<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
---------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0 - 22730
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Communications Central Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-1804173
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1150 Northmeadow Pkwy., Suite 118, Roswell, Georgia 30076
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(Address of principal executive offices) (Zip Code)
(770) 442-7300
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
There were 6,054,556 shares of Common Stock outstanding as of November 1, 1996.
<PAGE>
COMMUNICATIONS CENTRAL INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
INDEX
Page
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PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
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Consolidated Balance Sheets - September 30,
1996 and June 30, 1996 3 - 4
Consolidated Statements of Income - Three Months Ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows -Three Months Ended
September 30, 1996 and 1995 6
Note to Consolidated Financial Statements - September 30, 1996 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS 8 - 12
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES 13
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 - 15
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</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
COMMUNICATIONS CENTRAL INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
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(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 2,084,005 $ 2,266,327
Accounts receivable, less allowance for doubtful accounts
of $1,836,000 and $2,140,000 at September 30, 1996 and
June 30, 1996, respectively..................................... 10,881,849 10,612,382
Prepaid expenses................................................. 854,274 707,699
Other current assets............................................. 882,343 870,815
------------ ------------
Total current assets.......................................... 14,702,471 14,457,223
Operating equipment:
Telecommunications equipment.................................... 73,787,222 73,262,895
Uninstalled equipment........................................... 1,498,748 1,437,637
------------ ------------
75,285,970 74,700,532
Less accumulated depreciation and amortization.................. (31,479,453) (29,922,368)
------------ ------------
43,806,517 44,778,164
Leasehold improvements and office furniture and equipment,
net of accumulated depreciation and amortization of
approximately $2,408,000 and $2,162,000 at September 30, 1996
and June 30, 1996, respectively.................................. 1,462,883 1,595,312
Deferred loan costs, net of accumulated amortization of $338,000
and $243,000 at September 30, 1996 and June 30, 1996,
respectively..................................................... 348,268 260,153
Intangible assets:
Site license contracts, net..................................... 7,083,764 7,053,568
Agreements not to compete, net.................................. 964,741 1,046,450
Goodwill, net................................................... 36,229,918 36,555,441
Other assets, net................................................. 5,831,333 3,981,292
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Total assets................................................. $110,429,895 $109,727,603
============ ============
</TABLE>
Note: The balance sheet at June 30, 1996 has been derived from the audited
financial statements of Communications Central Inc. at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See note to consolidated financial statements.
3
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COMMUNICATIONS CENTRAL INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
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(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable to shareholders.......... $ -- $ 8,333
Current portion of notes payable.......................... 48,933 79,650
Accounts payable.......................................... 3,692,716 3,324,204
Accrued expenses.......................................... 2,249,848 2,878,447
Current portion of long term debt......................... 16,500,000 3,000,000
Accrued commissions....................................... 2,266,882 2,637,010
Accrued interest.......................................... 621,110 634,295
Accrued compensation...................................... 105,713 102,351
Accrued income taxes payable.............................. 328,984 328,984
------------ ------------
Total current liabilities................................. 25,814,186 12,993,274
Long-term debt.............................................. 56,697,389 70,197,389
Shareholders' equity:
Common Stock, $.01 par value
Authorized shares - 50,000,000: issued and outstanding
shares - 6,054,556 at September 30, 1996 and
6,054,556 at June 30, 1996................................ 60,545 60,545
Additional paid-in capital.................................. 51,445,508 50,067,385
Accumulated deficit......................................... (23,587,733) (23,590,990)
------------ ------------
Total shareholders' equity.................................. 27,918,320 26,536,940
------------ ------------
Total liabilities and shareholders' equity.................. $110,429,895 $109,727,603
============ ============
</TABLE>
See note to consolidated financial statements.
4
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COMMUNICATIONS CENTRAL INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
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<S> <C> <C>
REVENUES:
Coin calls.................................... $ 9,335,378 $ 9,299,256
Non-coin calls................................ 16,833,061 17,125,508
Other......................................... 623,619 1,011,564
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TOTAL REVENUES 26,792,058 27,436,328
COST AND EXPENSES:
Line access charges........................... 7,962,685 9,518,605
Commissions................................... 5,455,151 5,812,700
Bad debt expense.............................. 2,830,127 1,837,781
Service and collection........................ 4,114,239 3,830,662
Selling, general and administrative......... 1,820,989 841,964
Depreciation and amortization................. 2,956,326 3,058,666
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TOTAL COST AND EXPENSE 25,139,517 24,900,378
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Operating income............................... 1,652,541 2,535,950
Interest expense............................... 1,649,286 1,520,965
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Income before income tax expense............... 3,255 1,014,985
Income tax expense............................. -- 253,746
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Net income..................................... $ 3,255 $ 761,239
=========== ===========
Net income per share........................... $ 0.00 $ 0.13
=========== ===========
Weighted average number of shares outstanding.. 6,276,840 6,039,808
=========== ===========
</TABLE>
See note to consolidated financial statements.
5
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COMMUNICATIONS CENTRAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................... $ 3,255 $ 761,239
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................... 3,072,360 3,058,666
Changes in operating assets and liabilities:
Accounts receivable............................................ (269,467) 214,412
Prepaid expenses, other current assets and other assets........ (848,467) (1,007,214)
Accounts payable and other accrued expenses.................... (666,590) (26,248)
----------- -----------
Net cash provided by operating activities............................ 1,291,091 3,000,855
INVESTING ACTIVITIES
Purchases of telecommunications equipment, leasehold improvements,
office furniture and equipment..................................... (715,616) (1,674,738)
Acquisitions of telecommunications equipment, site licenses,
agreements not to compete and goodwill............................. (27,526) (462,000)
Additions to site licenses, net...................................... (537,956) (466,801)
----------- -----------
Net cash used in investing activities................................ (1,278,097) (2,603,539)
FINANCING ACTIVITIES
Payments on notes payable............................................ (12,500) (50,000)
Payment of loan origination cost..................................... (182,816) --
Proceeds from long-term debt......................................... -- 500,000
Issuance of Common Stock............................................. -- 208,270
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Net cash provided by financing activities............................ (195,316) 658,270
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Increase (decrease) in cash.......................................... (182,323) 1,055,586
Cash at beginning of period.......................................... 2,266,327 4,041
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Cash at end of period................................................ $ 2,084,005 $ 1,059,627
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid for interest............................................... $ 1,638,796 $ 1,094,664
=========== ===========
Cash paid for income taxes........................................... $ -- $ --
=========== ===========
</TABLE>
See note to consolidated financial statements.
6
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COMMUNICATIONS CENTRAL INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. These financial statements should be read in conjunction
with the Company's audited financial statements included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
fiscal year ended June 30, 1996. Operating results for the three-month period
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the year ending June 30, 1997.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
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GENERAL
The Company derives substantially all of its revenue from calls placed from
its payphone and inmate phone network. Coin revenue is derived from calls made
by depositing coins in the telephone. Non-coin revenue is derived from calls
that are placed using either a calling card or credit card or as a collect call
where the called party will be charged for the call. The call may also be
billed to a third party. The Company realizes additional revenue from long
distance carriers pursuant to federal and state regulation as compensation for
"dial-around" calls made from its payphones. A "dial-around" call is a call
initiated at a CCI payphone, but made by utilizing a long distance carrier other
than the one designated by the Company.
The Company's operating expenses include line access charges, commissions,
field service and collection expenses, and selling, general and administrative
expenses. Line access charges include interconnection and local measured usage
charges paid to LECs, long distance transmission charges, billing, collection
and validation costs, and operator services charges. Commissions are fees paid
regularly to business operators based on a percentage of revenue generated by
the Company's payphones and have generally increased over prior years as
competition among payphone operators for attractive payphone locations has
increased. Field service and collection expenses include the costs of
collecting and processing coins, maintaining and repairing the telephones and
technical support for polling, software maintenance, and diagnostics performed
on the Company's payphones.
In July 1995, the Company entered into a long-term outsourcing agreement (the
"Services Agreement") with Perot Systems Field Services Corporation ("Perot"), a
subsidiary of Perot Systems Corporation. The Services Agreement provides that
Perot will operate the Company's management information systems and manage the
field services and sales fulfillment functions of the Company's payphone
operations for a period of ten years in exchange for a monthly fee equal to the
greater of a specified percentage of CCI's revenues attributable to the
Company's payphone operations or a flat per phone charge, as well as certain
cash incentives for increasing operating performance measurements or overall
revenues on a per phone basis. The Services Agreement assumes, for purposes of
calculating CCI's aggregate monthly fee, that the Company will maintain a
minimum number of payphones. The Services Agreement does not include the
Company's inmate phone operations, which remain the responsibility of CCI.
RESULTS OF OPERATIONS
Fiscal Quarter Ended September 30, 1996 Compared to Fiscal Quarter Ended
September 30, 1995
Total revenues for the first quarter of fiscal 1997 were $26.8 million
compared to $27.4 million for the first quarter of fiscal 1996, a decrease of
$600,000 or 2.3%. This decrease in total revenues resulted primarily from the
aggressive removal of over 1,000 unprofitable payphones and the effects of "dial
around." In addition, the Company discontinued its switch division in March
1996. In first quarter of fiscal 1996, the Company's switch division had third
party revenue of approximately $900,000.
8
<PAGE>
For the first quarter of fiscal 1997, the payphone business experienced a net
decrease of 694 payphones, compared to a net increase of 62 payphones in the
first quarter of fiscal 1996. The inmate business experienced a net increase of
156 lines for the first quarter of fiscal 1997, compared to a net increase of 54
lines for the first quarter of fiscal 1996. The weighted average number of
installed payphones decreased to 20,143 at the end of the first quarter of
fiscal 1997 from 21,562 at the end of the first quarter of fiscal 1996, a
decrease of 6.6%. The weighted average number of installed inmate lines
decreased to 4,683 at the end of the first quarter of fiscal 1994 from 4,767 at
the end of the first quarter of fiscal 1996, a decrease of 1.8%.
The decrease in total revenues for the first quarter of fiscal 1997 reflects
an increase of .4% in revenues from coin calls and a decrease of 1.7% from non-
coin calls as compared to the first quarter of fiscal 1996. The increase in
coin revenue was due to the aforementioned removal of under-performing payphones
being replaced with better performing payphones. The Company's payphones
experienced a 2% increase in revenue per phone when compared to the same quarter
last year. This increase is attributed to the impact of the removal program.
The Company's inmate phones experienced a 1% increase in revenue per phone on a
comparable basis.
Line access charges decreased to $8.0 million in the first quarter of fiscal
1997 from $9.5 million in the corresponding quarter of fiscal 1996 due to the
removal program, re-negotiate agreements with our service providers, and rate
relief from service providers. These charges represented 29.7% of total
revenues in the first quarter of fiscal 1997 as compared to 34.7% in the
corresponding quarter of fiscal 1996.
Commissions paid to customers decreased to $5.5 million in the first quarter
of fiscal 1997 compared to $5.8 million in the first quarter of fiscal 1996.
These amounts represented 20.4% of total revenues in the first quarter of fiscal
1997 compared to 21.2% in the corresponding quarter of fiscal 1996. The dollar
decrease was primarily due to the closing of the Company's switch division.
Commissions in the switch division in the previous quarter were $.5 million.
The percentage decrease is somewhat misleading as the Company, in order to enter
into and retain contracts in today's competitive environment, incurred higher
commission rates on revenues derived from the Company's inmate phone lines. In
general, inmate phones have a higher commission structure than do payphones.
Service and collection expense increased to $4.1 million in the first quarter
of fiscal 1997 from $3.8 million in the corresponding quarter of fiscal 1996,
and increased as a percentage of total revenues from 14.0% to 15.4%. The
increase as a percentage of revenues was primarily attributable to cost
inefficiencies resulting from premiums associated with the Company's Services
Agreement with Perot.
Bad debt expenses increased to $2.8 million in the first quarter of fiscal
1997, from $1.8 million in the first quarter of fiscal 1996. Bad debt expense
now represents 11% of total revenue verses 7% in the first quarter of fiscal
1996. The increase in bad debt was entirely in the inmate phones and currently
represents approximately 21% of the inmate phone revenue.
Selling, general and administrative expenses were $1.8 million in the first
quarter of fiscal 1997 compared to $800,000 in the corresponding quarter of
fiscal 1996, and increased as a percentage of total revenues from 3.1% to 6.8%.
The increase was attributable to the building of an internal sales and marketing
organization for payphones and reclassification of service and collection
expenses on inmate phones to selling, general and administrative.
9
<PAGE>
Depreciation and amortization expense decreased to $3.0 million in the first
quarter of fiscal 1997 from $3.1 million in the corresponding quarter of fiscal
1996. The decrease was due primarily to the impairment loss recognized in
conjunction with the early adoption of FAS 121 in the third fiscal quarter of
1996.
Operating income was $1.7 million or 6.2% of total revenues in the first
quarter of fiscal 1997 compared to $2.5 million or 9.2% in the first quarter of
fiscal 1996. Earnings before interest, taxes, depreciation and amortization
("EBITDA") decreased 17.6% to $4.6 million in the first quarter of fiscal 1997
compared to $5.6 million in the corresponding quarter of fiscal 1996. EBITDA is
not determined in accordance with Generally Accepted Accounting Principles
("GAAP"), nor, as a result, is it included as a line item in the Company's
consolidated financial statements. EBITDA is not being presented as an
alternative to GAAP operating income or cash flows from operations as shown on
the Company's statements of cash flows. However, it is a commonly accepted
measure of performance in the telecommunications industry.
Interest expense increased to $1.6 million in the first quarter of fiscal
1997 compared to $1.5 million in the first quarter of fiscal 1996, primarily due
to the increase in the amount of debt outstanding.
As a result of the foregoing, net income was $3,255 in the first quarter of
fiscal 1997 compared to net income of $761,239 in the corresponding quarter of
fiscal 1996, or $0.00 per share in the first quarter of fiscal 1997 versus $.13
per share in the first quarter of fiscal 1996.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During fiscal 1996, the Company financed its operations from operating cash
flows and proceeds from its principal Credit Agreement (the "Credit Agreement").
Amounts outstanding under the "Credit Agreement" were $73.2 million at September
30, 1996 compared to $70.2 million at September 30, 1995. Net cash provided by
operating activities for first quarter of fiscal 1997 was approximately $1.3
million compared to $3.0 million provided by operating activities for the first
fiscal quarter of 1996.
The Company's working capital shows a deficit of approximately ($11.1) million
with a current ratio of 0.6 to 1 at September 30, 1996. This compares to a
working capital balance of $4.9 million and a current ratio of 1.6 to 1 at
September 30, 1996. The change in the Company's working capital is primarily a
result of current maturities of $16.5 million on the Credit Agreement, which
includes a $12,000,000 payment due on or before July 1,1997. The Company's
principal commitments as of September 30, 1996, consisted of a commitment under
the Services Agreement to purchase $275,000 of software enhancements from Perot,
and a commitment to repay the aforementioned bank debt. The Company believes
that its current cash balances and cash flow from operations will be sufficient
to meet its working capital and capital expenditure requirements for fiscal
1997. The Company is actively seeking to raise capital in order to meet the
terms of its Credit Agreement. See "Safe Harbor" statements made herein.
In August 1996, the Company entered into an amended and restated Credit
Agreement (the "1996 Credit Agreement"). The 1996 Credit Agreement, as amended
in October 1996, requires the Company to make payments of $500,000 per month
beginning on January 1, 1997 through the end of the term, which was extended to
June 30, 1999. in addition, the Credit Agreement requires the Company to make a
10
<PAGE>
$12,000,000 payment on or before July 1, 1997. Borrowings under the 1996 Credit
Agreement bear interest at either a LIBOR-based or prime rate, at the Company's
option. In conjunction with the 1996 Credit Agreement, the Company granted to
the lender warrants to purchase up to 225,000 common shares at a nominal price.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995. Certain of the statements contained
in the body of this Report are forward-looking statements (rather than
historical facts) that are subject to risks and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements. With respect to such forward-looking statements, the Company seeks
the protections afforded by the Private Securities Litigation Reform Act of
1995. The list set forth below is intended to identify certain of the principal
factors that could cause actual results to differ materially from those
described in the forward-looking statements included elsewhere herein. These
factors are not intended to represent a complete list of all risks and
uncertainties inherent in the Company's business, and should be read in
conjunction with the more detailed cautionary statements included elsewhere
herein.
Liquidity: In order to meet its obligations under the 1996 Credit Agreement,
----------
as amended, the Company is actively seeking to raise an additional $20 - $30
million in equity capital. Management believes that the Company's ability to
raise such additional equity capital will significantly depend upon the
implementation and effect of the rules promulgated pursuant to the
Telecommunications Act of 1996, which rules could significantly impact the
Company's prospective results of operations and financial condition and the
ability of the Company to raise additional equity capital and meet its payment
obligations under the 1996 Credit Agreement, as amended.
Bad Debt: Currently, the Company utilizes the services of the LECs in the
---------
billing and collection process, as essentially all of the calls made from the
Company's inmate phones are billed through large clearinghouses that in turn
send the information to the LECs for billing and collection. Due to the
Company's dependence on the LECs for billing and collection, it currently can
take the Company up to 24 months to determine whether an account is collectible.
This long collection process makes it particularly difficult for the Company to
estimate the amount of bad debt attributable to the Company's inmate phone
revenue. The Company has witnessed an increase in the amount of bad debt to
approximately 21% of the inmate phone revenue. To address the issue of bad debt,
the Company has begun implementing a program for direct billing that will enable
it to bill the called number directly and set parameters for blocking calls
based on collection results. This direct billing program is a new program for
the Company and in certain states, regulatory approval may be required. Although
the Company believes that the direct billing program will reduce the amount of
bad debt attributable to its inmate phones, no assurance can be given as to the
success of the direct billing program.
11
<PAGE>
Dial Around Compensation: The FCC's implementation of the payphone-specific
------------------------
provisions of the Telecommunications Act of 1996 (the "Telecom Act") began with
the issuance of a Report and Order on September 20, 1996, with one of the most
----------------
important elements being the assurance of "fair compensation" for virtually all
calls from payphones. The FCC's decision initially mandates dial around
compensation for both access code calls and 800 subscriber calls at a flat rate
of $45.85 per payphone per month, with a transition to a per-call system at the
rate of $.35 per call beginning October 1, 1997. The order states that on
October 1, 1998, this rate will either be adjusted to equal the local coin rate
being charged at the particular payphone, or to a higher or lower dial around
compensation rate negotiated between the Company and the carriers who are
required to pay. The initial flat-rate payment level significantly increases
dial around compensation revenues, and the Company believes that a per-call
system at a $.35 level will further increase these revenues. The FCC's
Order on Reconsideration, released on November 8, 1996, did not materially
- ------------------------
modify the Report and Order as it relates to the foregoing provisions. However,
market forces and factors outside the Company's control could substantially
affect the resulting revenue impact. These factors include, but are not limited
to, potential litigation seeking to modify or overturn the Order, as well as the
FCC's recognition that existing regulations do not prohibit an IXC from blocking
subscriber 800 numbers from payphones if the IXC wants to avoid paying per-call
compensation on these calls.
Local Coin Rate: In ensuring "fair compensation" for all calls, the FCC
---------------
further determined that local coin rates from payphones should be generally
deregulated within one year, but provided for possible modifications or
exemptions from deregulation upon a detailed showing by an individual state. The
states may move to deregulation earlier than one year, but a state may also
obtain an exemption from deregulation by "demonstrat[ing] to the Commission
that there are market failures within the state that would not allow market-
based rates." Where deregulation is implemented, management believes the Company
is likely to experience increases in its coin revenue per phone. However, given
the FCC's failure to specify particular requirements for obtaining an exemption,
the Company is unable to adequately predict the responses of individual states
or the market and thus, the ultimate revenue impact of local coin rate
deregulation.
12
<PAGE>
Other Telecom Provisions: There are a significant number of Telecom Act
------------------------
provisions, as implemented by the FCC, that may have substantial impacts upon
the Company. Among the most important are cessation of subsidies upon the
removal of LEC payphones from the regulated rate base by April 15, 1997, the
RBOC's development of specific plans detailing their compliance with
nondiscrimination and accounting requirements and other safeguards against
subsidies and discrimination, and the RBOC's authority to select interLATA
carriers serving their payphones in conjunction with location owners. As a
whole, the Telecom Act provisions should significantly change the competitive
framework of the public communications industry. The Company believes that the
FCC's order will address certain of the fundamental inequities in the payphone
and inmate phone markets and lead to a more equitable competitive environment
for all providers. However, there can be no assurance that the FCC's actions
will actually result in long-term positive results for the Company.
Billed Party Preference Proceeding: The FCC has issued a Second Notice of
----------------------------------
Proposed rulemaking regarding "Billed Party Preference" ("BPP") and associated
call rating issues, including potential "rate benchmarks" and caller
notification requirements for 0+ and 0- interstate long distance calls. If BPP
is implemented, the billed party would bypass CCI's selected long distance
carrier and the Company would fail to receive any commissions from the carrier.
The Company believes that the implementation of BPP is not likely to be
achieved, since it would involve significant expense and technological changes
as evidenced by the record in the FCC proceeding. However, should the "rate
benchmark" or caller notification requirements be implemented by the FCC for
such operator-assisted calling, the Company could be negatively impacted,
depending upon the specific level of the benchmark or the particular
notification requirements. Without further FCC action, for which a timetable is
not mandated, the Company is unable to reasonably assess any potential impact
that BPP, rate benchmarks or notifications, if implemented, might have on its
payphone and inmate phone operations.
13
<PAGE>
INFLATION AND SEASONALITY
The Company does not believe that inflation has had a material effect on the
Company's business in recent periods. The Company experiences seasonality in
its results of operations, with its first and fourth fiscal quarters typically
producing a greater volume of calls than its second and third fiscal quarters.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
- ------- ---------------------
In August 1996, the Company entered into an amended and restated Credit
Agreement (the "1996 Credit Agreement"). In October 1996, an amendment was
entered into amending the terms of the 1996 Credit Agreement. The 1996 Credit
Agreement, as amended, now requires the Company to repay $12 million of its
indebtedness thereunder on or before July 1, 1997, and to repay the remaining
$63 million of its indebtedness in increments of $500,000 per month beginning on
January 1, 1997 through the end of the term, which is June 30, 1999. Borrowings
under the 1996 Credit Agreement, as amended, bear interest at either a LIBOR-
based or prime rate at the Company's option. In conjunction with the 1996
Credit Agreement, as amended, the Company granted the lender warrants to
purchase up to 225,000 common shares at a nominal price, of which, warrants to
purchase 50,000 common shares shall be canceled if the Company is successful in
reducing its outstanding balance on the 1996 Credit Agreement, as amended, to
$47 million by November 30, 1996. The Company claims an exemption under section
4(2) of the Securities Act of 1933 based upon the sophistication of the lender.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
11 Statement re: Computation of Per Share Earnings
(b) REPORTS ON FORM 8-K:
None.
15
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNICATIONS CENTRAL INC.
Date: November 13, 1996 /s/ Jack B. Wages, Jr.
----------------------------------
Jack B. Wages, Jr.
Controller
(Principal Accounting Officer)
16
<PAGE>
EXHIBIT 11
COMMUNICATIONS CENTRAL INC.
COMPUTATION RE EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
PRIMARY AND FULLY DILUTED:
Weighted average Common Stock
outstanding during the period 6,055 6,040
Net effect of dilutive stock options & warrants
based on treasury stock method 222 --
------ ------
Total 6,277 6,040
====== ======
Net income available for Common Stock
and Common Stock equivalents $ 3.3 $ 7 61
====== ======
Net income per share $ 0.00 $ 0.13
====== ======
Net income per share available for Common Stock
and Common Stock Equivalents $ 0.00 $ 0.13
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF 9/30/96, AND STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE
THREE MONTH PERIOD ENDING SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,084,005
<SECURITIES> 0
<RECEIVABLES> 12,717,849
<ALLOWANCES> (1,836,000)
<INVENTORY> 1,498,748
<CURRENT-ASSETS> 14,702,471
<PP&E> 77,658,105
<DEPRECIATION> (33,887,453)
<TOTAL-ASSETS> 110,429,895
<CURRENT-LIABILITIES> 25,814,186
<BONDS> 0
0
0
<COMMON> 60,545
<OTHER-SE> 110,429,895
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 26,792,058
<TOTAL-REVENUES> 26,792,058
<CGS> 13,417,836
<TOTAL-COSTS> 26,788,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,255
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,255
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
