<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-16715
PHONETEL TECHNOLOGIES, INC.
---------------------------
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
OHIO 34-1462198
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO,)
INCORPORATION OR ORGANIZATION)
1127 EUCLID AVENUE, SUITE 650, STATLER OFFICE TOWER 44115-1601
- --------------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(216) 241-2555
--------------
(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 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 MAY 10, 1996, 4,364,016 SHARES
OF THE REGISTRANT'S COMMON STOCK $.01 PAR VALUE, WERE OUTSTANDING.
Transitional Small Business Disclosure Format (check one): Yes No X
------ -------
page 1 of 18 pages
<PAGE> 2
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995..........................................................3
Statements of Consolidated Operations for the Three
Months Ended March 31, 1996 and 1995...........................................4
Statements of Consolidated Cash Flows for the Three
Months Ended March 31, 1996 and 1995...........................................5
Notes to Consolidated Financial Statements........................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................11
PART II. OTHER INFORMATION
Item 2. Changes in Securities............................................................15
Item 6. Exhibits and Reports on Form 8-K.................................................15
Signatures.......................................................................18
</TABLE>
page 2 of 18 pages
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
1996 1995
----------------- ------------------
ASSETS
<S> <C> <C>
Current assets:
Cash $2,027,079 $713,462
Accounts receivable, net of allowance for doubtful
of $100,961 and $40,000, respectively 1,311,272 901,508
Other current assets 292,618 185,634
----------------- ------------------
Total current assets 3,630,969 1,800,604
Property and equipment, net 23,543,118 14,099,111
Intangible assets, net 24,895,759 11,592,157
Other assets 223,522 1,425,384
----------------- ------------------
$52,293,368 $28,917,256
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $3,660,619 $1,010,412
Current portion of obligation under capital leases 75,503 288,972
Accounts payable 2,072,954 2,772,306
Accrued expenses 2,409,191 1,610,100
Obligations relating to contractual settlements
restructuring charges 163,810 962,338
----------------- ------------------
Total current liabilities 8,382,077 6,644,128
Long-term debt 19,436,956 9,318,501
Obligations under capital leases 179,808 3,243,965
Deferred revenues 1,200,000 -
Total shareholders' equity 23,094,527 9,710,662
================= ==================
$52,293,368 $28,917,256
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 3 of 18 pages
<PAGE> 4
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended March 31
1996 1995
----------------- ------------------
<S> <C> <C>
REVENUES:
Coin calls $4,469,209 $2,331,105
Non-coin 1,908,882 1,301,288
Dial around compensation 202,764 115,744
Commissions 43,163 25,178
----------------- ------------------
6,624,018 3,773,315
----------------- ------------------
COSTS AND EXPENSES:
Line charges 1,602,040 813,343
Operator services processing expense 827,100 561,030
Location commissions 1,159,466 629,700
Other operating expenses 1,307,641 941,636
Depreciation and amortization 2,006,677 700,900
Selling, general and administrative 1,151,739 625,044
Contractual settlements and restructuring charges 577,375 -
----------------- ------------------
8,632,038 4,271,653
----------------- ------------------
Loss from operations (2,008,020) (498,338)
Interest expense (668,619) (102,741)
----------------- ------------------
Loss before exraordinary items (2,676,639) (601,079)
Extraordinary item:
Loss on debt restructuring (816,559) -
----------------- ------------------
NET LOSS ($3,493,198) ($601,079)
================= ==================
Earnings per share calculation:
Preferred dividend requirement payable in cash - (77,417)
Preferred dividend requirement paid in kind (27,249) -
Redemption of 10%, 8%, and 7% Preferred (2,002,386) -
----------------- ------------------
Net loss applicable to common shareholders ($5,522,833) ($678,496)
================= ==================
Net loss per common share before extraordinary items ($1.59) ($0.45)
================= ==================
Net loss per common share ($1.87) ($0.45)
================= ==================
Weighted average number of shares 2,955,894 1,523,537
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 4 of 18 pages
<PAGE> 5
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended March 31
1996 1995
----------------- ------------------
<S> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net loss ($3,493,198) ($601,079)
Adjustments to reconcile net loss to net
cash flow from operating activities:
Depreciation and amortization 2,006,677 700,900
Stock issued in lieu of cash payments 20,621 5,000
Accretion of debt 297,801 -
Extraordinary loss on debt restructuring 247,974 -
Increase in allowance for doubtful accounts 60,961 -
Changes in assets and liabilities:
Accounts receivable (325,125) (167,979)
Other current assets (106,984) 86,996
Accounts payable (579,352) 240,953
Accrued expenses 681,591 34,659
Obligations relating to contractual
settlements and restructing charges (798,528) -
----------------- ------------------
(1,987,562) 299,450
----------------- ------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of International Pay Phones, Inc. (4,687,353) -
Acquisition of Paramount Communications Systems (9,691,500) -
Deferred revenues 1,200,000 -
Purchases of intangible assets (85,371) (60,681)
Change in other assets 276,862 (22,204)
Purchases of property and equipment (323,068) (175,089)
----------------- ------------------
(13,310,430) (257,974)
----------------- ------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt issuances 30,530,954 -
Proceeds from shareholder debt 550,000 -
Principal payments on borrowings (9,886,027) (497,944)
Proceeds from issuance of preferred and
common stock and other - 90,000
Debt financing costs (3,465,948) -
Redemption of 10% and 8% Preferred Stock (1,117,370) -
Equity financing costs - (52,935)
Proceeds from warrant and option exercises - 20,000
----------------- ------------------
16,611,609 (440,879)
----------------- ------------------
Increase (decrease) in cash 1,313,617 (399,403)
Cash at beginning of period 713,462 478,756
----------------- ------------------
Cash at end of period $2,027,079 $79,353
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
page 5 of 18 pages
<PAGE> 6
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all
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 accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB and subsequently amended on Form
10-KSB\A-1 for the year ended December 31, 1995.
Certain amounts relating to the three months ended March 31, 1995 have
been reclassified to conform to the current quarter presentation. The
reclassifications have no impact on total assets, shareholders' equity or
net loss as previously reported.
2. ACQUISITIONS AND MERGERS
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 $3,496,487 in cash, and 555,589 unregistered shares
of the Company's Common Stock, par value $.01, ("Common Stock"), 5,453
shares of 14% Convertible Cumulative Redeemable Preferred Stock, without
par value, $60 stated value, non-voting, 200,000 authorized shares, and
with each share convertible into 10 shares of Common Stock ("14%
Preferred"), and warrants to purchase 117,785 shares of the Company's
Common Stock at a nominal exercise price per share ("Nominal Value
Warrants"). Additionally, the Company assumed approximately $1,757,000 in
liabilities, of which $1,551,795 was repaid by the Company on March 15,
1996. The cash purchase price included three five year non-compete
agreements, with an aggregate value of $60,000, with three of IPP's
former officers.
On March 15, 1996, the Company completed a Share Purchase Agreement with
Paramount Communications Systems, Inc. (a Florida corporation)
("Paramount"). Under the terms of the Agreement, the Company acquired
2,528 installed phones for a cash purchase price of $9,618,553, 8,333
shares of 14% Preferred (immediately convertible into 83,330 shares of
Common Stock), Nominal Value Warrants to purchase 179,996 shares of the
Company's
page 6 of 18 pages
<PAGE> 7
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
2. ACQUISITIONS AND MERGERS (CONTINUED)
Common Stock, and the Company assumed outstanding liabilities of
approximately $733,000, of which $697,947 was repaid on March 15, 1996.
The purchase price included a five year consulting and non-compete
agreement, valued at $50,000, with one of Paramount's former officers.
The acquisitions were recorded as purchases and the differences between
the fair values of the tangible assets acquired and the total purchase
price was recorded as an increase to intangibles and amortized over the
life of the acquired location contracts which was estimated to be 60
months.
3. PROPERTY AND EQUIPMENT
As of March 31, 1996 and December 31, 1995 property and equipment
consisted of the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives March 31 December 31,
(in years) 1996 1995
---------- ---- ----
<S> <C> <C> <C>
Telephone boards, enclosures and cases 3-7 $ 26,582,376 $ 16,386,987
Furniture, fixtures and other equipment 3-5 1,161,364 989,300
Leasehold improvements 2-5 217,624 231,466
-------------- ------------
27,961,364 17,607,753
LESS - ACCUMULATED DEPRECIATION ( 4,418,246) ( 3,508,642)
-------------- -------------
$ 23,543,118 $ 14,099,111
============== ============
</TABLE>
4. INTANGIBLE ASSETS
As of March 31, 1996 and December 31, 1995, intangible assets consisted
of the following:
<TABLE>
<CAPTION>
Amortization March 31 December 31
Period 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Costs incurred in the acquisition and
installation of phones 36-120 months $ 23,203,065 $ 13,403,126
Debt restructuring costs 60 months 4,440,948 --
Non-compete agreements 24-60 months 1,623,765 1,513,765
State operating certifications 60 months 466,796 466,796
------------ ------------
29,734,574 15,383,687
Less: accumulated amortization (4,838,815) (3,791,530)
------------ ------------
$ 24,895,759 $ 11,592,157
============ ============
</TABLE>
page 7 of 18 pages
<PAGE> 8
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
5. LONG-TERM DEBT
In a transaction consummated on March 15, 1996, the Company borrowed
$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"). As of March 31, 1996, the Company has
available under the credit facility $6,700,000 to fund future acquisitions
and for general working capital purposes. The Company used the funds to
complete the Paramount and IPP acquisitions, to repay all outstanding
long-term debt and capital lease obligations which had a secured interest
in the Company's installed phones ($8,503,405 of outstanding debt was
repaid and $3,173,931 of the outstanding obligations under capital leases
was repaid), to redeem the 10% Cumulative Redeemable Preferred Stock ("10%
Preferred"), 8% Cumulative Redeemable Preferred Stock ("8% Preferred"), and
7% Cumulative Convertible Redeemable Preferred Stock ("7% Preferred"), and
to pay related transaction fees. The ING credit facility requires monthly
interest payments at prime plus 5% and contains various covenants
restricting the Company's ability to pay dividends or incur additional
debt, among other conditions, and also contains financial covenants
requiring minimum net worth, working capital and earnings before interest,
depreciation and amortization among other covenants. The credit facility
also contains a subjective acceleration clause which states that in the
event of a material adverse change in the business, as determined by ING,
ING can call the debt at its discretion. ING has waived their right to
exercise this subjective acceleration clause through April 1, 1997.
Principal payments commence September 1997, and continue quarterly through
June 1999 at which time the remaining principal balance is due. The amount
of the principal payment is 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 $29,000,000) can be
converted into Series B Special Convertible Preferred Stock, $0.20 par
value, $120 stated value, 250,000 shares authorized ("Series B Preferred"),
at the ratio of 833 shares for each $100,000 in outstanding debt and
accrued interest. Additionally, ING received warrants to purchase 204,824
shares of Series A Special Convertible Preferred Stock, $0.20 par value,
$0.20 stated value, 250,000 shares authorized ("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 ING
debt was recorded net of the fair value of the warrants. The Company has
estimated the quarterly non-cash interest expense will be in excess of
$756,000.
page 8 of 18 pages
<PAGE> 9
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
6. SHAREHOLDERS' EQUITY
As of March 31, 1996 and December 31, 1995, shareholders' equity consisted
of the following:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
---- ----
<S> <C> <C> <C> <C>
10% Cumulative Nonvoting Redeemable Preferred Stock ($10 stated value -
550,000 shares authorized; 530,534 shares issued and outstanding at
March 31, 1996 and December 31, 1995) $ 5,305,340 $ 5,305,340
14% Cumulative Redeemable Convertible Preferred Stock ($60 stated value
- 200,000 shares authorized; 107,918.19 shares issued and
outstanding at March 31, 1996) 6,269,487 -
Series A Special Convertible Preferred Stock ($0.20 par value, $0.20
stated value - 250,000 shares authorized; no shares issued) - -
Series B Special Convertible Preferred Stock ($0.20 par value, $120
stated value - 250,000 shares authorized; no shares issued) - -
10% Cumulative Redeemable Preferred Stock ($1,000 stated value - 3,880
shares authorized; 1,496 shares issued and outstanding at
December 31, 1995, redeemed on March 15, 1996) - 1
8% Cumulative Redeemable Preferred Stock ($100 stated value - 16,000
shares authorized; 12,200 shares issued and outstanding at
December 31, 1995, redeemed on March 15, 1996) - 981,084
7% Cumulative Convertible Redeemable Preferred Stock ($100 stated
value - 2,500 shares authorized, issued and outstanding at
December 31, 1995, redeemed on March 15, 1996) - 200,000
</TABLE>
page 9 of 18 pages
<PAGE> 10
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------
6. Shareholders' Equity (continued)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------- ----------
Common Stock
<S> <C> <C>
($0.01 par value - 22,500,000 shares authorized; 3,391,529 and
2,855,350 shares issued and outstanding at March 31, 1996 and
December 31, 1995) 33,915 28,554
Additional paid-in capital 30,435,245 16,649,559
Accumulated deficit (18,949,460) (13,453,876)
------------ ------------
$ 23,094,527 $ 9,710,662
============ ============
</TABLE>
On February 23, 1996, the Company created three new classes of preferred
stock: (i) Series A Preferred; (ii) Series B Preferred; and (iii) 14%
Preferred. Each share of the 14% Preferred is entitled to receive a
quarterly dividend of 0.035 shares of 14% Preferred.
On March 15, 1996, concurrent with the ING transaction, the Company
redeemed the 10% Preferred, 8% Preferred, and the 7% Preferred. The
redemption price was cash payments aggregating $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 IPP and
Paramount acquisitions, was liquidated by issuing 107,918 shares of 14%
Preferred. The $2,002,386 excess of the redemption price of the preferred
issues redeemed over their aggregate carrying value was recorded as a
reduction of earnings available to common shareholders as of March 31,
1996.
On March 15, 1996, Nominal Value Warrants to purchase 2,018,942 shares of
Common Stock were issued in conjunction with the IPP and Paramount
acquisitions, redemption of the 10%, 8% and 7% Preferred, and conversion of
certain debt of the Company to the 14% Preferred. The warrants expire on
March 13, 2001.
Subsequent to March 31, 1996, warrants representing 972,487 shares of
Common Stock were exercised, and total proceeds to the Company were $9,725.
Of the total warrants exercised, 539,989 shares of Common Stock were issued
to an officer of the Company.
page 10 of 18 pages
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS AND MERGERS
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 $3,496,487 in cash, and
555,589 unregistered shares of the Company's Common Stock, 5,453 shares of 14%
Preferred (immediately convertible into 54,530 shares of Common Stock), and
Nominal Value Warrants to purchase 117,785 shares of the Company's Common Stock.
Additionally, the Company assumed approximately $1,757,000 in liabilities, of
which $1,551,795 was repaid by the Company on March 15, 1996. The cash purchase
price included three five year non-compete agreements, with an aggregate value
of $60,000, with three of IPP's former officers.
On March 15, 1996, the Company completed a Share Purchase Agreement with
Paramount Communications Systems, Inc. (a Florida corporation) ("Paramount").
Under the terms of the Agreement, the Company acquired 2,528 installed phones
for a cash purchase price of $9,618,553, 8,333 shares of 14% Preferred Stock
(immediately convertible into 83,330 shares of Common Stock), Nominal Value
Warrants to purchase 179,996 shares of the Company's Common Stock, and the
Company assumed outstanding liabilities of approximately $733,000, of which
$697,947 was repaid on March 15, 1996. The purchase price included a five year
consulting and non-compete agreement, valued at $50,000, with one of Paramount's
former officers.
The acquisitions were recorded as purchases and the differences between the fair
values of the tangible assets acquired and the total purchase price was recorded
as an increase to intangibles and amortized over the life of the acquired
location contracts which was estimated to be 60 months. The results of
operations of each acquired company are included in the results of operations of
the Company from March 15, 1996.
LIQUIDITY AND CAPITAL RESOURCES
In a transaction consummated on March 15, 1996, the Company borrowed $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"). As of March 31, 1996, the Company had available under the credit
facility $6,700,000 to fund future acquisitions and for general working capital
purposes. The Company used the funds to complete the Paramount and IPP
acquisitions, to repay all outstanding long-term debt and capital lease
obligations which had a secured interest in the Company's installed phones
($8,503,405 of outstanding debt was repaid and $3,173,931 of the outstanding
obligations under capital leases was repaid), to redeem the 10%, 8%, and 7%
Preferred, and to pay related transaction fees. The ING credit facility requires
monthly interest payments at prime plus 5% and contains various covenants
restricting the Company's ability to pay dividends or incur additional debt,
among other conditions, and also contains financial covenants requiring minimum
net worth, working capital and earnings before interest, depreciation and
amortization among other covenants. The credit facility also contains a
subjective acceleration clause which states that in the event of a material
adverse change in the business, as determined by ING, ING can call the debt at
its discretion. ING has waived their right to exercise this subjective
acceleration clause through April 1, 1997. Principal payments commence
page 11 of 18 pages
<PAGE> 12
September 1997, and continue quarterly through June 1999 at which time the
remaining principal balance is due. The amount of the principal payment is
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 $29,000,000) can be converted
into Series B Preferred at the ratio of 833 shares for each $100,000 in
outstanding debt and accrued 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 ING debt was recorded net of the fair value
of the warrants. The Company has estimated the quarterly non-cash interest
expense will be in excess of $756,000.
On March 15, 1996, concurrent with the ING transaction, the Company redeemed the
10%, 8%, and 7% Preferred. The redemption price was cash payments aggregating
$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 IPP and Paramount acquisitions, was liquidated by issuing 107,918.19
shares of 14% Preferred. The $2,002,386 excess of the redemption price of the
preferred issues redeemed over their aggregate carrying value was recorded as a
reduction of earnings available to common shareholders on March 15, 1996.
On March 15, 1996, Nominal Value Warrants to purchase 2,018,942 shares of Common
Stock were issued in conjunction with the IPP and Paramount acquisitions,
redemption of the 10%, 8%, and 7% Preferred, and conversion of certain debt of
the Company to the 14% Preferred. The warrants expire on March 13, 2001.
At March 31, 1996, long-term debt, including the current portion and excluding
the portion allocated to the ING warrants, was $23,097,575 and obligations under
capital leases, including the current portion, amounted to $255,311 compared
with $10,328,913 and $3,532,937 at December 31, 1995, an increase of $12,768,662
in long-term debt and a decrease of $3,277,626 in obligations under capital
leases. Total long-term debt outstanding, including the current portion and the
amount allocated to the ING warrants, was $32,920,910 at March 31, 1996. The
overall increase is mostly attributable to debt incurred in connection with the
IPP and Paramount acquisitions.
The Company had a working capital deficit of $4,751,108 at March 31, 1996,
compared to a working capital deficit of $4,843,524 at December 31, 1995, an
improvement of $92,416. Income before non-cash items, contractual settlements
and restructuring charges, interest, and the extraordinary loss on debt
restructuring was $596,653 for the three months ended March 31, 1996, compared
to $207,562, for the three months ended March 31, 1995, an increase of $389,091.
Cash flows used in operations in the first quarter of 1996 amounted to
$1,987,562 a decrease of $2,287,012 over cash provided by operations in first
quarter of 1995 of $299,450, mostly due to the larger loss in the first quarter
of 1996 and repayment of significant payables.
Management believes, but can not assure, that cash flow from operations, the
proceeds and the availability under the credit facility 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.
page 12 of 18
<PAGE> 13
RESULTS OF OPERATIONS
At March 31, 1996, the Company had approximately 14,622 installed phones
compared to 4,950 at March 31, 1995, an increase of 9,672 installed phones, or
195.4%. The increase in installed phones is attributable to phones acquired in
acquisitions and internal growth.
REVENUE
Total revenue from all product lines was $6,624,018 and $3,773,315 for the three
months ended March 31, 1996 and 1995, respectively, representing an increase of
$2,850,703, or 75.5%, in the first quarter of fiscal 1996 over 1995. Revenue by
type is described below.
Revenues from coin calls increased to $4,469,209 in the first quarter of 1996
from $2,331,105 in 1995, an increase of $2,138,104 or 91.7%. This increase is
attributable primarily to an increase in the number of installed pay telephones.
Total installed pay phones increased by 9,672, with the majority of the increase
occurring in the fourth quarter of 1995 and the first quarter of 1996 and
attributable to the Company's recent acquisitions.
Non-coin revenue increased to $1,908,882 in the first quarter of 1996 from
$1,301,288 in 1995, an increase of $607,594, or 46.7%. The increase was
primarily due to more revenue producing phones, however, this increase was
offset due to a reduction in operator assisted calls because of aggressive dial
around advertising by AT&T, MCI, and others. The Company decided to outsource
its operator service center and a substantial portion of the traffic was moved
to the subcontractor by March 31, 1996. Operator services are provided by a
subcontractor that is better equipped to handle the increased volume which is
expected from the recent acquisitions.
Dial around compensation increased to $202,764 for the three months ended March
31, 1996 as compared to $115,744 for the three months ended March 31, 1995, an
increase of $87,020 or 75.2%. This increase was primarily the result of
increased telephones.
Commission revenue consists of compensation received from various telephone
providers. Commission revenue increased to $43,163 for the three months ended
March 31, 1996 as compared to $25,178 for the first three in 1995, an increase
of $17,985 or 71.4%. This increase was primarily the result of the acquisitions.
COSTS AND EXPENSES
Line charges were $1,602,040, or 24.2 % of revenues, for the three months ended
March 31, 1996 as compared to $813,343, or 21.6% of revenues, for the three
months ended March 31, 1995 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.
Operator services processing charges were $827,100, or 12.5% of revenues, for
the three months ended March 31, 1996 compared to $561,030, or 14.9% of
revenues, for the comparable quarter in 1995 primarily due to the outsourcing of
the operator service center.
page 13 of 18 pages
<PAGE> 14
Location commissions were $1,159,466, or 17.5% of revenues, for the three months
ended March 31, 1996 compared to $629,700, or 16.7% of revenues, for the
comparable quarter in 1995 as a result of location agreements from phones
acquired in the acquisition of World and Public and due to increased competition
in obtaining new locations.
Other operating expenses were $1,307,641, or 19.7% of revenues, for the three
months ended March 31, 1996, compared to $941,636, or 25% of revenues, for the
three months ended March 31, 1995. The increase was the result of higher
personnel costs, rent, utilities and service related expenses attributable to
acquisitions completed in the fourth quarter of fiscal 1995 and the first
quarter of fiscal 1996, the increase in the Company's pay telephone base, and
the additional field 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 was $2,006,677, or 30.3% of revenues, for the
three months ended March 31, 1996, as compared to $700,900, or 18.6% of revenues
for the three months ended March 31, 1995. This increase was primarily due to
the Company's acquisitions 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 were $1,151,739, or 17.4% of
revenues for the three months ended March 31, 1996 as compared to $625,044, or
16.6% of revenues, for the three months ended March 31, 1995. The increase was
primarily the result of the acquisitions.
Interest expense was $370,479, or 5.6% of revenues, for the three months ended
March 31, 1996, compared to $103,291, or 2.7% of revenues, for the quarter ended
March 31, 1995 due to the financing obtained for the recent acquisitions.
Non-cash interest expense was $297,974, or 4.5% of revenues, for the three
months ended March 31, 1996, representing the accretion of the ING debt to its
maturity amount.
Contractual settlements and restructuring charges were $577,375, or 8.7% of
revenues, for the first three months of 1996, as compared to $0 for the first
three months of 1995. Contractual settlements and restructuring charges consist
primarily of the costs associated with the write-off of selected assets in
connection with the continued evaluation of the Company's operations and certain
one-time charges and consulting fees incurred for changes to the operations of
the Company.
The Company recorded an extraordinary loss of $816,559, or 12.3% of revenues,
for the three months ended March 31, 1996. The extraordinary loss related to
additional one-time costs that were incurred on the restructuring of the
Company's debt and obligations under non-cancelable capital leases. Concurrent
with the restructuring of the Company's debt and the redemption of the 10%, 8%
and 7% Preferred, the Company recorded the difference between the carrying value
of the 10%, 8%, and 7% Preferred and the redemption price as a decrease to the
accumulated deficit of $2,002,386, of which $1,255,736 was a non-cash accounting
entry. As of March 31, 1996, the Company owed cumulative dividends on the 14%
Preferred of 664.12 shares of 14% Preferred valued at $27,249.
page 14 of 18 pages
<PAGE> 15
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. The Company phones in the northern and western
states, located outdoors, experienced greater than expected reduced revenues due
to the record breaking 1995/1996 winter weather.
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 and/or service commissions or the Federal Communications Commission
may not allow increases in charges to customers.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
WORKING CAPITAL RESTRICTIONS AND OTHER LIMITATIONS UPON THE PAYMENT OF DIVIDENDS
The ING credit facility contains various covenants restricting the Company's
ability to pay dividends or incur additional debt, among other conditions, and
also contains financial covenants requiring minimum net worth, working capital
and earnings before interest, depreciation and amortization among other
covenants.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Company during the
first quarter of 1996.
page 15 of 18 pages
<PAGE> 16
FORM 8-K/A-2 AMENDING FORM 8-K DATED OCTOBER 16, 1995:
(b) Pro Forma Financial Information:
1. Public Telephone Corporation and PhoneTel Technologies, Inc.
Unaudited Pro Forma Combined Condensed Balance Sheet at
September 30, 1995.
2. Public Telephone Corporation and PhoneTel Technologies, Inc.
Unaudited Pro Forma Combined Condensed Income Statements for
the Year Ended December 31, 1994, and Six Months Ended
September 30, 1995.
3. Public Telephone Corporation and PhoneTel Technologies, Inc.
Pro Forma Combined Condensed Financial Information -
Footnotes to Financial Information.
FORM 8-K DATED MARCH 15, 1996:
(a) Financial Statements of Business Acquired:
1. International Pay Phones, Inc. of South Carolina Financial
Statements For the Year Ended December 31, 1994
2. International Payphones, Inc. of Tennessee Financial
Statements For the Year Ended December 31, 1994 and for the
Nine Months Ended September 30, 1995
3. Paramount Communications Systems, Inc. Financial Statements
For the Years Ended December 31, 1994, 1993, and 1992.
(c) Other Exhibits:
1. Agreement and Plan of Merger between PhoneTel Technologies,
Inc. and International Pay Phones, Inc. (a South Carolina
company) dated November 22, 1995, and all amendments thereto.
2. Agreement and Plan of Merger between PhoneTel Technologies,
Inc. and International Pay Phones, Inc. (a Tennessee
company) dated November 22, 1995, and all amendments thereto.
3. Share Purchase Agreement between PhoneTel Technologies, Inc.
and Paramount Communications Systems, Inc., dated November
16, 1995, and all amendments thereto.
4. Credit Agreement dated as of March 15, 1996 among PhoneTel
Technologies, Inc., Various Lenders and Internationale
Nederlanden (U.S.) Capital Corporation.
page 16 of 18 pages
<PAGE> 17
5. Security Agreement dated as of March 15, 1996 among PhoneTel
Technologies, Inc., Public Telephone Corporation, World
Communications, Inc., Northern Florida Telephone Corporation
and Paramount Communications Systems, Inc. and
Internationale Nederlanden (U.S.) capital Corporation as
Agent for itself and certain other lenders.
6. Warrant Purchase Agreement dated as of March 15, 1996
between PhoneTel Technologies, Inc. and Internationale
Nederlanden (U.S.) Capital Corporation and Cerberus
Partners, L.P.
7. Registration Rights Agreement dated March 15, 1996 between
PhoneTel Technologies, Inc. and Internationale Nederlanden
(U.S.) Capital Corporation and Cerberus Partners, L.P.
page 17 of 18 pages
<PAGE> 18
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHONETEL TECHNOLOGIES, INC.
May 13, 1996
By: /s/ Peter G. Graf
------------------------
Peter G. Graf
Chairman of the Board and
Chief Executive Officer
page 18 of 18 pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996, AND THE STATEMENT OF
CONSOLIDATED OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE
ACCOMPANYING NOTES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,027,079
<SECURITIES> 0
<RECEIVABLES> 1,412,233
<ALLOWANCES> (100,961)
<INVENTORY> 0
<CURRENT-ASSETS> 3,630,969
<PP&E> 27,961,364
<DEPRECIATION> (4,418,246)
<TOTAL-ASSETS> 52,293,368
<CURRENT-LIABILITIES> 8,382,077
<BONDS> 19,616,764
<COMMON> 33,915
6,269,487
5,305,340
<OTHER-SE> 11,485,785
<TOTAL-LIABILITY-AND-EQUITY> 52,293,368
<SALES> 0
<TOTAL-REVENUES> 6,624,018
<CGS> 0
<TOTAL-COSTS> 8,632,038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 668,619
<INCOME-PRETAX> (2,676,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,676,639)
<DISCONTINUED> 0
<EXTRAORDINARY> (816,559)
<CHANGES> 0
<NET-INCOME> (3,493,198)
<EPS-PRIMARY> ($1.87)
<EPS-DILUTED> 0
</TABLE>
