributable to the Business, including costs for facilities, functions and
services used by the Business at shared sites and costs for certain
functions and services performed by centralized WorldCom organizations
outside the defined scope of the Business and directly charged to the
Business based on usage. The results of operations also include allocations
of costs for administrative functions and services performed on behalf of
the Business by centralized staff groups within WorldCom and general
corporate expenses. Current and deferred income taxes and related tax
expense have been allocated to the Business by applying Statement of
Financial Accounting Standards No. 109 ("SFAS 109") to the Business as if
it was a separate taxpayer.
All charges and allocations of cost for facilities, functions and services
performed by WorldCom organizations outside the defined scope of the
Business have been deemed to have been paid by the Business to WorldCom in
cash, in the period in which the cost was recorded in the financial
statements.
All of the allocations and estimates in the financial statements are based
on assumptions that WorldCom management believes are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if the
Business had been operated as a separate entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Business to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
Notes to Financial Statements
- -------------------------------------------------------------------------------
Cash and cash equivalents - The Business participated in WorldCom's
centralized cash management system. In general, the cash funding
requirements of the Business were met by, and all cash generated by the
Business was transferred to, WorldCom. Accordingly, the cash and cash
equivalents balances (cash equivalents are highly liquid investments with
maturities of three months or less at time of purchase) shown on the
balance sheets were allocated to these financial statements based on
management estimates.
Revenue Recognition - Call revenues are recognized at the time that calls
are placed. Call revenues from human operator services, Business-owned call
processing systems and switch-based services are recognized based on the
amounts charged to billed parties for calls processed and billed by the
Business. Revenues associated with the billing and collecting of other
companies' call records are recognized at the time the call records are
billed and include revenue associated with the provision of the service.
Receivables - Receivables consist of amounts owed by various telephone
companies for processed call traffic plus amounts due from the billing and
collection service customers. The Business believes it has provided
adequate reserves for potential uncollectible accounts. Accounts receivable
were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
------------ --------- ---------
(unaudited)
<S> <C> <C> <C>
Trade receivables $ 30,359 $ 15,405 $ 15,580
Trade receivables from affiliate 336 678 625
Less: Allowance for doubtful accounts (7,501) (5,032) (6,043)
--------- --------- ---------
$ 23,194 $ 11,051 $ 10,162
========= ========= =========
</TABLE>
Fixed Assets - Fixed assets are recorded at original cost. Depreciation
expense is computed by the straight-line method over the estimated useful
lives of the related assets, where the useful lives approximate five years.
Fixed assets were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
------------ --------- ---------
(unaudited)
<S> <C> <C> <C>
Office equipment $ 1,964 $ 2,003 $ 2,003
Switches and call processing equipment 3,866 5,775 5,775
----- ----- -----
5,830 7,778 7,778
Less: Accumulated depreciation (2,582) (3,958) (4,736)
------ ------ ------
$ 3,248 $ 3,820 $ 3,042
========= ======== =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
(in thousands) was $983, $1,095 and $1,377, respectively. Depreciation
expense for the six months ended June 30, 1996 and 1997 (in thousands) was
$640 and $778, respectively.
F-7
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
Notes to Financial Statements
- -------------------------------------------------------------------------------
Goodwill - Goodwill, representing the cost in excess of net assets of
acquired businesses, is amortized using the straight-line method over 40
years. In March 1995, FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" ("FAS 121"). Effective January 1,
1996, the Business adopted FAS 121 which requires that long-lived assets
(primarily goodwill) held and used by an entity, or to be disposed of, be
reviewed for impairment whenever events or changes in circumstances
indicate that the net book value of the asset may not be recoverable. An
impairment loss will be recognized if the sum of the expected future cash
flows (undiscounted and before interest) from the use of the asset is less
than the net book value of the asset. The amount of the impairment loss
will generally be measured as the difference between the net book value of
the assets and the estimated fair value of the related assets.
The goodwill recorded in these financial statements arose upon WorldCom's
acquisition of Metromedia Communications Corporation and Resurgens
Communications Group, Inc. in September 1993. The total amount of goodwill
recorded in the WorldCom financial statements was approximately $1.2
billion. The amount of goodwill shown in these financial statements
represents WorldCom management's allocation of a portion of that total to
the Business. The allocation was primarily based on the Business'
historical revenues in relation to WorldCom's entire acquisition, which
approximated management's evaluation of fair value.
During June 1996, WorldCom incurred non-cash charges related to the
write-down in the carrying value of certain assets related to the operator
services business, including goodwill. WorldCom's estimates of the fair
value of these assets resulted in the write-down of operator services
goodwill to zero. In a manner consistent with the WorldCom assessment,
these financial statements of the Business reflect a write-down of goodwill
in the amount of $209.6 million.
The balances of goodwill at each period end are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
------------ --------- ---------
(unaudited)
<S> <C> <C> <C>
Goodwill $ 224,757 $ 224,757 $ -
Less: Accumulated amortization (13,670) (15,122) -
Provision to reduce carrying value - (209,635) -
-------- -------- -------
$ 211,087 $ - $ -
========== ======== =======
</TABLE>
Amortization expense for the years ended December 31, 1994, 1995 and 1996
(in thousands) was $5,549, $5,809 and $1,452, respectively. Amortization
expense for the six months ended June 30, 1996 and 1997 (in thousands) was
$1,452 and zero.
Income Taxes - The taxable income (loss) of the Business was included in
consolidated tax returns of Worldcom. As such, separate income tax returns
were not prepared or filed for the Business.
For all periods presented, deferred income taxes and the related tax
provision have been allocated to the Business by applying the asset and
liability approach set forth in SFAS 109 to the Business as if it were a
separate taxpayer. Under this approach, deferred tax assets and liabilities
represent the expected future tax consequences of carryforwards and
temporary differences between the carrying amounts and the tax basis of
assets and liabilities. SFAS 109 generally requires that all expected
F-8
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
Notes to Financial Statements
- -------------------------------------------------------------------------------
future events, other than enactment of changes in tax law or tax rates, be
considered in estimating future tax consequences. Valuation allowances are
established to reduce deferred tax assets by the amount of any tax benefits
that, based on available evidence, are not expected to be realized.
Disclosures about Fair Value of Financial Instruments - The Business
records of all financial instruments at cost. The fair values of accounts
receivable and accounts payable approximate such costs.
Credit Concentrations - Certain financial instruments potentially subject
the Business to concentration of credit risk. These financial instruments
consist primarily of accounts receivable. The Business' customers range
from small payphone providers to large corporations, and reflect a large
customer base with much geographic diversity. The Company believes it has
provided adequate reserves for potential uncollectible accounts.
Major Customers - A single customer accounts for 36%, 31% and 22% or $55.2,
$38.2 and $20.9 million of the Business' revenues in 1994, 1995 and 1996,
respectively. This customer represented 24% and 18% or $11.7 and $7.0
million of the Business revenues for the six month periods ending June 30,
1996 and 1997, respectively.
3. RELATED PARTY TRANSACTIONS
The financial statements include significant transactions with WorldCom
involving functions and services (such as cash management, tax
administration, accounting, legal, and data processing) that were provided
to the Business by WorldCom outside the defined scope of the Business. The
costs of these functions and services have been directly charged and/or
allocated to the Business using methods that management believes are
reasonable. Such charges and allocations are not necessarily indicative of
the costs that would have been incurred if the Business had been a separate
entity or are necessarily reflective of the costs to be incurred going
forward. Amounts charged and allocated to the Business for these functions
and services were $2.1, $2.2 and $1.9 million for the years ended December
31, 1994, 1995 and 1996, respectively, and are principally included in
general and administrative expenses. For the six month periods ended June
30, 1996 and 1997, the allocated charges (in thousands) were $959 and $982,
respectively.
Operator services revenue include amounts earned from the processing
of certain WorldCom call traffic. These revenues earned represent a
percentage of the call revenue billed to third parties by WorldCom and
amounted to $2.9, $4.8 and $5.5 million for the years ended December 31,
1994, 1995 and 1996, respectively. The same revenues were $2.3 and $3.7
million for the six month periods ending June 30, 1996 and 1997,
respectively.
Costs of operator services revenue include amounts paid for services
rendered by Worldcom on behalf of the Business. These services, primarily
line costs (payments to local exchange carriers for access and transport
charges), amounted to $25.2, $19.0 and $14.9 million for the years ended
December 31, 1994, 1995 and 1996, respectively, and were charged to the
business on a per minute basis. For the six months periods ended June 30,
1996 and 1997, the line costs paid to WorldCom were $8.2 and $6.0 million,
respectively. Also, accrued line costs, at each period end, represent
payables to WorldCom for those services billed to the Business.
F-9
<PAGE>
WORLDCOM - SAN ANTONIO (as defined)
Notes to Financial Statements
- -------------------------------------------------------------------------------
As discussed in Note 1, WorldCom operated the Business throughout the
period covered by these financial statements. As such, the balance of the
equity of the Business (shown as Equity-WorldCom-San Antonio on the Balance
Sheet) represents WorldCom's 100% owned equity in the operator services
division, net of any advances to or draws from the Business.
4. INCOME TAXES
Differences between the income tax benefit calculated using the statutory
federal income tax rate and the actual income tax benefit are (in
thousands):
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income tax expense (benefit) at the statutory rate $ 5,482 $ (477) $(70,292) $(71,160) $ 769
Permanent differences between book and tax bases:
Goodwill amortization 1,856 1,975 494 494 -
Goodwill write-off - - 71,276 71,276 -
Other 647 133 130 194 68
--- --- --- --- --
Income tax expense 7,985 1,631 1,608 804 837
===== ===== ===== === ===
</TABLE>
The significant components of the Business' deferred tax assets and
liabilities under SFAS 109 result from differences in depreciation methods
for book and tax purposes and the deferred recognition of the allowance for
doubtful accounts for tax purposes.
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments - The Business leases its office space under operating
leases. Future minimum rental commitments under noncancelable operating
leases are (in thousands):
1997 $911
1998 865
1999 294
2000 270
2001 and later 825
---
$ 3,165
=======
Total operating lease expense (in thousands) was $741, $870 and $878 for
the years ended December 31, 1994, 1995 and 1996, respectively. For the
six-month periods ended June 30, 1996 and 1997, the total operating lease
expense (in thousands) was $439 and $456, respectively.
Litigation - The Business is subject to various legal proceedings arising
out of the ordinary conduct of its business. It is the opinion of the
management of the Business that the ultimate disposition of these
proceedings will not have a material adverse effect on the Business'
financial condition and results of operations.
F-10
<PAGE>
INTELLICALL, INC./WORLDCOM - SAN ANTONIO (as defined)
INDEX TO PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page
Introduction to Pro Forma Consolidated Financial Statements P-1
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1996 P-2
Pro Forma Consolidated Statement of Operations
for the nine months ended September 30, 1997 P-3
Notes to Pro Forma Consolidated Statement of Operations P-4
<PAGE>
INTELLICALL, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following unaudited Pro Forma Consolidated Statements of Operations of
Intellicall, Inc. (the Company) for the year ended December 31, 1996 and the
nine months ended September 30, 1997 (Pro Forma Statements) have been prepared
as if the Acquisition and related financings had occurred at the beginning of
1996. As the Acquisition occurred on September 2, 1997, the Company's September
30, 1997 Form 10-Q includes a balance sheet of the consolidated entities.
The Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1996 is based upon the historical financial statements of
WorldCom-San Antonio (as defined) for the year ended December 31, 1996 and the
historical consolidated financial statements of the Company for the year ended
December 31, 1996. The Pro Forma Consolidated Statement of Operations for the
nine months ended September 30, 1997 is based upon the historical financial
statements of WorldCom-San Antonio (as defined) for the eight months ended
August 31, 1997 and the historical consolidated financial statements of the
Company for the nine months ended September 30, 1997.
The Pro Forma Statements presented herein are not necessarily indicative of
the Company's results of operations that might have occurred had such
transactions been completed at the beginning of 1996 or as of the date
specified, and do not purport to indicate the Company's consolidated financial
position or results of operations for any future date or period.
These unaudited Pro Forma Statements should be read in conjunction with the
historical financial statements and notes thereto of Worldcom-San Antonio (as
defined) included elsewhere in this document and the financial statements of
Intellicall, Inc.
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<TABLE>
<CAPTION>
INTELLICALL, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Year Ended December 31, 1996
(in thousands, except per share amounts)
Historical Pro Forma
---------------------------------------------------------- ------------------
Pro Forma
Intellicall, Inc. WorldCom Adjustments Intellicall, Inc.
----------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues and sales:
Service revenues $ 76,905 $ 93,499 $ 170,404
Equipment sales 15,884 15,884
------------------ ------------------ ------------------
92,789 93,499 186,288
------------------ ------------------ ------------------
Costs of revenues and sales:
Service revenues 68,078 72,838 140,916
Equipment sales 17,690 17,690
------------------ ------------------ ------------------
85,768 72,838 158,606
------------------ ------------------ ------------------
Gross profit:
Service revenues 8,827 20,661 29,488
Equipment sales (1,806) (1,806)
------------------ ------------------ ------------------
7,021 20,661 27,682
Selling, general and
administrative expenses 11,570 227,705 (209,635) (1) 29,640
1,001 (2) 1,001
1,100 (3) 1,100
------------------ ------------------ ------------------ ------------------
Operating loss (4,549) (207,044) 207,534 (4,059)
Gain on sales of assets 572 572
Interest income 710 303 1,013
Interest expense (2,918) (588) (4) (3,506)
Minority interest (113) 572 (5) 459
------------------ ------------------ ------------------ ------------------
Loss before income taxes (6,298) (206,741) 207,518 (5,521)
Income tax refund 1,303 1,303
Income tax expense (1,608) (1,608)
------------------ ------------------ ------------------ -----------------
Net loss $ (4,995) $ (208,349) $ 207,518 $ (5,826)
================== ================== ================== ==================
Net loss per share $ (0.62) $ (0.73)
================== ==================
Weighted average number of
common and common equivalent
shares outstanding 8,024 8,024
================== ==================
</TABLE>
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<TABLE>
<CAPTION>
INTELLICALL, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Nine months ended September 30, 1997
(in thousands, except per share amounts)
Historical Pro Forma
---------------------------------------------------------- ------------------
Nine months ended Eight months ended
September 30, 1997 August 31, 1997 Pro Forma
Intellicall, Inc. WorldCom Adjustments Intellicall, Inc.
----------------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues and sales:
Service revenues $ 65,276 $ 51,876 $ 117,152
Equipment sales 13,721 13,721
------------------ ------------------ ------------------
78,997 51,876 130,873
------------------ ------------------ ------------------
Costs of revenues and sales:
Service revenues 59,202 39,745 98,947
Equipment sales 18,508 18,508
------------------ ------------------ ------------------
77,710 39,745 117,455
------------------ ------------------ ------------------
Gross profit:
Service revenues 6,074 12,131 18,205
Equipment sales (4,787) (4,787)
------------------ ------------------ ------------------
1,287 12,131 13,418
Selling, general and
administrative expenses 9,856 9,343 19,199
667 (2) 667
733 (3) 733
------------------ ------------------ ------------------ ------------------
Operating loss (8,569) 2,788 (1,400) (7,181)
Interest income 445 228 673
Interest expense (1,831) (392) (4) (2,223)
Minority interest (129) (44) (5) (173)
------------------ ------------------ ------------------ ------------------
Loss before income taxes (10,084) 3,016 (1,836) (8,904)
Income tax expense (142) (1,116) (1,258)
------------------ ------------------ ------------------ ------------------
Net loss $ (10,226) $ 1,900 $ (1,836) $ (10,162)
Preferred stock dividend (55) (55)
------------------ ------------------ ------------------ ------------------
Net loss available to common
shareholders $ (10,281) $ 1,900 $ (1,836) $ (10,217)
================== ================== ================== ==================
Net loss per share $ (1.12) $ (1.11)
================== ==================
Weighted average number of
common and common equivalent
shares outstanding 9,211 9,211
================== ==================
</TABLE>
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INTELLICALL, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Certain of the following adjustments should be calculated considering the
number of months shown on the pro forma consolidated statement of operations.
(1) In 1996, the WorldCom Business wrote off $209.6 million of goodwill.
The goodwill arose upon WorldCom's acquisition of Metromedia Communications
Corporation and Resurgens Communications Group, Inc. in September 1993 and was
not acquired in the Aquisition of the WorldCom assets by ILD Teleservices,
therefore, the goodwill write-off eliminated in the pro forma consolidated
statement of operations.
(2) To record the related amortization expense of the contracts valued at
$2.5 million and goodwill valued at $14.5 million arising from the acquisition
by ILD Teleservices. The contracts are amortized on a straight line basis over a
six year period and the goodwill over a twenty-five year period.
(3) To record depreciation expense on the property, plant and equipment of
$5.5 million resulting from the purchase accounting adjustments. The estimated
useful life of these assets is five years.
(4) To reflect interest expense ranging from 9% to 11.5% on the pro forma
debt of $6.1 million.
(5) To reflect the minority interest on the pro forma income at the pro
forma rate of 40.74%.
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