<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-2
Current Report
0-16715
-------
Commission File Number
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
March 15, 1996
--------------
Date of Report
(Date of Earliest Event Reported)
PHONETEL TECHNOLOGIES, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1462198
---- ----------
(State of Incorporation) (I.R.S. Identification No.)
1127 Euclid Avenue
650 Statler Office Tower
Cleveland, Ohio 44115-1601
--------------------------
Address and zip code of principal executive offices
(216) 241-2555
--------------
Registrant's telephone number
page 1 of 3 pages
<PAGE> 2
PART I
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The attached exhibits and pro forma financial information amends Form 8-K/A-1
which amended Form 8-K dated March 15, 1996.
EXHIBITS
(a) Financial Statements of Business Acquired:
1. International Payphones, Inc. (a South Carolina corporation) Financial
Statements For the Year Ended December 31, 1995
2. Paramount Communications Systems, Inc. Financial Statements
For the Year Ended December 31, 1995
(b) Pro Forma Financial Information:
1. Introduction to Unaudited Pro Forma Combined Condensed Financial
Information
2. International Payphones, Inc. (a South Carolina corporation),
International Payphones, Inc. (a Tennessee corporation), Paramount
Communications Systems, Inc. and PhoneTel Technologies, Inc. -
Unaudited Pro Forma Combined Condensed Balance Sheet at December 31,
1995.
3. International Payphones, Inc. (a South Carolina corporation),
International Payphones, Inc. (a Tennessee corporation), Paramount
Communications Systems, Inc. and PhoneTel Technologies, Inc. -
Unaudited Pro Forma Combined Condensed Statement of Operations for the
Year Ended December 31, 1995.
4. International Payphones, Inc. (a South Carolina corporation),
International Payphones, Inc. (a Tennessee corporation), Paramount
Communications Systems, Inc. and PhoneTel Technologies, Inc. -
Unaudited Pro Forma Combined Condensed Financial Information -
Footnotes to Financial Information.
page 2 of 3 pages
<PAGE> 3
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.
PhoneTel Technologies, Inc.
(Registrant)
Date: June 12, 1996 /s/ Peter G. Graf
-----------------
Peter G. Graf
Chairman of the Board and
Chief Executive Officer
page 3 of 3 pages
<PAGE> 1
EXHIBIT (a)1
FINANCIAL STATEMENTS
INTERNATIONAL PAY PHONES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995
MILLER SHERRILL BLAKE CPA PA
page 4 of 33 pages
<PAGE> 2
INTERNATIONAL PAY PHONES, INC.
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-9
SUPPLEMENTARY INFORMATION REPORT 10
Schedule of Cost of Goods Sold 11
Schedule of General and Administrative Expenses 12
MILLER SHERRILL BLAKE CPA PA
<PAGE> 3
[MILLER SHERRILL BLAKE CPA PA LETTERHEAD]
May 21, 1996
INDEPENDENT AUDITORS' REPORT
Board of Directors
International Pay Phones, Inc.
107 Dave Warlick Dr.
Lincolnton, North Carolina 28092
We have audited the accompanying balance sheet of International Pay Phones, Inc.
(a South Carolina corporation) as of December 31, 1995, and the related
statement of income and retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Pay Phones, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
MILLER SHERRILL BLAKE CPA PA
/s/ Miller Sherrill Blake CPA
Lincolnton, North Carolina
<PAGE> 4
INTERNATIONAL PAY PHONES, INC.
BALANCE SHEET
December 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 11,336
Accounts Receivable 142,801
-----------
TOTAL CURRENT ASSETS 154,137
-----------
PROPERTY AND EQUIPMENT
Leasehold Improvements 16,000
Office Furniture and Equipment 28,441
Vehicles 236,393
Telephone Equipment 2,304,632
Accumulated Depreciation (1,563,039)
-----------
TOTAL PROPERTY AND EQUIPMENT 1,022,427
-----------
OTHER ASSETS
Covenants Not to Compete - Net of Amortization 105,528
Goodwill - Net of Amortization 21,282
-----------
TOTAL OTHER ASSETS 126,810
-----------
TOTAL ASSETS $ 1,303,374
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 151,539
Notes Payable 107,125
Notes Payable - Related Party 25,000
Current Portion of Long-Term Debt 343,763
-----------
TOTAL CURRENT LIABILITIES 627,427
-----------
LONG-TERM LIABILITIES
Notes Payable - Less Current Portion 643,935
Obligations under Capital Leases - Less Current Portion 95,895
-----------
TOTAL LONG-TERM LIABILITIES 739,830
-----------
TOTAL LIABILITIES 1,367,257
-----------
STOCKHOLDERS' EQUITY
Common Stock 10,000
Additional Paid - In - Capital 57,224
Retained Earnings (131,107)
-----------
TOTAL STOCKHOLDERS' EQUITY (63,883)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,303,374
===========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statement
Page Two
MILLER SHERRILL BLAKE CPA PA
<PAGE> 5
INTERNATIONAL PAY PHONES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Sales $ 3,360,596
Cost of Goods Sold 2,308,012
-----------
GROSS PROFIT 1,052,584
Operating Expenses
- ------------------
General And Administrative Expenses 517,868
Depreciation Expense 413,144
Interest Expense 149,248
-----------
TOTAL OPERATING EXPENSES 1,080,260
-----------
INCOME FROM OPERATIONS (27,676)
Other (Income) Expense
- ----------------------
(Gain) Loss on Sale of Assets (733)
-----------
Total Other (Income) Expense (733)
Income Before Corporate Taxes (26,943)
Deferred Tax Expense 35,800
-----------
NET INCOME (62,743)
BEGINNING RETAINED EARNINGS (68,364)
-----------
ENDING RETAINED EARNINGS $ (131,107)
===========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statement
Page Three
MILLER SHERRILL BLAKE CPA PA
<PAGE> 6
INTERNATIONAL PAY PHONES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Net Cash Flow From Operating Activities:
Net Income $ (62,743)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and Amortization 451,929
Net (increase) decrease in receivables (61,817)
Net increase (decrease) in accounts payable and accrued expenses 40,406
Net change in deferred tax asset/liability 35,800
Gain on sale of property and equipment (733)
---------
Net Cash Provided (Used) by Operating Activities 402,842
---------
Cash Flow From Investing Activities:
Purchase of equipment (66,943)
---------
Net Cash Provided (Used) by Investing Activities (66,943)
---------
Cash Flow From Financing Activities:
Payments to settle short-term debt (148,738)
Payments to settle long-term debt (187,055)
Proceeds from short-term debt 52,315
Proceeds from long-term debt 50,000
Payments under capital lease obligations (105,024)
---------
Net Cash Provided (Used) by Financing Activities (338,502)
---------
Net Increase (Decrease) In Cash and Cash Equivalents (2,603)
Cash and Cash Equivalents at beginning of year 13,939
---------
Cash and Cash Equivalents at end of year $ 11,336
=========
Supplemental Disclosures
- ------------------------
Interest Paid $ 149,248
=========
Income Taxes Paid $ 0
=========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statement
Page Four
MILLER SHERRILL BLAKE CPA PA
<PAGE> 7
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Business Activity
- -----------------
International Pay Phones, Inc. was incorporated under the laws of the State of
South Carolina on May 29, 1990. The Company purchases or leases pay phones from
suppliers and installs them in various locations throughout the southeastern
United States. Revenue is generated through contracts established with the
property owners regarding the use of the phones.
Cash
- ----
Cash includes cash in bank and instruments with maturities of 30 days or less.
Depreciation
- ------------
Depreciation is computed using the straight-line and the accelerated cost
recovery methods.
NOTE B - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has the following notes payable due to related parties as of
December 31, 1995:
<TABLE>
<S> <C>
Amounts payable to shareholders due on demand $25,000
Amounts payable to corporations related through common
ownership due on demand 14,800
-------
$39,800
=======
</TABLE>
The Company rents its operating facility from a partnership related through
common ownership. The rent expense totaled $19,508 for the year ended December
31, 1995.
NOTE C - RETIREMENT PLAN
- ------------------------
The Company sponsors a 401(k) plan covering all of the eligible employees who
elect to participate. The Company matches 50% of each employees deferred salary
up to a maximum to 2% of compensation. The contribution was $3,115 for the year
ended December 31, 1995.
NOTE D - NOTES PAYABLE
- ----------------------
Short-term notes payable consist of the following at December 31, 1995:
<TABLE>
<S> <C> <C> <C>
Lincoln Bank $ 50,000 10.25% Personal Guarantees
Olen Beal 50,000 12.00% Personal Guarantees
Conquest 7,125 10.00% Personal Guarantees
---------
$ 107,125
=========
</TABLE>
See Independent Auditors' Report
Page Five
MILLER SHERRILL BLAKE CPA PA
<PAGE> 8
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NOTE E - LONG-TERM DEBT 1995
- ----------------------- --------------
Long-term debt consists of the following notes:
<S> <C>
Note Payable - NationsBank $ 10,261
Due in monthly installments of $327.26 which includes interest calculated at 7.5%.
Matures in November of 1998. Secured by vehicle.
Note Payable - NationsBank 10,264
Due in monthly installments of $327.26 which includes interest calculated at 7.5%.
Matures in November of 1998. Secured by vehicle.
Note Payable - First Union National Bank 8,827
Due in monthly installments of $292.10 which includes interest calculated at 6.25%.
Matures in September of 1998. Secured by vehicle.
Note Payable - First Union National Bank 8,827
Due in monthly installments of $292.10 which includes interest calculated at 6.25%.
Matures in September of 1998. Secured by vehicle.
Note Payable - First Union National Bank 9,616
Due in monthly installments of $327.49 which includes interest calculated at 7.5%.
Matures in October of 1998. Secured by vehicle.
Note Payable - Ford Motor Credit 13,576
Due in monthly installments of $395.81 which includes interest calculated at 11.75%.
Matures in June of 1999. Secured by vehicle.
Note Payable - First Union National Bank 12,285
Due in monthly installments of $357.26 which includes interest calculated at 7.75%.
Matures in March of 1999. Secured by vehicle.
Note Payable - GMAC 16,105
Due in monthly installments of $362.68 which includes interest calculated at 10.0%.
Matures in August of 2000. Secured by vehicle.
Note Payable - NationsBank 21,478
Due in monthly installments of $485.00 which includes interest calculated at 8.99%.
Matures in June of 2000. Secured by vehicle.
Note Payable - NationsBank 29,398
Due in monthly installments of $550.46 which includes interest calculated at 9.99%.
Matures in December of 2001. Secured by vehicle.
</TABLE>
See Independent Auditors' Report
Page Six
MILLER SHERRILL BLAKE CPA PA
<PAGE> 9
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE E - LONG-TERM DEBT - (Continued)
- -------------------------------------
<TABLE>
<S> <C>
Note Payable - First Union National 32,958
Due in monthly installments of $694.24 which includes interest calculated at 9.06%.
Matures in December of 2000. Secured by vehicle.
Note Payable - Olen Beal 41,627
Due in monthly installments of $1,660.72 which includes interest calculated at 12.0%.
Matures in April of 1998. Guaranteed by officers.
Note Payable - First National Bank 437,098
Due in monthly installments of $11,686.55 which includes interest calculated at
prime plus 2%. Matures in September of 1999. Secured by phone equipment,
guarantees by officers, and assignment of life insurance.
Note Payable - Karl Baker 191,741
Due in monthly installments of $5,219.19 which includes interest calculated at 8.0%.
Matures in April of 1999. Secured by phone equipment.
Note Payable - First Union National Bank 2,000
Due in monthly installments of $666.67 principle plus interest calculated at 10.0%.
Matures in April of 1996. Secured by assets of the company.
Note Payable - Elcotel 11,300
Due in monthly installments of $1,341 which includes interest calculated at 16.049%.
Matures in September of 1996. Secured by phone equipment and guaranteed by
officers.
--------------
857,361
Less: Current Maturities (213,426)
--------------
Total Long-Term Debt $ 643,935
==============
</TABLE>
Maturities of long-term debt in each of the next five years are as follows:
<TABLE>
<S> <C>
1996 $ 213,426
1997 221,139
1998 228,947
1999 169,611
2000 24,238
----------
$ 857,361
==========
</TABLE>
See Independent Auditors' Report
Page Seven
MILLER SHERRILL BLAKE CPA PA
<PAGE> 10
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE F - INCOME TAXES
- ---------------------
Under Financial Accounting Standards Board Statement No. 109, deferred tax
assets and liabilities are determined based on the differences between the
financial statement and tax basis of assets and liabilities and are measured
using enacted tax rates.
Net deferred tax assets in the accompanying balance sheet include the following
components:
<TABLE>
<S> <C>
Deferred tax asset arising from:
Net operating loss carryforward $ 38,350
Valuation Allowance (38,350)
--------
Net deferred tax asset $ 0
========
</TABLE>
The Company has unused net operating losses available for carryforward to offset
future taxable income. The net operating loss carryforward was approximately
$250,000 at December 31, 1995 and will expire in the year 2010.
NOTE G - LEASES
- ---------------
The company is the lessee of telephone equipment under capital leases expiring
in various years through 1998. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The assets are depreciated over the lower of their
related lease terms or their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense for the year ended
December 31, 1995. The following is a summary of property held under capital
leases:
<TABLE>
<S> <C>
Telephone Equipment $ 416,160
Accumulated Depreciation (113,159)
---------
$ 303,001
=========
</TABLE>
Minimum future lease payments under capital leases as of December 31, 1995 for
each of the next five years are as follows:
<TABLE>
<S> <C>
1996 $130,337
1997 84,811
1998 11,084
1999 0
2000 0
--------
$226,232
========
</TABLE>
See Independent Auditors' Report
Page Eight
MILLER SHERRILL BLAKE CPA PA
<PAGE> 11
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE H - RENTALS UNDER OPERATING LEASES
- ---------------------------------------
The Company leased various vehicles under operating leases. Several of those
leases were terminated during the year ended December 31, 1995. The remaining
operating leases will expire in 1998.
Future minimum rental payments required under operating leases that have
remaining terms in excess of one year as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 5,016
1997 5,016
1998 2,508
-------
$12,540
=======
</TABLE>
Rental expense was approximately $19,577.
NOTE I - CONTINGENCIES
- ----------------------
The Company is a party to a contingent payment contract with Karl Baker for
$25,000. The agreement states that if contracts purchased from Mr. Baker remain
in effect for a specified time period, the payment will be made. However, if
contracts are lost, the $25,000 is reduced by $1,000 per occurrence.
NOTE J - SUBSEQUENT EVENTS
- --------------------------
The shareholders of International Pay Phones, Inc. have negotiated to sell all
outstanding shares of stock to PhoneTel Technologies, Inc. The transaction was
finalized on March 15, 1996. Also, an additional loan was secured from
NationsBank on January 3, 1996 in the amount of $50,000.
Interest is calculated at 10%, and the note matures March 3, 1996.
NOTE K - USE OF ESTIMATES
- -------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE L - STOCKHOLDERS' EQUITY
- -----------------------------
The company has 100,000 shares of $1 par common stock authorized and 10,000
outstanding at December 31, 1995.
See Independent Auditors' Report
Page Nine
MILLER SHERRILL BLAKE CPA PA
<PAGE> 12
[MILLER SHERRILL BLAKE CPA PA LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTAL INFORMATION
To the Board of Directors and Stockholders
International Pay Phones, Inc.
Our report on our audit of the basic financial statements of International Pay
Phones, Inc. for December 31, 1995 appears on page one. This audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The additional information contained in Schedules I - II is presented for
the purposes of additional analysis and is not a required part of the basic
financial statements. Such information has not been subjected to the auditing
procedures applied in the audit of the basic financial statements, and,
accordingly, we express no opinion on it.
MILLER SHERRILL BLAKE CPA PA
/s/ Miller Sherrill Blake CPA
Lincolnton, North Carolina
<PAGE> 13
INTERNATIONAL PAY PHONES, INC.
SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 1995
SCHEDULE I
<TABLE>
<S> <C>
Cost of Goods Sold
- ------------------
Line Charges $ 983,204
Telephone Commissions 615,527
Salaries 327,957
Telephone Supplies 233,435
Auto Expenses 56,999
Other Labor 8,377
Commissions - Sales 26,286
Armored Car Service 30,517
Auto Insurance 25,353
Equipment Rental 357
----------
Total Cost Of Goods Sold $2,308,012
==========
</TABLE>
See Independent Auditors' Report on Supplementary Information
Page Eleven
MILLER SHERRILL BLAKE CPA PA
<PAGE> 14
INTERNATIONAL PAY PHONES, INC.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
SCHEDULE II
<TABLE>
<S> <C>
General and Administrative Expenses
- -----------------------------------
Salary - Officers $ 90,673
Payroll Taxes 36,850
Management Fee 20,800
Advertising 2,873
Amortization 38,785
Answering Service 1,322
Bank Service Charges 4,487
Contributions 500
Dues and Subscriptions 19,425
Entertainment 8,950
Group Insurance 14,497
General Insurance 14,702
Officer Life Insurance 5,792
Lease Expense 19,577
Taxes and Licenses 30,968
Office Expense 9,634
Pager Expense 5,124
Pension Expense 3,115
Postage 13,721
Professional Fees 17,434
Rent 22,343
Repairs and Maintenance 10,048
Convention Expense 5,133
Moving Expense 2,100
Storage 9,971
Telephone 71,590
Travel 27,961
Uniforms 661
Utilities 8,227
Miscellaneous Expense 605
--------
Total General and Administrative Expenses $517,868
========
</TABLE>
See Independent Auditors' Report on Supplementary Information
Page Twelve
MILLER SHERRILL BLAKE CPA PA
<PAGE> 1
EXHIBIT (a) 2
FINANCIAL STATEMENTS
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE> 2
[PRICE WATERHOUSE LLP LETTERHEAD]
Report of Independent Accountants
May 17, 1996
The Board of Directors of
Paramount Communications Systems, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Paramount Communications
Systems, Inc. at December 31, 1995 and the results of its operations, its
changes in shareholders' equity and its cash flows for the year then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 6, on March 15, 1996, the Company's net assets were sold to
an unrelated party.
/s/ Price Waterhouse LLP
<PAGE> 3
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 479,984
Receivables:
Trade 237,455
Shareholder 38,168
----------
Total current assets 755,607
Property and equipment, net 788,582
Intangible assets, net 146,029
Other assets 15,098
----------
$1,705,316
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 373,866
Location commissions payable 65,958
Shareholder distributions payable 155,532
Notes payable to affiliates 483,246
----------
Total current liabilities 1,078,602
----------
Commitments and contingencies --
----------
Shareholders' equity:
Common stock, $1 par value; 100 shares authorized,
issued and outstanding 100
Additional paid-in capital 19,900
Retained earnings 606,714
----------
Total shareholders' equity 626,714
----------
$1,705,316
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Coin calls $ 3,751,744
Non-coin calls 1,923,724
-----------
Total revenues 5,675,468
-----------
Operating costs and expenses:
Telephone charges 1,543,956
Commissions 696,443
Selling, general and administrative 2,407,479
Depreciation and amortization 393,204
-----------
Total operating costs and expenses 5,041,082
-----------
Operating income 634,386
-----------
Other income (expenses):
Interest and other income 14,800
Interest expense (64,210)
Other (85,231)
-----------
Total other expenses (134,641)
-----------
Net income $ 499,745
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 499,745
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 393,204
Changes in assets and liabilities:
Decrease in receivables 2,392
Decrease in other current assets 11,190
Decrease in other assets 9,632
Increase in other accounts payable and accrued
expenses 179,706
Increase in location commissions payable 10,915
-----------
Net cash provided by operating activities 1,106,784
-----------
Cash flows from investing activities:
Purchases of equipment (356,791)
-----------
Cash flows from financing activities:
Proceeds from issuance of notes payable to related party 200,000
Distributions to shareholders (229,088)
Repayments of notes payable to related parties (439,470)
-----------
Net cash used in financing activities (468,558)
-----------
Net increase in cash and cash equivalents 281,435
Cash and cash equivalents, beginning of year 198,549
-----------
Cash and cash equivalents, end of year $ 479,984
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 64,210
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1994 100 $100 $19,900 $106,969 $126,969
--- ---- ------- -------- --------
Net income -- -- -- 499,745 499,745
--- ---- ------- -------- --------
Distributions -- -- -- -- --
--- ---- ------- -------- --------
Balance
December 31, 1995 100 $100 $19,900 $606,714 $626,714
=== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Paramount Communications Systems, Inc. (the "Company"), a Florida
corporation, was formed in March 1987 as a result of the deregulation of
the telephone industry. The Company is in the business of installing,
maintaining and operating pay telephones throughout South Florida.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a
straight-line basis over five years, the estimated useful lives of the
respective assets. Maintenance, repairs and minor replacements of these
items are charged to expense as incurred.
INTANGIBLE ASSETS
Intangible assets consist of non-compete agreements and location
contracts. The non-compete agreements are being amortized on a
straight-line basis over their duration (five years) and expire through
July 1998. Also, in connection with certain equipment acquisitions, the
Company entered into location contracts for two and one-half years terms.
These contracts expired in June 1995.
REVENUE RECOGNITION
Revenues from coin calls and non-coin calls are recognized as calls are
made. When revenue on a telephone call is recorded, an expense is also
recorded for fees associated with the call. Revenue from the telephone
service agreement is recognized in the month of service.
INCOME TAXES
The Company is a Subchapter S corporation. As such, no provision is made
for income taxes as income or loss is included in the tax returns of the
shareholders.
CONCENTRATIONS OF CREDIT AND BUSINESS RISK
Receivables have a significant concentration of credit risk in the
telecommunications industry. In addition, receivables are generated by the
Company's pay telephones located in the state of Florida.
<PAGE> 8
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
SHAREHOLDERS DISTRIBUTIONS
The Company generally distributes 100 percent of tax-basis profits to its
shareholders annually.
FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1995, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments", which requires the disclosure of fair value of financial
instruments. The Company's financial instruments consist of cash and cash
equivalents, trade receivables and notes payable to affiliates. The
carrying amount of these instruments at December 31, 1995 approximates
their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Installed pay telephones and related equipment $ 3,259,133
Furniture, fixtures and office equipment 40,125
Automobiles 31,943
Leasehold improvements 4,025
Warehouse equipment 1,772
-----------
3,336,998
Accumulated depreciation (2,548,416)
-----------
Property and equipment, net $ 788,582
===========
</TABLE>
Depreciation expense amounted to $282,902 for the year ended December 31,
1995.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Non-compete agreements $ 533,135
Location contracts 194,240
---------
727,375
Accumulated amortization (581,346)
---------
Intangible assets, net $ 146,029
=========
</TABLE>
2
<PAGE> 9
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Amortization expense related to intangible assets amounted to $110,302 for
the year ended December 31, 1995.
4. RELATED PARTY TRANSACTIONS
NOTES PAYABLE
The Company has notes payable to related parties, with principal and
interest payable monthly at an annual rate of 10% and due in 1996. These
notes are collateralized by installed pay telephones and related
equipment. The notes were assumed and subsequently paid-off by the
acquiring company (Note 6).
Interest expense paid to related parties relating on these notes amounted
to $64,210 in 1995.
PAYROLL ALLOCATION
Included in selling, general and administrative expenses is an allocation
of payroll for certain service personnel working for various related party
companies under common ownership. The allocation is based on management's
estimate of the amount of time each employee provides each related
company.
OPERATING LEASE
The Company occupies a facility under a lease with a related party which
expired on May 31, 1993. Under the terms of the lease, the Company has the
right to renew the lease for a five-year period which began immediately
after the end of the initial term. The Company has not renewed the lease
and currently leases the facility on a month-to-month basis. The lease
provides that the Company pay its proportional share of the building's
taxes, maintenance, insurance and other related occupancy expenses.
Rent expense for the year ended December 31, 1995 amounted to $22,812.
VEHICLE LEASES
The Company lease various vehicles from a related party. Total lease
payments made in connection with these leases amounted to $46,866 during
1995.
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation from time to time in the ordinary
course of business. In the opinion of management, the ultimate resolution
of these matters will not have a material effect on the Company's
financial position or results of operations.
3
<PAGE> 10
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
6. SUBSEQUENT EVENTS
ACQUISITION
On March 15, 1996, the Company completed an Asset Purchase Agreement with
an unrelated party. Under the terms of the Agreement, the Company sold its
assets, including 2,528 installed telephones and related equipment, for a
cash price of approximately $9.6 million, warrants to purchase shares of
stock of the acquiring company, and the assumption, by the acquiring
company, of approximately $733,000 of outstanding Company liabilities. The
purchase price also included a five year consulting agreement with one of
the Company's former officers valued at $50,000.
TELECOMMUNICATIONS REFORM
On February 8, 1996, the President of the United States signed into law
the Telecommunications Act of 1996 (the "Act"). The Act changes many
provisions of the Communications Act of 1934 and requires the Federal
Communications Commission (the "FCC") to change its existing rules and
adopt new rules in several areas affecting broadcasting. This Act is one
of the most significant changes to the Communications Act since its
adoption in 1934. Since the Act recently was passed and became law, the
FCC has only begun the proceedings that the Act requires and it remains to
be seen how the FCC will interpret certain of its provisions. Congress and
the FCC currently have under consideration and may in the future adopt new
laws and regulations and polices regarding a wide variety of matters which
could, directly or indirectly, adversely affect the operation of the
Company as well as its business strategies.
* * * * *
4
<PAGE> 1
EXHIBIT (b) 1
PHONETEL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
INTRODUCTION
The following unaudited pro forma combined condensed financial information gives
effect to the acquisition of all the outstanding shares of common stock of
International Payphones, Inc. (a South Carolina corporation), International
Payphones, Inc. (a Tennessee corporation) (collectively "IPP"), companies
affiliated through common ownership and management, and Paramount Communications
Systems, Inc., (a Florida corporation) ("Paramount") for (i) $13,115,040; (ii)
555,589 shares of the Company's Common Stock, par value $.01 ("Common Stock");
(iii) 13,786 shares of 14% Redeemable Convertible Preferred Stock, $60 stated
value, ("14% Preferred") immediately convertible into 137,860 shares of Common
Stock; (iv) warrants to purchase 297,781 shares of the Company's Common Stock at
a nominal exercise price per share ("Nominal Value Warrants"); and (v)
assumption of liabilities aggregating $2,490,622. The purchase price included
four five year Non-compete Agreements, with an aggregate value of $110,000, with
three of IPP's and one of Paramount's former officers.
The acquisitions are being accounted for as a purchase and, therefore, are
included in the Unaudited Pro Forma Combined Condensed Balance Sheet as if the
transaction had occurred on December 31, 1995 and in the Unaudited Pro Forma
Combined Condensed Statement of Operations as if the transaction had occurred on
January 1, 1995, and giving effect to the pro forma adjustments described
therein.
The unaudited combined condensed pro forma information presented herein may not
be indicative of the results that actually would have occurred if the
acquisition had occurred on the date indicated, or which may be obtained in the
future. The unaudited pro forma combined financial information should be read in
conjunction with the historical financial statements of the Registrant, IPP and
Paramount.
1
<PAGE> 1
EXHIBIT (b) 2
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
International International Adjustments
PhoneTel Payphones Payphones Paramount for
Technologies South Carolina Tennessee Communications Ref Acquisitions Ref
------------ -------------- ------------- -------------- ------ -------------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $713,462 $11,336 $17,321 $479,984 [1,2] ($14,883,421) [3]
Accounts receivable, net 901,508 142,801 48,996 275,623 [1] (418,424)
Other current assets 185,634 - 15,020 - [1] (15,020)
------------ -------------- ------------- -------------- --------------------
Total current assets 1,800,604 154,137 81,337 755,607 (15,316,865)
Property and equipment, net 14,099,111 1,022,427 276,811 788,582 [2] 7,748,805 [3]
Intangible assets, net 11,592,157 126,810 - 146,029 [1,2] 9,666,573 [3]
Other assets 1,425,384 - - 15,098 [1,2] (940,098)
------------ -------------- ------------- -------------- --------------------
$28,917,256 $1,303,374 $358,148 $1,705,316 $1,158,415
============ ============== ============= ============== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $1,010,412 $475,888 $73,978 $483,246 [1,2] ($874,208) [3]
Current portion capital leases 288,972 - - - -
Accounts payable 2,772,306 151,539 2,717 373,866 [1,2] (376,584) [3]
Accrued expenses 1,610,100 - 18,392 221,490 [1,2] (361,421)
Deferred income taxes - - 6,000 - [1] (6,000)
Contractual settlements and
restructuring charges 962,338 - - - - [3]
------------ -------------- ------------- -------------- --------------------
Total current liabilities 6,644,128 627,427 101,087 1,078,602 (1,618,213)
Long-term debt 9,318,501 643,935 118,654 - [2] (762,589) [3]
Obligations under capital leases 3,243,965 95,895 - - [2] (76,419) [3]
Deferred revenues - - - - - [3]
Stockholder's equity:
14% convertible preferred stock - - - - [2] 621,664 [3]
10% nonvoting preferred stock 5,305,340 - - - -
10% redeemable preferred stock 1 - - - - [3]
8% cumulative preferred stock 981,084 - - - - [3]
7% convertible preferred stock 200,000 - - - - [3]
Common stock 28,554 10,000 3,321 100 [2] (8,103) [3]
Additional paid in capital 16,649,559 57,224 106,000 19,900 [2] 3,506,767 [3]
Accumulated (deficit) earnings (13,453,876) (131,107) 29,086 606,714 [1,2] (504,692) [3]
------------ -------------- ------------- -------------- --------------------
9,710,662 (63,883) 138,407 626,714 3,615,636
============ ============== ============= ============== ====================
$28,917,256 $1,303,374 $358,148 $1,705,316 $1,158,415
============ ============== ============= ============== ====================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Adjustments
for Debt Pro Forma
Restructuring Combined
----------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $14,552,395 $891,077
Accounts receivable, net - 950,504
Other current assets - 185,634
---------------- --------------
Total current assets 14,552,395 2,027,215
Property and equipment, net 346,500 24,282,236
Intangible assets, net 3,838,638 25,370,207
Other assets - 500,384
---------------- --------------
$18,737,533 $52,180,042
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $1,305,954 $2,475,270
Current portion capital leases - 288,972
Accounts payable (2,619,746) 304,098
Accrued expenses - 1,488,561
Deferred income taxes - -
Contractual settlements and
restructuring charges (753,500) 208,838
---------------- --------------
Total current liabilities (2,067,292) 4,765,739
Long-term debt 10,904,212 20,222,713
Obligations under capital leases (3,243,965) 19,476
Deferred revenues 1,200,000 1,200,000
Stockholder's equity:
14% convertible preferred stock 5,647,823 6,269,487
10% nonvoting preferred stock - 5,305,340
10% redeemable preferred stock (1) -
8% cumulative preferred stock (981,084) -
7% convertible preferred stock (200,000) -
Common stock 164 34,036
Additional paid in capital 10,167,507 30,506,957
Accumulated (deficit) earnings (2,689,831) (16,143,706)
---------------- --------------
11,944,578 25,972,114
================ ==============
$18,737,533 $52,180,042
================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 1
EXHIBIT (b) 3
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PhoneTel International International
Technologies Payphones Payphones Paramount
[6] South Carolina Tennessee Communications
----------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
REVENUES:
Coin calls and commissions $14,811,361 $3,360,596 $1,194,621 $3,751,744
Operator services and other 3,906,622 - - 1,923,724
----------------- ------------------ ------------------ -------------------
18,717,983 3,360,596 1,194,621 5,675,468
----------------- ------------------ ------------------ -------------------
COSTS AND EXPENSES:
Line and transmission charges 5,475,699 983,204 608,061 1,543,956
Location commissions 3,467,626 615,527 - 696,443
Other operating expenses 5,310,262 709,281 - -
Depreciation and amortization 4,383,049 451,929 91,174 393,204
Selling, general and administrative 3,200,742 479,083 471,854 2,407,479
Contractual settlements and
restructuring charges 2,169,503 - - -
----------------- ------------------ ------------------ -------------------
24,006,881 3,239,024 1,171,089 5,041,082
----------------- ------------------ ------------------ -------------------
(Loss) income from operations (5,288,898) 121,572 23,532 634,386
Other income (expense) - 733 916 (85,231)
Interest expense (781,808) (149,248) - (64,210)
Interest expense - accretion of debt (55,103) - - -
Interest income 16,112 - 666 14,800
----------------- ------------------ ------------------ -------------------
(Loss) income before income taxes
and extraordinary items (6,109,697) (26,943) 25,114 499,745
Income taxes - 35,800 2,300 -
----------------- ------------------ ------------------ -------------------
(LOSS) INCOME BEFORE
EXTRAORDINARY ITEMS ($6,109,697) ($62,743) $22,814 $499,745
================= ================== ================== ===================
Earnings per share calculation:
Preferred dividend payable in cash (309,668) - - -
Preferred dividend payable in kind - - - -
Redemption of 10%, 8%, and
7% Preferred - - - -
----------------- ------------------ ------------------ -------------------
(Loss) income before extraordinary
items applicable to
common shareholders ($6,419,365) ($62,743) $22,814 $499,745
================= ================== ================== ===================
Per common share loss before
extraordinary items ($3.29)
=================
Weighted average number of shares 1,950,561 365,520 190,069
================= ================== ==================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments Adjustments
for for Debt Pro Forma
Ref Acquisitions Ref Restructuring Combined
------- -------------------- ------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Coin calls and commissions - - $23,118,322
Operator services and other - - 5,830,346
-------------------- ------------------ -------------------
- - 28,948,668
-------------------- ------------------ -------------------
COSTS AND EXPENSES:
Line and transmission charges - - 8,610,920
Location commissions - - 4,779,596
Other operating expenses - - 6,019,543
Depreciation and amortization [4] $3,575,564 - 8,894,920
Selling, general and administrative [4] (1,146,051) - 5,413,107
Contractual settlements and
restructuring charges - - 2,169,503
-------------------- ------------------ -------------------
2,429,513 - 35,887,589
-------------------- ------------------ -------------------
(Loss) income from operations (2,429,513) - (6,938,921)
Other income (expense) - - (83,582)
Interest expense - [5] ($3,462,527) (4,457,793)
Interest expense - accretion of debt - [5] (3,022,564) (3,077,667)
Interest income - - 31,578
-------------------- ------------------ -------------------
(Loss) income before income taxes
and extraordinary items (2,429,513) (6,485,091) (14,526,385)
Income taxes - - 38,100
-------------------- ------------------ -------------------
(LOSS) INCOME BEFORE
EXTRAORDINARY ITEMS ($2,429,513) ($6,485,091) ($14,564,485)
==================== ================== ===================
Earnings per share calculation:
Preferred dividend payable in cash - [5] 309,668 -
Preferred dividend payable in kind - [5] (653,235) (653,235)
Redemption of 10%, 8%, and
7% Preferred - [5] (2,002,386) (2,002,386)
-------------------- ------------------ -------------------
(Loss) income before extraordinary
items applicable to
common shareholders ($2,429,513) ($8,831,044) ($17,220,106)
==================== ================== ===================
Per common share loss before
extraordinary items ($6.87)
===================
Weighted average number of shares 2,506,150
===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 1
EXHIBIT (b) 4
PHONETEL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
FOOTNOTES TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Cash $424,185
Accounts receivable, net 418,424
Other current assets 15,020
Intangible assets, net 272,839
Other assets 15,098
Current portion of long-term debt 158,904
Accounts payable $ 81,927
Accrued expenses 228,499
Deferred income taxes 6,000
Accumulated (deficit) earnings 988,044
</TABLE>
Adjustments for assets and liabilities not acquired from IPP or
Paramount on March 15, 1996 and the recording of additional debt.
<TABLE>
<CAPTION>
<S> <C> <C>
(2) Cash $14,459,236
Property and equipment, net $7,748,805
Intangible assets, net 9,939,412
Other assets 925,000
Current portion of long-term debt 1,033,112
Accounts payable 294,657
Accrued expenses 132,922
Long-term debt 762,589
Obligations under capital leases 76,419
14% convertible preferred stock 621,664
Common stock 8,103
Additional paid in capital 3,506,767
Accumulated (deficit) earnings 483,352
</TABLE>
To record the acquisition of IPP and Paramount for a purchase price
consisting of cash, 555,589 unregistered shares of Common Stock, 13,786
shares of 14% Preferred, and Nominal Value Warrants to purchase 297,781
shares of Common Stock; assumption and immediate payoff of most of the
acquired debt; the write-up of acquired property, plant, and equipment
to its fair value; the recording of the increased value of IPP's and
Paramount's existing phone contracts; the value of four Non-compete
Agreements with three former officers of IPP and one former officer of
Paramount; and the recording of the fair value of the Nominal Value
Warrants. The shares of Common Stock were valued at the average of the
BID and ASK on the date of closing (March 15, 1996) as reported by
NASDAQ, less an unregistered discount of 35% ("Discounted Market
Price"). Each share of the 14% Preferred was valued based on its
conversion into ten shares of Common Stock priced at the Discounted
Market Price. The Nominal Value Warrants were valued based on their
equivalent common shares at the Discounted Market Price less the
nominal exercise price per share. As required by purchase accounting,
the accumulated retained earnings or deficits of IPP and Paramount
prior to the date of acquisition were eliminated.
<PAGE> 2
PHONETEL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
FOOTNOTES TO FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
(3) Cash $14,552,395
Property and equipment, net 346,500
Intangible assets, net 3,838,638
Current portion of long-term debt $ 1,305,954
Accounts payable 2,619,746
Obligation relating to contractual
settlements and restructuring charges 753,500
Long-term debt 10,904,212
Obligations under capital leases 3,243,965
Deferred revenues 1,200,000
14% convertible preferred stock 5,647,823
10% redeemable preferred stock 1
8% cumulative preferred stock 981,084
7% convertible preferred stock 200,000
Common stock 164
Additional paid in capital 10,167,507
Accumulated (deficit) earnings 2,689,831
</TABLE>
To record the restructuring of the Company's long-term debt and
obligations under capital leases and application of the debt proceeds,
including - repayment of certain obligations of the Company (payment of
transaction fees, all outstanding debt and obligations under capital
leases which had a secured interest in the Company's operating assets,
certain trade accounts payable and customer commissions, shareholders
loans, and redemption of the 10%, 8%, and 7% Preferred stock). A
portion of the outstanding debt at December 31, 1995, was paid with
16,371 shares of Common Stock. A charge to Stockholder's Equity of
$2,002,386, representing the difference between the carrying value of
the 10%, 8%, and 7% Preferred and the redemption price. An
extraordinary loss resulting from the restructuring of the Company's
debt, of $687,445.
<TABLE>
<CAPTION>
<S> <C> <C>
(4) Selling, general, and administrative $1,146,051
Depreciation and amortization $3,575,564
Accumulated (deficit) earnings 2,429,513
</TABLE>
Represents the estimated recurring benefits resulting from the
acquisitions and the incremental depreciation and amortization
associated with the acquired tangible and intangible assets. The
savings are primarily the result of backroom efficiencies, including
the elimination of certain offices and executives and economies of
scale in billing and other operating areas. The increase in property,
plant and equipment is assumed to depreciate over 60 months while the
intangible assets relating to IPP's and Paramount's existing phone
contracts is being amortized over 60 months, representing the average
remaining life of all acquired contracts. The value of the Non-compete
Agreements is being amortized over the life of the agreements which is
60 months.
<PAGE> 3
PHONETEL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
FOOTNOTES TO FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
(5) Interest expense $ 3,462,527
Accretion of debt [interest expense] 3,022,564
Preferred dividend requirement paid in cash $ 309,668
Preferred dividend requirement paid in kind 653,235
Redemption of 10%, 8%, 7% Preferred 2,002,386
Accumulated (deficit) earnings 8,831,044
</TABLE>
Recording of the incremental increase in interest expense resulting
from the additional debt; the accretion of debt (required because a
portion of the new debt was reclassified to Shareholders' Equity in
order to represent the cost of the issued warrants; accretion expense
is recorded as a non-cash interest expense); elimination of the
redeemed preferred dividend requirements; the annual 14% Preferred
paid-in-kind dividend requirement (payable with 15,921 shares of 14%
Preferred with a valuation based on the conversion of the 14% Preferred
dividend shares into 159,205 shares of Common Stock priced at the
average of the HIGH and LOW price for the Company's Common Stock as
reported by NASDAQ on March 29, 1996, less an unregistered discount of
35%); and the difference between the carrying value of the 10%, 8%, and
7% Preferred and the redemption price.
(6) The Company acquired World Communications, Inc. ("World") on September
22, 1995, and Public Telephone Corporation ("Public") on October 16,
1995. The Company's audited Statement of Operations for the year ended
December 31, 1995, includes the acquisition of World and Public from
September 22, 1995 and October 16, 1995, respectively.
