<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act
- ----- of 1934
For the quarterly period ended September 30, 1995
------------------
Transition report under Section 13 or 15(d) of the Exchange Act
- -----
For the transition period from to
-------------------- -------------------
Commission file number 0-16715
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PHONETEL TECHNOLOGIES, INC.
-------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
OHIO 34-1462198
----------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1127 Euclid Avenue, 650 Statler Office Tower, Cleveland, OH 44115-1601
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(Address of Principal Executive Offices)
(216) 241-2555
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
--------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: AS OF NOVEMBER 10, 1995,
14,641,114 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE, WERE
OUTSTANDING.
Traditional Small Business Disclosure Format (check one):
Yes X No
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<PAGE> 2
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994....................................... 3
Statements of Consolidated Operations for the Three
Months Ended September 30, 1995 and 1994.................... 4
Statements of Consolidated Operations for the
Nine Months Ended September 30, 1995 and 1994............... 5
Statements of Consolidated Cash Flows for the Nine
Months Ended September 30, 1995 and 1994... ................ 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................... 15
Signatures................................................. 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 944,063 $ 478,756
Accounts receivable, net 1,011,585 666,339
Inventories 519,025 363,531
Prepaid expenses 50,124 60,139
------------------- -----------------
Total current assets 2,524,797 1,568,765
Property and equipment, net 4,766,032 4,931,308
Net assets of acquired company (Note 3) 8,222,947 -
Intangibles 2,157,467 2,821,998
Other assets, net 978,534 835,830
------------------- -----------------
$ 18,649,777 $ 10,157,901
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,653,319 $ 1,814,760
Current portion of obligations under
capital leases 95,405 94,343
Accounts payable 3,078,793 2,239,745
Accrued expenses 572,229 1,089,021
Reserve for nonrecurring items (Note 6) 1,189,834 -
------------------- -----------------
Total current liabilities 6,589,580 5,237,869
Long-term debt 2,960,072 2,063,896
Obligations under capital leases 178,868 208,269
Total shareholders' equity (Note 4) 8,921,257 2,647,867
------------------- -----------------
$ 18,649,777 $ 10,157,901
=================== =================
<FN>
NOTE: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE> 4
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1995 1994
------------------- -----------------
<S> <C> <C>
REVENUES:
Coin calls $ 2,694,456 $ 2,279,209
Operator services 996,473 1,384,812
Commissions 380,946 598,475
Other 6,966 2,091
------------------- -----------------
4,078,841 4,264,587
------------------- -----------------
COSTS AND EXPENSES:
Line and transmission charges 1,240,385 1,207,825
Location commissions 647,099 985,968
Billing and collection 207,363 225,872
Depreciation and amortization 732,331 675,747
Other operating expenses 974,551 850,469
Selling, general and administrative 905,288 662,811
Nonrecurring charges 1,418,530 -
------------------- -----------------
6,125,547 4,608,692
------------------- -----------------
Loss from operations (2,046,706) (344,105)
Interest expense (83,875) (109,705)
Interest income 5,824 2,009
------------------- -----------------
NET LOSS $ (2,124,757) $ (451,801)
=================== =================
Less: Preferred stock dividend
requirement (77,417) (72,995)
------------------- -----------------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS $ (2,202,174) $ (524,796)
=================== =================
Net loss per common share $ (.19) $ (.06)
=================== =================
Weighted average number of shares 11,459,978 9,093,299
=================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1995 1994
------------------- -----------------
<S> <C> <C>
REVENUES:
Coin calls $ 7,689,785 $ 5,678,272
Operator services 3,004,528 4,055,641
Commissions 1,191,170 1,375,506
Other 71,420 49,606
------------------- -----------------
11,956,903 11,159,025
------------------- -----------------
COSTS AND EXPENSES:
Line and transmission charges 3,644,534 3,101,206
Location commissions 2,163,464 2,498,948
Billing and collection 720,551 754,730
Depreciation and amortization 2,164,822 1,574,042
Other operating expenses 2,691,534 2,239,749
Selling, general and administrative 2,399,532 2,017,071
Nonrecurring charges 1,418,530 -
------------------- -----------------
15,202,967 12,185,746
------------------- -----------------
Loss from operations (3,246,064) (1,026,721)
Interest expense (304,105) (285,886)
Interest income 12,412 4,455
------------------- -----------------
NET LOSS $ (3,537,757) $ (1,308,152)
=================== =================
Less: Preferred stock dividend
requirement (232,251) (218,985)
------------------- -----------------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS $ (3,770,008) $ (1,527,137)
=================== =================
Net loss per common share $ (.37) $ (.18)
=================== =================
Weighted average number of shares 10,171,674 8,726,505
=================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1995 1994
------------------- -----------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net loss $ (3,537,757) $ (1,308,152)
Adjustments to reconcile net loss
to net cash flow from
operating activities:
Depreciation and amortization 2,164,822 1,574,042
Stock and stock awards issued 90,552 17,500
Changes in assets and liabilities:
Accounts receivable (345,246) (617,360)
Inventories (155,494) 70,458
Prepaid expenses 10,015 (14,362)
Reserve for nonrecurring items 1,189,834 -
Accounts payable and accrued expenses 322,256 1,646,501
------------------- -----------------
(261,018) 1,368,627
------------------- -----------------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Purchases of companies (381,856) (2,143,119)
Purchases of property and equipment, net (147,460) (271,325)
Changes in intangibles and other assets (593,124) (425,441)
------------------- -----------------
(1,122,440) (2,839,885)
------------------- -----------------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 1,850,413 1,474,999
Dividends paid (40,375) -
Debt financing costs - (70,000)
Equity financing costs (83,212) (104,689)
Proceeds from warrant and option
exercises 35,000 553,460
Proceeds from debt issuances 1,400,000 1,400,000
Principal payments on borrowings (1,313,061) (1,759,090)
------------------- -----------------
1,848,765 1,494,680
------------------- -----------------
Increase (decrease) in cash 465,307 23,422
Cash:
At beginning of period 478,756 83,555
------------------- -----------------
At end of period $ 944,063 $ 106,977
=================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. For further information, refer to the
Financial Statements and Notes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1994.
NOTE 2 - FINANCIAL CONDITION
- ----------------------------
On March 25, 1994, the Company acquired substantially all of the assets of
Alpha Pay Phones-IV, L.P. ("Alpha"), a Delaware limited partnership. The
acquired assets included 2,155 installed telephones. This acquisition was
accounted for using the purchase method and, accordingly, the purchase price
was allocated to net assets acquired based on their estimated fair values.
The purchase price was $5,598,874, of which $2,334,216 was paid in cash. To
fund in part the cash payment with respect to the acquisition of assets, the
Company borrowed $1,400,000. The balance of the purchase price was satisfied
by the Company's assumption of obligations of Alpha to U.S. Long Distance, Inc.
("USLD") in the aggregate amount of $2,164,083 and the Company's purchase money
notes to Alpha in the amount of $1,100,620.
At September 30, 1995 the following notes, related to the acquisition of Alpha
assets, were classified as current liabilities:
<TABLE>
<S> <C>
USLD $ 333,847
Alpha 340,982
Third party 124,614
------------
$ 799,443
============
</TABLE>
The Company had a working capital deficit of $4,064,782 at September 30, 1995
compared to a working capital deficit of $3,669,104 at December 31, 1994, an
increase of $395,679.
The Company's business strategy is to capitalize on the fragmented nature of
the independent pay telephone industry through consolidation in the Company's
existing markets, whereby the Company can leverage its existing infrastructure
to achieve significant economies of scale. Through acquisition of existing
phone routes, the Company believes it can increase cash flow and profitability.
7
<PAGE> 8
During the third quarter the Company increased it pay telephone base by 3,200
pay telephones (see Note 3) and in October added another 1,200 pay telephones
(see Note 7). This brings the Company's pay telephone base to approximately
9,700 pay telephones. These acquisitions were done through the exchange of
common and preferred stock. In order to continue the Company's consolidation
and growth strategy, the Company is in the process of raising additional
capital in an amount that would be substantial as it relates to the overall
existing size of the Company. This capital could be in the form of senior
secured financing, mezzanine financing, equity or any combination thereof. The
project is actively in progress with the expectation of having the funding
secured by the first quarter of 1996. Management believes, but cannot assure,
the capital funding will be secured.
It is the Company's intent to use a portion of the capital raised for future
acquisitions. The Company has identified specific companies and is in active
negotiations to acquire them. These acquisitions will not close until the
capital mentioned above is raised. The acquisitions contemplated are located
in markets that are in, or contiguous, to the Company's existing markets and
anticipated to result in significant economies of scale and will enable the
Company to further utilize its existing infrastructure.
Management believes, but cannot assure, that the proceeds from the financing
discussed above and other financial alternatives will allow the Company to
sustain its operations and meet its obligations through the fourth quarter of
1996.
NOTE 3 - ACQUISITION
- --------------------
On September 22, 1995, the Company acquired World Communications, Inc., a
Missouri corporation ("WCI") by merger into and with its wholly owned
subsidiary, PhoneTel II Inc., a Missouri corporation. The assets of the
acquired company included approximately 3,200 installed pay telephones,
location contracts, computers, vehicles, miscellaneous inventory, and the
assumption of certain liabilities. The merger was accounted for using the
purchase method, and the net assets are included in the Company's Consolidated
Balance Sheets as of September 30, 1995. The Company's Consolidated Statement
of Operations will not include the revenues and expenses of the acquired
business until the fourth quarter of 1995. The purchase price allocation is
based on preliminary estimates of the fair value of the net assets acquired and
is subject to adjustment as additional information becomes available during the
fourth quarter of 1995.
Pursuant to the merger, the shareholders of WCI received 2,415,001 shares of
the Company's Common Stock and 530,534 shares of 10% Non-Voting Cumulative
Preferred Stock in exchange for all the outstanding WCI Common Shares.
8
<PAGE> 9
NOTE 4 - SHAREHOLDERS' EQUITY
- -----------------------------
As of September 30, 1995 and December 31, 1994 shareholders' equity consisted
of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
10% Cumulative Preferred Stock ($10 stated
value - 550,000 shares authorized; 530,534
shares outstanding at September 30, 1995) $ 5,305,340 $ -
10% Cumulative Redeemable Preferred Stock
($1,000 stated value - 3,880 shares authorized;
1,496 shares issued and outstanding at
September 30, 1995 and December 31, 1994) 1 1
8% Cumulative Redeemable Preferred Stock
($100 stated value - 16,000 shares
authorized; 12,200 shares issued and
outstanding at September 30, 1995 and
December 31, 1994) 981,084 981,084
7% Cumulative Convertible Redeemable Preferred
Stock ($100 stated value - 2,500 shares
authorized, issued and outstanding at
September 30, 1995 and December 31, 1994) 200,000 200,000
Common Stock ($0.01 par value - 22,500,00
shares authorized; 14,494,281 and 9,132,940
shares issued and outstanding at September 30, 1995
and December 31, 1994) 144,940 91,328
Additional paid-in capital 13,171,828 8,679,258
Accumulated deficit (10,881,936) (7,303,804)
------------- -------------
$ 8,921,257 $ 2,647,867
============= =============
</TABLE>
9
<PAGE> 10
The following transactions occurred during the nine month period ended
September 30, 1995 increasing shareholders' equity:
In March 1995, options to purchase 20,000 shares of the Company's Common Stock
were exercised. Proceeds from this option exercise were used to reduce amounts
owed by the Company for equity financing costs.
In July, options to purchase 30,000 shares of the Company's Common Stock were
exercised. Proceeds from this transaction was $15,000.
The Company sold 2,405,550 shares of Common Stock in private sales. Proceeds
from the sales were $1,820,136.
On September 22, 1995, the Company merged WCI into PhoneTel II (see Note 3).
Pursuant to the merger, 2,415,001 shares of the Company's Common Stock and
530,534 shares of 10% Non-Voting Cumulative Preferred Stock were issued.
In other equity transactions, 69,193 shares of the Company's Common Stock were
issued as consideration for services, and 45,200 shares of Common Stock were
issued under the Executive Incentive Plan, in lieu of cash payments.
All of the stock transactions reported were made at what the Company believed
to be the fair market value on the date the contractual obligations were
entered into.
NOTE 5 - LONG TERM DEBT
- -----------------------
On September 12, 1995, the Company borrowed $1.2 million from a group of two
investors pursuant to a 19 month credit agreement. The agreement provides for
interest payments ranging from 12 1/2 percent increasing quarterly to 21
percent at the final maturity date. The proceeds were used to for operating
expenses and to make certain employee severance payments.
NOTE 6 - NONRECURRING CHARGES
- -----------------------------
During the third quarter ended September 30, 1995, the Board of Directors
determined a need to commence a strategic realignment of operations of the
Company in order to improve the Company's overall profitability. The estimated
cost of implementing the plan is $1.4 million which was recorded in the
Company's third quarter.
The estimated costs include $1,360,000 for employee severance and terminations
and $40,000 for consolidation of facilities. Liabilities of $1,189,834 related
to these charges remained at September 30, 1995.
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
On October 16, 1995, the Company acquired Public Telephone Corporation, an
Indiana corporation ("Public") by merger into and with its wholly owned
subsidiary, PhoneTel II Inc., an Ohio corporation. The assets of the acquired
company included approximately 1,200 installed pay telephones, location
contracts, computers, vehicles, miscellaneous inventory and the assumption of
certain liabilities. The merger will be accounted for using the purchase
method.
Pursuant to the merger, the shareholders of Public will receive 1,349,290
shares of the Company's Common Stock in exchange for all the outstanding Public
common shares.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On March 25, 1994, the Company acquired substantially all of the assets of
Alpha Pay Phones-IV, L.P. ("Alpha"), a Delaware limited partnership. The
acquired assets included 2,155 installed telephones. This acquisition was
accounted for using the purchase method and, accordingly, the purchase price
was allocated to net assets acquired based on their estimated fair values.
The purchase price was $5,598,874, of which $2,334,216 was paid in cash. To
fund in part the cash payment with respect to the acquisition of assets, the
Company borrowed $1,400,000. The balance of the purchase price was satisfied
by the Company's assumption of obligations of Alpha to U.S. Long Distance, Inc.
("USLD") in the aggregate amount of $2,164,083 and the Company's purchase money
notes to Alpha in the amount of $1,100,620.
At September 30, 1995 the following notes, related to the Acquisition of Alpha
assets, were classified as current liabilities:
<TABLE>
<S> <C>
USLD $ 333,847
Alpha 340,982
Third party 124,614
------------
$ 799,443
============
</TABLE>
The Company had a working capital deficit of $3,881,895, at September 30, 1995
compared to a working capital deficit of $3,669,104 at December 31, 1994, an
increase of $395,679.
The Company's business strategy is to capitalize on the fragmented nature of
the independent pay telephone industry through consolidation in the Company's
existing markets, whereby the Company can leverage its existing infrastructure
to achieve significant economies of scale. Through acquisition of existing
phone routes, the Company believes it can increase cash flow and profitability.
During the third quarter the Company increased it pay telephone base by 3,200
pay telephones (see Note 3) and in October added another 1,200 pay telephones
(see Note 7). This brings the Company's pay telephone base to approximately
9,700 pay telephones. These acquisitions were done through the exchange of
common and preferred stock. In order to continue the Company's consolidation
and growth strategy, the Company is in the process of raising additional
capital in an amount that would be substantial as it relates to the overall
existing size of the Comapny. This capital could be in the form of senior
secured financing, mezzanine financing, equity or any combination thereof. The
project is actively in progress with the expectation of having the funding
secured by the first quarter of 1996. Management believes, but cannot assure,
the capital funding will be secured.
It is the Company's intent to use a portion of the capital raised for future
acquisitions. The Company has identified specific companies and is in active
negotiations to acquire them. These acquisitions will not close until the
capital mentioned above is raised. The acquisitions contemplated are located
in markets that are in, or contiguous to, the Company's existing markets and
are anticipated to result in significant economies of scale and will enable
the Company to fully utilize its existing infrastructure.
11
<PAGE> 12
Management believes, but cannot assure, that the proceeds from the financing
discussed above and other financial alternatives will allow the Company to
sustain its operations and meet its obligations through the fourth quarter of
1996.
RESULTS OF OPERATIONS
At September 30, 1995 the Company had approximately 8,470 Company owned pay
telephones installed and 21 phones owned by others at various locations, but
managed by the Company under its national and regional account management
programs, compared to 4,310 Company owned pay telephones and 114 managed phones
at September 30, 1994. Additionally, at September 30, 1995 the Company
provided long distance operator service to approximately 4,500 pay telephones
(including Company-owned phones) and hotel and hospital room phones compared to
approximately 7,000 telephones as of September 30, 1994.
REVENUE
Revenue from coin calls increased 18% for the quarter to $2,694,456 in 1995
from $2,279,209 for the same period in 1994. Revenues from coin calls
increased approximately 35% for the nine months ended September 30, 1995 to
$7,689,785 from $5,678,272 in 1994. These increases are primarily attributable
to an increase in the average number of pay telephones in service to 5,212 for
the three months ended September 30, 1995 from 4,565 for the comparable period
in 1994 and to 4,699 for the first nine months of 1995 from 3,762 for the
comparable period in 1994. Revenues per phone have also increased as a result
of management's program to isolate and redeploy low revenue and/or unprofitable
phones to higher revenue producing sites.
Operator service revenue decreased 28% for the quarter ended September 30, 1995
to $996,473 from $1,384,812 in 1994, and decreased 26% for the nine months
ended September 30, 1995 to $3,004,528 from $4,055,641 in 1994. These
decreases were primarily the result of a decrease in the number of phones to
which the Company provides operator services through presubscription
arrangements and aggressive dial-around advertising of AT&T, Sprint and MCI.
The Company expects that the revenues will stabilize in 1996.
Commission revenue decreased to $380,946 for the quarter ended September 30,
1995 from $598,975 for the comparable period in 1994. Commission revenue also
decreased for the nine months ended September 30, 1995 to $1,191,170 from
$1,375,506 for the comparable period in 1994. The decreases in commissions
revenue is attributable to a decrease in the commissions paid by USLD. USLD
provides operator services to the telephones acquired from Alpha and pays the
Company a commission. The number of telephones for which USLD provides
operator service has decreased due to management's program of isolating low
revenue and/or unprofitable phones and redeploying them to higher revenue
sites. Operator service usage for these telephones has also decreased due to
the introduction of a Company program for competitive reasons which charges
customers $0.75 in coin for a three minute, long distance call anywhere in the
continental United States, thus diverting operator assisted calling. Also,
aggressive dial-around advertising by AT&T, Sprint and MCI has contributed to
this decrease.
COSTS AND EXPENSES
Line and transmission charges increased to 30.4% of total revenue for the
quarter and 30.6% for the nine months ended September 30, 1995 compared to
28.3% and 27.8% for the comparable period in 1994 as a result, in part, from
increased coin revenue from the $0.75 per three minute long distance program as
well as increases in certain local telephone company line charges. Management
expects that the increased volume on the $0.75 per three minute long distance
calls program will cause the line and transmission charges, as a percent of
revenue, to remain steady or increase slightly in the future. However, this
program reduces billing and collection and operator service costs.
12
<PAGE> 13
Location commissions decreased to 15.9% of total revenue for the quarter ended
September 30, 1995 from 23.1% of total revenue for the quarter ended September
30, 1994. Location commissions decreased to 18.1% of total revenue for the
nine months ended June 30, 1995 as compared to 22.4% for the comparable period
in 1994 as a result of renegotiating the location agreements acquired from the
Alpha acquisition. Location commissions may increase in the future due to
increased competition, however, such costs, as a percentage of total revenues,
should stabilize as the industry matures.
Billing and collection costs have decreased slightly from 5.3% of total revenue
for the quarter ended September 30, 1994 to 5.1% of total revenue for the
quarter ended September 30, 1995, while decreasing to 6.0% of total revenue for
nine months ended September 30, 1995 from 6.8% for the comparable period in
1994 primarily due to the introduction of new system software and procedures
which help manage costs and control expenses. Billing and collection costs are
expected to remain constant as a percentage of total revenue or perhaps
decrease as the volume of the $0.75 per three minute long distance coin calls
increase since these do not require billing and collection.
Depreciation and amortization increased to $732,331 for the quarter ended
September 30, 1995 from $675,747 in 1994, and increased to $2,164,822 for the
nine month period ended September 30, 1995 from $1,574,042 in 1994. This
increase was primarily due to the Company's acquisition of Alpha assets at the
end of the first quarter 1994 and expansion of its pay telephone base which
included purchases of additional computer equipment, service vehicles and
software which were made to accommodate the Company's growth.
Other operating expenses as a percent of total revenue have increased to 23.9%
for the quarter ended September 30, 1995 from 20.1% for the quarter ended
September 30, 1994, and increased to 22.5% for the nine months ended September
30, 1995 from 20.1% for the comparable period in 1994. These increases are
attributable to the addition of the Alpha assets, new operations in Texas, the
establishment of Florida and Nevada sales offices, an increase in the Company's
pay telephone base and additional personnel to accommodate increased business.
Total operating expenses are expected to remain stable in the foreseeable
future and are expected to decrease as a percentage of total revenues.
Selling, general and administrative expenses increased to 22.2% of total
revenue for the quarter ended September 30, 1995 from 15.5% for the comparable
period in 1994, and increased to 20.1% for the nine months ended September 30,
1995 from 18.1% for the comparable period in 1994. These increases are
partially due to the payment of certain executive bonuses, and increased
marketing and sales efforts. The Company has begun a program to reduce
selling, general and administrative expenses.
During the third quarter ended September 30, 1995, the Board of Directors
determined a need to commence a strategic realignment of operations of the
Company in order to improve the Company's overall profitability. The estimated
cost of implementing the plan is $1.4 million which was recorded in the
Company's third quarter as nonrecurring charges. The estimated costs include
$1,360,000 for employee severance and terminations and $40,000 for
consolidation of facilities. Liabilities of $1,189,833 related to these
charges remained at September 30, 1995.
Interest expense decreased to $83,875 for the quarter ended September 30, 1995
from $109,705 for the comparable period in 1994. For the nine months ended
September 30, 1995, interest expense increased to $304,105 from $285,886 for
the comparable period in 1994 due to financing obtained for the Alpha
acquisition.
13
<PAGE> 14
IMPACT OF SEASONALITY
The seasonality of the Company's revenues from installed pay telephones,
reselling operator assisted long distance services, and national and regional
account management parallels that of the location from which the calls are
placed. Since a large concentration of these telephones are in shopping malls,
the greatest portion of the Company's revenue is earned in the fourth quarter
due to the increased holiday traffic.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company. It is possible that
during inflationary periods, the basic line charges may increase while public
utilities commissions or the Federal Communications Commission may not allow
increases in charges to customers.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
On October 10, 1995, the Company filed a report on Form 8-K in connection with
the merger of its wholly owned subsidiary, PhoneTel II Inc., a Missouri
corporation, with and into World Communication, Inc., a Missouri corporation, on
September 22, 1995. This report was incomplete due to the impracticability to
provide at the time of the filing all of the requisite financial information.
The Company has commenced the preparation of the remainder of the requisite
financial statements and pro forma information and anticipates that this Form
8-K will be supplemented by amendment to include said statements when prepared
within the time permitted.
On October 31, 1995, the Company filed a report on Form 8-K in connection with
the merger of its wholly owned subsidiary, PhoneTel II Inc., an Ohio
corporation with and into Public Telephone Corporation, an Indiana corporation,
on October 16, 1995. This report was incomplete due to the impracticability to
provide at the time of the filing all of the requisite financial information.
The Company has commenced the preparation of the remainder of the requisite
financial statements and pro forma information and anticipates that this Form
8-K will be supplemented by amendment to include said statements when prepared
within the time permitted.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PHONETEL TECHNOLOGIES, INC.
Date: November 10, 1995 /s/ Daniel J. Moos
----------------------------
Daniel J. Moos
Executive Vice President and
Chief Financial Officer
15
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 944,063
<SECURITIES> 0
<RECEIVABLES> 1,051,585
<ALLOWANCES> (40,000)
<INVENTORY> 519,025
<CURRENT-ASSETS> 2,524,797
<PP&E> 9,383,096
<DEPRECIATION> (4,617,064)
<TOTAL-ASSETS> 18,649,777
<CURRENT-LIABILITIES> 6,589,580
<BONDS> 2,960,072
<COMMON> 144,940
0
6,486,425
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,649,777
<SALES> 0
<TOTAL-REVENUES> 11,956,903
<CGS> 0
<TOTAL-COSTS> (13,784,437)
<OTHER-EXPENSES> (1,418,530)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (291,693)
<INCOME-PRETAX> (3,537,757)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,537,757)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,537,757)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> 0
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