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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 12B-25
Commission File Number 0-16715
NOTIFICATION OF LATE FILING
(Check One)
[X] Form 10-K and 10-KSB [ ] Form 11-K [ ] Form 20-F
[ ] Form 10-Q and 10-QSB [ ] Form N-SAR
For Period Ended: December 31, 1995
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[ ] Transition Report for Form 10-K [ ] Transition Report on Form 10-Q
[ ] Transition Report on Form 20-F [ ] Transition Report on Form N-SAR
[ ] Transition Report of Form 11-K
For the Transition Period Ended: ___________________________________________
[ Read attached instruction sheet before preparing form. Please print or type.]
Nothing in this form shall be construed to imply that the Commission
has verified any information contained herein.
If the notification relates to a portion of the filing checked above,
identify the Item(s) to which the notifications relates:
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PART I - REGISTRANT INFORMATION
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Full Name of Registrant:
PHONETEL TECHNOLOGIES, INC.
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Former Name if Applicable
PHONETEL, INC.
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Address of Principal Executive Office (Street and Number)
1127 EUCLID AVENUE, SUITE 650, STATLER OFFICE TOWER
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City, State and Zip Code
CLEVELAND, OHIO 44115-1601
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page 1 of 12 pages
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PART II - RULES 12B-25(b) AND (c)
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If the subject report could not be filed without unreasonable effort or
expense and the registrant seeks relief pursuant to Rule 12b-25(b), the
following should be completed (check box if appropriate):
[X](a) The reasons described in reasonable detail in Part III of this form
could not be eliminated without unreasonable effort or expense;
[X](b) The subject annual report, semiannual report, transition report on
Form 10- K, 10-KSB, Form 20-F, 11-K or Form N-SAR, or portion thereof,
will be filed on or before the fifteenth calendar day following the
prescribed due date; or the subject quarterly report or transition
report on Form 10-Q, 10-QSB, or portion thereof, will be filed on or
before the fifth calendar day following the prescribed due date; and
[ ](c) The accountant's statement or other exhibit required by Rule
12b-25(c) has been attached if applicable.
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PART III - NARRATIVE
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State below in reasonable detail the reasons why the Form 10-K, 10-KSB,
20-F, 11-K, 10-Q, 10-QSB, N-SAR or the transition report or portion thereof
could not be filed within the prescribed time period.
See ATTACHMENT A hereby incorporated by
reference into Form 12b-25
page 2 of 12 pages
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PART IV - OTHER INFORMATION
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(1) Name and telephone number of person to contact in regard to this
notification:
Peter G. Graf 212 972-3333
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Name Area Code Telephone Number
(2) Have all other periodic reports required under Section 13 or 15(d) of
the Securities Exchange Act of 1934 or Section 30 of the Investment
Company Act of 1940 during the preceding 12 months or for such shorter
period that the registrant was required to file such report(s) been
filed? If the answer is no, identify report(s)
[X] Yes [ ] No
(3) Is it anticipated that any significant change in results of operations
from the corresponding period for the last fiscal year will be
reflected by the earnings statements to be included in the subject
report or portion thereof?
[X] Yes [ ] No
If so, attach an explanation of the anticipated change, both
narratively and quantitatively, and if appropriate, state the reasons
why a reasonable estimate of the results cannot be made.
See ATTACHMENT B hereby incorporated
by reference into this Form 12b-25
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PhoneTel Technologies, Inc.
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(Name of Registrant as specified in Charter)
has caused this notification to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: April 1, 1996 By: \s\ Peter G. Graf
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Peter G. Graf
Chairman and
Chief Executive Officer
(signature and type name)
page 3 of 12 pages
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ATTACHMENT A
The Registrant consummated on March 15, 1996 the following transactions: (1) an
Agreement and Plan of Merger to acquire the outstanding common stock of
International Pay Phones, Inc. (of South Carolina) and International Pay Phones,
Inc. (of Tennessee); (2) a Share Purchase Agreement with Paramount
Communications Systems, Inc.; and (3) a credit facility of $37,250,000 from
Internationale Nederlanden (U.S.) Capital Corporation and one other lender (the
"Transactions"). On March 15, 1996, the Registrant drew down $30,530,954 of the
credit facility to consummate the Transactions, pay down long-term debt and
capital lease obligations, and to redeem certain classes of the registrant's
preferred stock. The Transactions will have a material effect on the
Registrant's financial position and, as a result, the Transactions will be
referred to in the Notes to the Financial Statements as well as in the text of
Form 10-KSB. Pursuant to the Transactions, the Registrant has increased its
owned pay telephones from 4,872 at December 31, 1994 to approximately 14,622
phones at March 15, 1996.
The Registrant has determined that it is unable to file its 1995 Annual Report
on Form 10-KSB without unreasonable effort and expense prior to April 1, 1996,
the date on which the Annual Report on Form 10-KSB is required to be filed, due
to the operational and financial effects of the Transactions.
page 4 of 12 pages
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ATTACHMENT B
This ATTACHMENT B, consisting of eight (8) pages, includes the Registrant's
draft Statement of Operations (Unaudited) for the years ended December 31, 1995
and 1994, and a draft of the information contemplated to be included under the
following subsections of the 1995 Form 10-KSB, ITEM 6, MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
page 5 of 12 pages
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PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS
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<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED DECEMBER 31,
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1995 1994
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<S> <C> <C>
REVENUES:
Coin calls $ 12,130,189 $ 8,421,237
Operator services 3,776,501 5,319,138
Commissions 2,681,172 1,856,482
Other 130,121 269,230
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18,717,983 15,866,087
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COSTS AND EXPENSES:
Line and transmission charges 5,475,699 4,456,509
Location commissions 3,467,626 3,391,190
Other operating expenses 4,452,032 3,238,252
Depreciation and amortization 4,383,049 2,236,269
Selling, general and administrative 3,200,742 2,831,775
Billing and collection 858,230 1,026,420
Restructuring charges 3,010,503 --
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24,847,881 17,180,415
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Loss from operations (6,129,898) (1,314,328)
Interest expense (836,911) (388,215)
Interest income 16,112 7,421
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NET LOSS $ (6,950,697) $ (1,695,122)
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Less: Preferred stock dividend requirement (309,668) (291,980)
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (7,260,365) $ (1,987,102)
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Net loss per common share $ (3.72) $ (1.35)
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Weighted average number of shares 1,950,651 1,470,188
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</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS
On March 15, 1996 the Company completed the acquisition of the outstanding
common stock of International Pay Phones, Inc. (a South Carolina company) and
International Pay Phones, Inc. (a Tennessee company) (collectively "IPP"),
companies affiliated through common ownership and management. The Company
acquired 2,101 installed phones for a purchase price of $3,367,212 in cash, and
555,589 restricted shares of the Company's Common Stock, plus 5,453 shares of
14% Preferred Stock (immediately convertible into 54,530 shares of Common
Stock), plus warrants to purchase 117,785 shares of the Company's Common Stock
at a nominal exercise price per share. Additionally, the Company assumed
approximately $1,754,000 in liabilities, of which $1,551,796 was repaid by the
Company on March 15, 1996. The cash purchase price included three five year
non-compete agreements, valued at $60,000, for three of IPP's former officers.
The acquisition will be recorded as a purchase and the difference between the
fair value of the tangible assets acquired and the total purchase price will be
recorded as an increase to intangibles and amortized over the life of the
acquired location contracts which is estimated to be 36 to 60 months.
On March 15, 1996, the Company completed a Share Purchase Agreement with
Paramount Communications Systems, Inc. ("Paramount"). Under the terms of the
Agreement, the Company acquired 2,528 installed phones for a cash purchase price
of $9,618,553, plus 8,333 shares of 14% Preferred Stock (immediately convertible
into 83,330 shares of Common Stock), plus warrants to purchase 179,996 shares of
the Company's Common Stock at a nominal exercise price per share, and the
Company assumed outstanding liabilities of approximately $733,000, of which
$693,446 was repaid on March 15, 1996. The purchase price included a five year
consulting and non-compete agreement, valued at $50,000 for one of Paramount's
former officers. The acquisition will be recorded as a purchase and the
difference between the fair value of the tangible assets acquired and the total
purchase price will be recorded as an increase to intangibles and amortized over
the life of the acquired location contracts which is estimated to be 36 to 60
months.
On October 16, 1995, the Company consummated its acquisition of the outstanding
common stock of Public Telephone Corporation ("Public") in a transaction
accounted for as a purchase. The Company acquired current assets of $54,742,
approximately 1,200 installed telephones, assumed approximately $2.8 million in
debt and outstanding liabilities of Public and issued 304,879 restricted shares
of the Company's Common Stock to the shareholders of Public. In connection with
the acquisition, the Company entered into five year non-compete agreements with
two of Public's former owners which require both cash payments and the issuance,
in the aggregate, of 80,000 shares of the Company's Common Stock.
On September 22, 1995, the Company consummated its acquisition of the
outstanding common stock of World Communications, Inc. ("World") in a
transaction accounted for as a purchase. The Company acquired current assets of
$256,571, approximately 3,237 installed telephones, assumed approximately $6.9
million in debt and outstanding liabilities of World and issued 402,500
restricted shares of the Company's Common Stock and 530,534 shares of the
Company's 10% Non-Voting Redeemable Preferred Stock. In connection with the
acquisition, the
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Company entered into two year non-compete and employment agreements with three
of World's former officers. These non-compete and employment agreements require,
in the aggregate, payment of $625,000 over a two year period.
On March 25, 1994, the Company acquired substantially all of the assets of Alpha
Pay Phones-IV L.P. ("Alpha"). The acquired assets included 2,155 installed
telephones for a cash purchase price of $2,334,216, plus a note payable to
sellers of $1,100,620 and assumption by the Company of outstanding Alpha
liabilities of $2,164,038.
The Public, World, and Alpha acquisitions were accounted for using the purchase
method and, accordingly, the purchase price was allocated to the net assets
acquired, based on their estimated fair values. The results of operations of
each acquired company have been, or will be, included in the results of
operations of the Company from the date of the respective acquisition.
LIQUIDITY, CAPITAL STOCK AND LONG-TERM DEBT ACTIVITY TRANSACTIONS
In a transaction consummated on March 15, 1996, the Company borrowed additional
funds of $30,530,954 (out of a total credit facility commitment of $37,250,000)
from Internationale Nederlanden (U.S.) Capital Corporation and one other lender
(collectively know as "ING"). The Company has available under the credit
facility $6.7 million to fund future acquisitions and for general working
capital purposes. The Company used the funds to complete the Paramount and IPP
acquisitions, repaid all outstanding long-term debt and capital lease
obligations which had a secured interest in the Company's installed phones,
redeemed the 10% Preferred Stock, 7% Preferred Stock and 8% Preferred Stock and
paid related transaction fees. The ING credit facility requires monthly interest
payments at prime plus 5%. Principal payments commence September 1997, with the
amount of the principal payment contingent upon numerous factors, including the
borrowing base and cash flow of the Company. All of the Company's installed
phones are pledged as collateral to the ING credit facility.
The majority of the ING credit facility (currently $29 million) can be converted
into Series B Preferred at the ratio of 833 shares for each $100,000 in
outstanding debt and interest. Additionally, ING received warrants to purchase
204,824 shares of Series A Preferred at an exercise price of $0.20 per share.
Each share of Series A Preferred and Series B Preferred is convertible into 20
shares of Common Stock. The difference between the exercise price of Series A
Preferred and the estimated fair value of the warrants on the date of grant will
be recorded as interest expense over the term of the ING credit facility. The
Company has estimated the annual non-cash interest expense to be $3,000,000.
Concurrent with the ING transaction, the Company redeemed the 10% Cumulative
Preferred, the 8% Preferred, and the 7% Preferred. The redemption price was
$1,117,371 and 34,434 shares of 14% Preferred. In the aggregate, $6,475,011 of
the Company's outstanding obligations, including portions of the purchase price
for the pending acquisitions, was liquidated by issuing 107,918 shares of 14%
Preferred.
Warrants to purchase 2,018,946 shares of Common Stock at a nominal exercise
price per share ("Nominal Value Warrants") were issued in conjunction with the
IPP and Paramount acquisitions, redemption of the 10% Cumulative Preferred, 8%
Preferred, and the 7% Preferred, and conversion of certain debt of the Company
to the 14% Preferred.
page 8 of 12 pages
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The Company has reserved 13,966,026 shares of Common Stock for issuance under
the following scenarios: (1) conversion of $29,000,000 of ING outstanding debt
into 241,667 shares of Series B Preferred Stock which is then immediately
convertible into 4,833,333 shares of Common Stock; (2) exercising of warrants to
purchase 204,824 shares of Series A Preferred Stock at $0.20 per share,
immediately convertible into 4,096,480 shares of Common Stock; (3) conversion of
107,918 shares of 14% Preferred into 1,079,179 shares of Common Stock; (4)
conversion, upon Shareholder approval, of 530,534 shares of 10% Non-Voting
Preferred into 885,992 shares of Common Stock; (5) the exercising of 2,018,946
Nominal Value Warrants; (6) the exercising of 580,351 warrants at prices ranging
from $5.70 to $15.75 per share; and (7) the exercising of 471,745 stock options
at prices ranging from $3.00 to $19.50 per share.
In 1995, the Company sold 472,056 shares of its common stock to officers,
directors, creditors and affiliates of the Company, and to others at average
prices ranging from $4.50 to $5.20 per share (total proceeds $2,014,787). In
1994, the Company sold 136,111 shares for an average price of $10.84 per share
(total proceeds $1,474,999). Additionally, certain warrants and options were
exercised in 1995 to purchase 8,333 shares of the Company's Common Stock at a
per share price of $4.20, or $35,000. In 1994, 87,931 shares were purchased
through the exercise of stock options and warrants for an aggregate price of
$553,460, at an average price of $6.29 per share. The proceeds of these sales
were utilized to pay-down debt and other liabilities, partially fund the Alpha
acquisition, and for other working capital requirements.
At December 31, 1995, long-term debt was $10,328,913 and obligations under
capital leases amounted to $3,532,937 compared with $3,878,656 and $302,612 at
December 31, 1994, an increase of $6,450,257 in long-term debt and $3,230,325 in
obligations under capital leases. This increase is mostly attributable to debt
incurred in connection with the World and Public acquisitions, and shareholder
loans used mostly for acquisition deposits and working capital. On March 15,
1996, the Company repaid $8,652,501 of the long-term debt and $3,243,965 of the
obligations under capital leases.
The Company had a working capital deficit of $13,952,831 at December 31, 1995,
compared to a working capital deficit of $4,032,635 at December 31, 1994, an
increase of $9,920,196. Cash flows used in operations in 1995 amounted to
$579,133 a decrease of $2,959,349 over cash provided by operations in 1994 of
$2,380,216, of which $1,975,628 was due to increases in accounts payable
compared to a decrease in accounts payable of $151,008 at December 31, 1995. The
Company installed, over and above the phones acquired through the two
acquisitions in 1995, 542 phones compared to 532 in 1994.
On September 12, 1995, the Company borrowed $1.2 million from two investors
pursuant to a 19 month credit agreement and made interest payments at 12 1/2
percent. The proceeds were used for operating expenses and to make certain
employee severance payments. This debt was repaid on March 15, 1996.
Management believes, but can not assure, that cash flow from operations, the
proceeds from the financing discussed above and other financial alternatives
will be sufficient to allow the Company to sustain its operations and meet its
obligations over the next twelve months.
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RESULTS OF OPERATIONS
At March 15, 1995, the Company had 14,622 installed phones. At December 31,
1995, the Company had 9,723 installed pay phones compared to 4,744 at December
31, 1994. At December 31, 1995, there were approximately 4,957 pay telephones
(including Company owned and presubscribed) and hotel and hospital room phones
connected to its operator service center (6,113 for the comparable period).
REVENUE
Total revenue from all product lines was $18,717,983 and $15,866,087 for the
years ended December 31, 1995 and 1994, respectively, representing an increase
of $2,851,896, or 18%, in fiscal 1995 over 1994. Revenue by type is described
below.
Coin calls
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Revenues from coin calls increased 44% to $12,130,189 in 1995 from $8,421,237 in
1994. This increase is attributable primarily to an increase in the number of
installed pay telephones. The total installed pay phones count increased by
4,979 pay phones, or 105%, with the majority of the increase occurring in the
fourth quarter of 1995 and attributable to the acquisition of World and Public.
Additionally, revenues improved from the continuation of the 1994 program which
offered customers a three minute long distance call for $0.75 ("$0.75 Long
Distance Call Program") anywhere in the continental United States.
Operator Services
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The 29% decrease in revenue from the Company's operator service center to
$3,776,501 in 1995 from $5,319,138 in 1994 was primarily the result of an
decrease in the number of phones to which the Company provides operator services
through presubcription arrangements and aggressive dial-around advertising of
AT&T, Sprint and MCI. The Company has decided to outsource its operator service
center and anticipates that all traffic will be moved to the subcontractor by
March 31, 1996. Operator services will be provided by a subcontractor that is
better equipped to handle the increased volume expected from the recent
acquisitions. The Company's operator service center fixed assets are considered
to be antiquated and uneconomical to update, therefore, the Company wrote-off
the assets in 1995 and recorded a non-cash charge of $298,626.
Commissions
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Commission revenue consists of intraLATA compensation received from Florida
local exchange carriers ("LECs"), dial-around compensation, operator service
commissions from other providers carrying intraLATA traffic from Company-owned
pay telephones and coin and operator service commissions from sub-contractors
("Sub-contractor Phones").
Commission revenue increased to $2,681,172 in 1995 from $1,856,482 in 1994, an
increase of $824,690 or 44%. This increase was primarily the result of the
acquisition of World and Public in the fourth quarter of 1995.
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Dial-around compensation increased to $685,032 in 1995 from $316,763, an
increase of $368,269 or 116% which is attributable to the Company's increased
pay telephone base. Dial-around compensation was ordered by the FCC in 1992 to
compensate private pay telephone owners for others using their phones and
networks without direct (coin) payment. (see Regulation section above).
COSTS AND EXPENSES
Line and transmission charges increased to 29% ($5,475,699) of total revenues in
1995 as compared to 28% ($4,456,509) of total revenues in 1994 as a result, in
part, from increased coin calls resulting from the $0.75 Long Distance Call
Program as well as increases in certain local telephone company line charges.
Management expects that the increased volume from the $0.75 Long Distance Call
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, collection and operator service costs.
Location commissions decreased to $3,467,626 or 18.5% of total revenues in 1995
compared to $3,391,190 or 21.4% of total revenues in 1994 as a result of
renegotiating the location agreements from phones acquired in the acquisition
World and Public.
Other operating expenses increased to $4,452,032 or 23.8% of total revenues for
1995 from $3,238,252 or 20.4% of total revenues in 1994. The increase was the
result of higher personnel costs, rent, utilities and service related expenses
attributable to the acquisition of World and Public, the increase in the
Company's pay telephone base, and the additional personnel to accommodate the
increased business. Management anticipates economies of scale resulting from the
acquisitions completed in the fourth quarter of 1995 and those acquisitions
completed in 1996 will be realized in 1996, resulting in the stabilization of
operating expenses as a percentage of total revenues.
Depreciation and amortization increased to $4,383,049 in 1995 from $2,236,269 in
1994. This increase was primarily due to the Company's acquisition of World and
Public in September and October of 1995 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.
Selling, general and administrative expenses increased in dollar volume while
decreasing as a percentage of revenue. These expenses were $3,200,742 or 17.1%
of total revenues in 1995 as compared to $2,831,775 or 17.8% of total revenues
in 1994. There were dollar increases in advertising, travel and entertainment,
wages and payroll related expenses and general office expenses as a result of
hiring additional personnel to conduct the Company's expanded selling and
marketing program and customer services, however these expenses did not grow as
quickly as revenues. Selling, general and administrative expenses should only
marginally increase in the near term because the Company has an established
infrastructure in place, but costs should continue to decrease as a percentage
of total revenues as total revenues increase.
Billing and collection costs decreased to $858,230 or 4.6% of total revenues for
1995 compared to $1,026,420 or 6.5% of total revenues in 1994 primarily due to
the introduction of new system software and procedures which will help manage
costs and control expenses. Upon completion
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of the outsourcing of the operator service center ( projected to be completed by
the end of the first quarter in 1996) the majority of billing and collection
expenses will disappear.
Restructuring and non-recurring charges were $3,010,503 or 16.1% of total
revenues for 1995. There were no restructuring charges for 1994. Restructuring
charges consist primarily of costs associated with the write-off of selected
assets in connection with the outsourcing of the operator service center, the
settlement of contractual obligations to certain former officers of the Company
and related legal fees, and consulting and legal fees incurred for changes to
the operations of the Company. Additionally, the Company has recorded a
liability of $841,000 representing the amount payable under an employment
contract, for an officer of the Company, because the Company is in default of
the contract's "change-in-control" and early contract termination provision. The
officer and the Company are currently negotiating the matter.
Interest expense increased in 1995 to $836,911 from $388,215 in 1994 due to
financing obtained for acquisitions, additional service vehicles and switch
operating equipment. In addition, the Company entered into financing agreements
with certain manufacturers throughout the year for the purchase of phone
equipment to accommodate the expansion of its pay telephone base.
IMPACT OF SEASONALITY
The seasonality of the Company's revenues from vended 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. Phones in northern states, located outdoors,
experience reduced revenues in the months of January and February.
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.
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