<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 AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0 - 26728
Tel-Save Holdings, Inc.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
23-2827736
---------------------------------------------------
(I.R.S. Employer Identification No.)
6805 Route 202, New Hope, Pa. 18938
---------------------------------------------------
(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: 215 - 862 - 1500
22 Village Square, New Hope, Pa. 18938
---------------------------------------------------
Former name, former address and former fiscal year, if changes since last
report.
Indicate by check 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court
Yes 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.
Common Stock, $.01 par value, 29,049,000 shares outstanding as of August 14,
1996.
-1-
<PAGE>
TEL-SAVE HOLDINGS, INC.
FORM 10-Q
JUNE 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Consolidated Statements of Income for the three
and six months ended June 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity for the
six months ended June 30, 1996 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Items 1 - 6 15
Signatures 17
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
June 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Assets:
Current:
Cash and cash equivalents $ 9,422 $41,211
Marketable securities 164,464 -
Accounts receivable, trade net of allowance for
uncollectible accounts of $892 and $804, respectively 19,719 19,088
Advances to partitions and note receivables 6,649 3,563
Due from broker 2,211 1,100
Prepaid expenses and other current assets 4,482 194
- ------------------------------------------------------------------------------------------------------------------
Total current assets 206,947 65,156
Property and equipment, net of accumulated depreciation of
$336 and $250, respectively 20,493 2,667
Intangibles, net of accumulated amortization of $2,623 and
$1,574, respectively 2,314 1,490
Note receivable from stockholder - 2,075
Other assets 1,149 -
- ------------------------------------------------------------------------------------------------------------------
Total assets $230,903 $71,388
==================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses:
Trade and other $ 18,833 $12,622
Partitions 5,603 3,047
Sales and excise taxes payable 1,058 1,406
Other 1,076 514
Securities sold short, at cost to purchase 2,211 1,100
Income taxes payable - 2,375
Note payable to stockholder - current - 5,921
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 28,781 26,985
Deferred credits 40 280
Deferred income taxes payable 2,731 2,809
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 31,552 30,074
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares outstanding - -
Common stock - $.01 stated value, 100,000,000
authorized; 29,049,000 and 19,500,000 issued and
outstanding, respectively 290 195
Additional paid-in capital 187,752 37,245
Retained earnings 11,309 3,874
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 199,351 41,314
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $230,903 $71,388
==================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except for per share data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $57,015 $44,728 $108,080 $81,345
Cost of sales 49,628 38,615 93,861 69,858
- -----------------------------------------------------------------------------------------------
Gross profit 7,387 6,113 14,219 11,487
Selling, general and
administrative 2,505 1,258 4,792 2,419
- -----------------------------------------------------------------------------------------------
Operating income 4,882 4,855 9,427 9,068
Other income, net 1,634 (27) 2,507 19
- -----------------------------------------------------------------------------------------------
Income before provision for
income taxes 6,516 4,828 11,934 9,087
Provision for income taxes 2,458 - 4,499 -
- -----------------------------------------------------------------------------------------------
Net income $ 4,058 $ 4,828 $ 7,435 $ 9,087
===============================================================================================
Pro forma:
Income before provision for
income taxes $ 4,828 $ 9,087
Pro forma provision for
income taxes 1,931 3,635
- -----------------------------------------------------------------------------------------------
Pro forma net income $ 2,897 $ 5,452
===============================================================================================
Net income per share -
Primary $ .14 $ .19 $ .30 $ .35
===============================================================================================
Weighted average common
and common equivalent
shares outstanding - Primary 29,383 15,406 25,025 15,416
===============================================================================================
Net income per share - Fully
Diluted $ .14 $ .19 $ .28 $ .35
===============================================================================================
Weighted average common
and common equivalent
shares outstanding - Fully
Diluted 29,932 15,416 26,517 15,416
===============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-in Retained
Shares Amount Capital Earnings Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 19,500 $195 $ 37,245 $ 3,874 $ 41,314
Net income - - - 7,435 7,435
Issuance of warrants to
partitions - - 1,077 - 1,077
Sale of common stock 8,534 85 138,984 - 139,069
Exercise of common stock
options 1,015 10 4,461 - 4,471
Income tax benefit related to
exercise of common stock
options - - 5,985 - 5,985
- ---------------------------------------------------------------------------------------------
Balance, June 30, 1996 29,049 $290 $187,752 $11,309 $199,351
=============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
--------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,435 $ 9,087
Adjustment to reconcile net income to net cash provided
by (used in) operating activities:
Unrealized loss on securities sold short and marketable
securities 216 230
Provision for bad debts 11 (45)
Depreciation and amortization 1,135 463
Deferred credits (240) (240)
(Increase) decrease in:
Accounts receivable - trade (719) (3,889)
Advances to partitions and note receivables (3,086) (2,313)
Prepaid expenses and other current assets (1,430) 1,389
Other assets (1,149) -
Increase (decrease) in:
Accounts and partition payables and accrued expenses 9,058 15,908
Income taxes payable 673 -
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,904 20,590
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of intangibles (796) (350)
Capital expenditures (17,911) (96)
Securities sold short 895 1,360
Due from broker (1,111) (1,460)
Loans to stockholder (3,034) -
Repayments of stockholder loans 5,109 -
Purchase of marketable securities (164,464) (1,324)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (181,312) (1,870)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from loan transactions - 1,300
Payments of loan transactions - (1,300)
Payments to related parties - (9,141)
Payment of note payable to stockholder (5,921) -
Proceeds from sale of common stock 139,069 -
Proceeds from exercise of common stock options 4,471 -
Deferred offering costs - (500)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 137,619 (9,641)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (31,789) 9,079
Cash and cash equivalents, at beginning of period 41,211 11
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period $ 9,422 $ 9,090
==================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
-6-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation The consolidated financial statements
include the accounts of Tel-Save
Holdings, Inc. and its two wholly-owned
subsidiaries, Tel-Save, Inc. and TS
Investment Corporation, and have been
prepared as if the entities had operated
as a single consolidated group since
their respective dates of incorporation.
All intercompany balances and
transactions have been eliminated.
The consolidated financial statements
and related notes thereto as of June 30,
1996 and for the three and six months
ended June 30, 1996 and 1995 are
presented as unaudited but in the
opinion of management include all
adjustments necessary to present fairly
the information set forth therein. These
adjustments consist solely of normal
recurring accruals. The consolidated
balance sheet information for December
31, 1995 was derived from the audited
financial statements included in the
Company's Form 10-K. These interim
financial statements should be read in
conjunction with that report. The
interim results are not necessarily
indicative of the results for any future
periods.
2. Stock Split On February 16, 1996, the Company's
Board of Directors approved a
three-for-two split of the common stock
in the form of a 50% stock dividend. The
additional shares resulting from the
stock split were distributed on March
15, 1996, to all stockholders of record
at the close of business on February 29,
1996. The consolidated balance sheet as
of December 31, 1995 reflects the
recording of the stock split as if it
had occurred on December 31, 1995.
Further, all references in the
consolidated financial statements to
average number of shares outstanding and
related prices, per share amounts,
warrant and stock option data have been
restated for all periods to reflect the
stock split.
3. Income Taxes On June 1, 1991, the Company, with the
consent of its stockholders, elected to
be taxed as an S Corporation. As a
result of the election, all earnings of
the Company were taxed directly to the
stockholders. On September 19, 1995, the
Company terminated its S Corporation
status. Pro forma tax provisions have
been calculated as if the Company's
results of operations were taxable as a
C Corporation under the Internal Revenue
Code for the three and six months ended
June 30, 1995.
-7-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. 1996 Public Offering The Company consummated a public
offering (the "1996 Offering") of
9,284,000 shares of common stock,
including the underwriter's
over-allotment, at a price of $17.50 per
share in April and May, 1996. Of the
9,284,000 shares offered, 8,534,000 were
sold by the Company and 750,000 were
sold by the majority stockholder.
Proceeds of the 1996 Offering to the
Company, less underwriting discounts of
$9,302,060, were $140,042,940. Expenses
for the 1996 Offering were approximately
$974,000 resulting in net proceeds to
the Company of approximately
$139,069,000. The majority stockholder
used a portion of his proceeds to repay
his outstanding indebtedness, including
interest, to the Company.
5. Marketable Securities Marketable securities consist of U.S.
government issues and are stated at
cost, which approximates fair value. The
fair values are estimated based on
quoted market prices.
6. Exercise of Stock In June 1996, certain options to
Options purchase shares of the Company's common
stock were exercised and the Company
received net proceeds of approximately
$4.5 million. The tax benefit realized
from the exercise of stock options was
approximately $6.0 million and is
reflected as an adjustment to additional
paid-in capital and taxes payable.
-8-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company was founded in 1989 as a switchless reseller of AT&T
long distance services to small and medium-sized businesses. In the
third quarter of 1996, in connection with the deployment of One
Better Net ("OBN"), the Company expects to complete the
installation of its five AT&T-manufactured switches, forming a
nationwide long distance network.
The Company's sales to date have been derived from the resale of
long distance services. The Company's cost of sales consists
principally of charges for bundled long distance services, as
charged by AT&T, partition charges, net of usage and other
discounts, which are based on the usage of partitions, and end user
billing and support. The Company believes that, historically, the
competitive terms of its contract tariffs with AT&T and its ability
to manage and distribute data are the primary reasons for its sales
increases. In 1992, the Company negotiated a contract tariff with
AT&T, resulting in lower rates than its previous contract tariffs.
In July 1994, the Company obtained two new contract tariffs with
AT&T, resulting in further reduced rates for the AT&T-SDN service
and competitive terms for AT&T 800 Service, which the Company then
began to market actively.
While the Company has been successful in the past at negotiating
with and obtaining new contract tariffs from AT&T at favorable
rates, the Company intends to lessen its dependence on such AT&T
tariffs by deploying OBN to reduce costs in the future. As a result
of the deployment of OBN, the Company will pay "unbundled" charges,
paying access charges directly to LECs and charges for use of the
AT&T network transmission facilities directly to AT&T. The Company
will avoid paying the all-inclusive "bundled" charge to AT&T under
AT&T contract tariffs for switching and transmission services and
payment of LEC access fees. The total cost per call to the Company
for such "unbundled" charges and OBN's overhead is expected to be
less than the "bundled" charge currently paid to AT&T.
Deployment of OBN is also expected to increase the Company's gross
profit as a percentage of sales ("gross margin"), which has
declined over the past three years. Gross margin has decreased as a
result of the Company's offering higher volume discounts to new
and/or larger partitions. Such discounts reduce the amount charged
by the Company to the partition. The Company expects to increase
its gross margin as a result of the lower costs associated with
providing services on OBN. However, operating income may not
experience the same rate of growth because of increased expenses
related not only to operating and maintaining OBN and converting
existing end users to OBN, but also to the costs associated with
the Company's expansion of its direct marketing efforts and
delivery of Competitive Telecommunications Provider ("CTP")
services.
-9-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
Results of Operations
The following tables sets forth for the periods indicated certain financial data
as a percentage of sales:
<TABLE>
<CAPTION>
Percentage of Sales
--------------------------------------------------------------------
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------------------------------------------------
1996 1995(A) 1996 1995(A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.0 86.3 86.8 85.9
----- ----- ----- -----
Gross profit 13.0 13.7 13.2 14.1
Selling, general and administrative 4.4 2.8 4.5 3.0
----- ----- ----- -----
Operating income 8.6 10.9 8.7 11.1
Other income, net 2.8 (0.1) 2.3 0.1
----- ------ ----- -----
Income before provision for
income taxes 11.4 10.8 11.0 11.2
Provision for income taxes 4.3 4.3 4.1 4.5
----- ----- ----- -----
Net income 7.1% 6.5% 6.9% 6.7%
=====================================================================================================================
</TABLE>
(A) Pro forma tax provisions have been calculated as if the Company's results of
operations were taxable as a C corporation (the Company's current tax status)
for the three and six months ended June 30, 1995. Prior to September 20, 1995,
the Company was an S corporation with all earnings taxed directly to its
shareholders.
-10-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
Three Months Ended June 30, 1996 to the Three Months Ended
June 30, 1995
Sales. Sales increased by 27.5% to $57.0 million in the
second quarter of 1996 from $44.7 million in the second
quarter of 1995. The increase in sales related primarily
to the continued expansion of the Company's distribution
network of partitions, as well as increases in the number
of orders submitted by the Company's existing partitions.
In addition, significant marketing efforts focused on
inbound 800 service resulted in sales of $18.1 million for
the three month period ended June 30, 1996 versus $11.4
million for the three month period ended June 30, 1995.
Cost of Sales. The Company's costs of sales increased by
28.5% to $49.6 million in the second quarter of 1996 from
$38.6 million in the second quarter of 1995. The increase
in cost of sales resulted primarily from the increase in
sales of AT&T-SDN and inbound 800 services and the
initiation of direct marketing activities in 1996.
Gross Margin. Gross margin decreased to 13.0% in the
second quarter of 1996 from 13.7% during the second
quarter of 1995. The decrease in gross margin was
attributable primarily to higher volume discounts to
certain partitions.
Selling, general and administrative expenses. Selling,
general and administrative expenses increased by 99.3% to
$2.5 million in the second quarter of 1996 from $1.3
million in the second quarter of 1995. The increase in
selling, general and administrative expenses was due
primarily to the costs (including bonus plan accruals)
associated with hiring additional management personnel to
support the Company's continuing growth, and increased
fees for professional services.
Provision for income taxes. The Company's effective tax
rate declined to 37.7% for the three months ended June 30,
1996 from the pro forma effective tax rate of 40.0% for
the three months ended June 30, 1995 due to an anticipated
lower effective state tax rate in 1996.
-11-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
Six Months Ended June 30, 1996 to the Six Months Ended
June 30, 1995
Sales. Sales increased by 32.9% to $108.1 million in the
first six months of 1996 from $81.3 million in the first
six months of 1995. The increase in sales related
primarily to the continued expansion of the Company's
distribution network of partitions, as well as increases
in the number of orders submitted by the Company's
existing partitions. In addition, significant marketing
efforts focused on inbound 800 service resulted in sales
of $36.2 million for the six month period ended June 30,
1996 versus $21.1 million for the six month period ended
June 30, 1995.
Cost of Sales. The Company's costs of sales increased by
34.4% to $93.9 million in the first six months of 1996
from $69.9 million in the first six months of 1995. The
increase in cost of sales resulted primarily from the
increase in sales of AT&T-SDN and inbound 800 services and
the initiation of direct marketing activities in 1996.
Gross Margin. Gross margin decreased to 13.2% in the first
six months of 1996 from 14.1% during the first six months
of 1995. The decrease in gross margin was attributable
primarily to higher volume discounts to certain
partitions.
Selling, general and administrative expenses. Selling,
general and administrative expenses increased by 98.1% to
$4.8 million in the first six months of 1996 from $2.4
million in the first six months of 1995. The increase in
selling, general and administrative expenses was due
primarily to the costs (including bonus plan accruals)
associated with hiring additional management personnel to
support the Company's continuing growth, and increased
fees for professional services.
Provision for income taxes. The Company's effective tax
rate declined to 37.7% for the six months ended June 30,
1996 from the pro forma effective tax rate of 40.0% for
the six months ended June 30, 1995 due to an anticipated
lower effective state tax rate in 1996.
-12-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company consummated its initial public offering of
5,175,000 shares of Common Stock in September and October
of 1995. The Company received net proceeds from such
offering of $42.8 million, of which $4.5 million was used
to pay the minority stockholder. The Company consummated a
public offering of 8,534,000 shares of Common Stock in
April and May, 1996. The Company received net proceeds
from such offering of approximately $139.1 million. In
addition, in June 1996, certain options to purchase shares
of the Company's Common Stock were exercised and the
Company received net proceeds of approximately $4.5
million. The tax benefit realized from the exercise of
stock options was approximately $6.0 million and is
reflected as an adjustment to additional paid-in capital
and taxes payable. As of June 30, 1996, the Company had
cash, cash equivalents and marketable securities of
approximately $173.9 million. Marketable securities
consist of U.S. government issues and are stated at cost,
which approximates fair value.
Since its inception, the Company has funded its operations
primarily from cash generated by operations and, to a
lesser extent, advances from stockholders and bank
borrowings. The Company's cash flow provided by operations
was $11.9 million and $20.5 million for the six months
ended June 30, 1996 and 1995, respectively. Accounts
receivable and partition payable increases are primarily
due to growth over the prior year.
The Company's working capital was $178.2 million and $20.6
million at June 30, 1996 and 1995, respectively. The
significant increase in working capital is primarily a
result of the completion of the Company's two public
offerings.
The Company invested $17.9 million in capital equipment
during the six months ended June 30, 1996, of which $16.0
million was used for the acquisition of capital equipment
and installation costs relating to the deployment of OBN.
In June 1996, the Company purchased a new headquarters
building in New Hope, Pennsylvania for approximately $1.5
million.
In March 1996, the Company negotiated an unsecured,
committed line of credit with PNC Bank, N.A. ("Credit
Facility") under which borrowings of up to $50.0 million
are available. The Company is required to pay an
availability fee of $62,500 per annum, or 0.125% of the
total available borrowings. Interest on borrowings is
payable monthly at PNC Bank's prime rate less 0.5% or
LIBOR plus 0.875%, at the Company's option. Principal is
payable upon demand by PNC Bank. Under the terms of the
Credit Facility, the Company must maintain certain
financial covenants and adhere to certain restrictions. At
June 30, 1996, the Company had no borrowings outstanding
under the Credit Facility. Under the Company's prior
credit facility with Midlantic Bank, N.A. ("Prior Credit
Facility"), the Company could borrow up to $5.0 million.
During the six months ended June 30, 1995, the greatest
amount the Company borrowed was $1.3 million, which was
primarily used to make advances to partitions to finance
their marketing activities. At June 30, 1995, the Company
had no borrowings under the Prior Credit Facility.
-13-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
The Company has used a portion of the proceeds from the
1996 Offering to fund the following: (i) advances to new
and existing partitions to support their marketing
efforts; (ii) procurement of additional hardware and
software for OBN; (iii) expenses of direct marketing
activities; and (iv) the purchase of a new headquarters
building in New Hope, Pennsylvania for approximately $1.5
million. The Company intends to use the remaining
proceeds: (i) to further fund new and existing partitions;
(ii) expand its direct marketing efforts, including the
purchase and build out of a direct marketing center in
Clearwater, Florida; and, (iii) to take advantage of other
growth opportunities, including but not limited to,
possible future acquisitions and the initiation and
development of CTP services.
The Company does not have a significant concentration of
credit risk with respect to accounts receivable due to the
large number of partitions and end users comprising the
Company's customer base and their dispersion across
different geographic regions. The Company maintains
reserves for potential credit losses and, to date, such
losses have been within the Company's expectations.
The Company believes that its current cash position,
marketable securities, the Credit Facility and the cash
flow expected to be generated from operations, will be
sufficient to fund its capital expenditures, working
capital and other cash requirements for at least the next
twelve months.
-14-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
(a) On April 15, 1996 the stockholders of the Company at the
Company's Annual Meeting of Stockholders approved an
amendment of the Company's Amended and Restated Certificate
of Incorporation ("Certificate of Incorporation") to
increase to 100,000,000 the authorized shares of the
Company's $0.01 par value Common Stock ("Common Stock").
The Company's authorized capital stock prior to the
Amendment consisted of 30,000,000 shares of Common Stock.
The Amendment made no change to the 5,000,000 authorized
shares of undesignated preferred stock, $.01 par value.
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held on
April 15, 1996 ("Annual Meeting");
(b) Not applicable;
(c) At the Annual Meeting, the stockholders of the Company
considered and approved the following proposal:
(i) Election of Directors. The following sets forth the
nominees who were elected directors of the Company for the
term expiring in the year indicated as well as the number
of votes casts for, against or withheld:
<TABLE>
<CAPTION>
Votes
-----
Term (year expires) Name For Against Withheld
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Emanuel J. DeMaio 14,552,290 0 0
1999 Joseph A. Schenk 14,552,290 0 0
1997 Harold First 14,552,290 0 0
1998 Ronald R. Thoma 14,552,290 0 0
</TABLE>
(ii) At the Annual Meeting the stockholders approved a
proposal to amend the 1995 Employee Stock Option Plan
("Plan") to increase the number of shares of Common Stock
subject to the Plan from 975,000 to 2,500,000. This
proposal received 14,552,290 votes in favor, no votes in
opposition and 0 votes abstained from such matter.
-15-
<PAGE>
TEL-SAVE HOLDINGS, INC.
AND SUBSIDIARIES
(iii) At the Annual Meeting, the stockholders approved a
proposal to amend the Company's Certificate of
Incorporation to increase the number of shares of Common
Stock that may be issued by the Company from 30,000,000 to
100,000,000. This proposal received 14,432,440 votes in
favor, 119,850 votes opposed such proposal and 0 votes
abstained from such matter.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 11 Computation of Net Income Per Share
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
-16-
<PAGE>
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 thereunto duly authorized.
Date: August 14, 1996 TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
By: /s/ Daniel Borislow
-----------------------------------------------
Daniel Borislow
Chairman of the Board,
Chief Executive Officer and Director
By: /s/ Joseph A. Schenk
----------------------------------------------
Joseph A. Schenk
Chief Financial Officer, Treasurer and Director
By: /s/ Kevin R. Kelly
----------------------------------------------
Kevin R. Kelly
Controller
-17-
Exhibit 11
<TABLE>
<CAPTION>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(In thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995(A) 1996 1995(A)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 4,058 $ 2,897 $ 7,435 $ 5,452
========= ========= ======== ========
PRIMARY
Weighted average common and common
equivalent shares outstanding - Primary:
Weighted average shares 26,687 14,325 23,093 14,325
Weighted average equivalent shares 2,696 1,081 1,932 1,091
--------- --------- -------- --------
Weighted average common and common
equivalent shares - Primary 29,383 15,406 25,025 15,416
========= ========= ======== ========
Net income per share - Primary $ .14 $ .19 $ .30 $ .35
========= ========= ======== ========
FULLY DILUTED
Weighted average common and
common equivalent shares
outstanding - Fully Diluted:
Weighted average shares 26,687 14,325 23,093 14,325
Weighted average equivalent shares 3,245 1,091 3,424 1,091
--------- -------- -------- --------
Weighted average common and common
equivalent shares - Fully Diluted 29,932 15,416 26,517 15,416
========= ======== ======== ========
Net income per share - Fully Diluted $ .14 $ .19 $ .28 $ .35
========= ======== ======== ========
</TABLE>
(A) Pro forma tax provisions have been calculated as if the Company's results of
operations were taxable as a C corporation (the Company's current tax status)
for the three and six months ended June 30, 1995. Prior to September 20, 1995,
the Company was an S corporation with all earnings taxed directly to its
shareholders.
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE UNAUDITED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 OF
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> $9,422,000
<SECURITIES> 164,464,000
<RECEIVABLES> 20,611,000
<ALLOWANCES> 892,000
<INVENTORY> 0
<CURRENT-ASSETS> 206,947,000
<PP&E> 20,829,000
<DEPRECIATION> 336,000
<TOTAL-ASSETS> 230,903,000
<CURRENT-LIABILITIES> 28,781,000
<BONDS> 0
0
0
<COMMON> 290,000
<OTHER-SE> 199,061,000
<TOTAL-LIABILITY-AND-EQUITY> 203,903,000
<SALES> 0
<TOTAL-REVENUES> 108,080,000
<CGS> 0
<TOTAL-COSTS> 93,861,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,934,000
<INCOME-TAX> 4,499,000
<INCOME-CONTINUING> 7,435,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,435,000
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
</TABLE>
