Total (in thousands) -------------- Professional fees $ 7,000 Employment contract termination costs 7,000 Registration and other regulatory costs 1,000 Other 1,000 ----------- $ 16,000 ===========
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Tel-Save Holdings, Inc. ("Tel-Save") entered into an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of July 16, 1997, among Tel-Save, a
subsidiary of Tel-Save and Shared Technologies Xxxxxxxxx Inc. ("STF"), pursuant
to which, among other matters, STF would merge (the "Merger") with and into the
Tel-Save subsidiary and thereby become a wholly owned subsidiary of Tel-Save and
the STF Common Stock would be exchanged for shares of Tel-Save Common Stock. The
following Unaudited Pro Forma Combined Condensed Financial Statements give
effect to the Merger using the "pooling of interests" method of accounting,
after giving effect to the pro forma adjustments described in the accompanying
notes.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Merger as if it had occurred on June 30, 1997, combining the balance sheets of
Tel-Save with that of STF. The Unaudited Pro Forma Combined Condensed Statements
of Operations give effect to the Merger as if it occurred at the beginning of
the earliest period presented, combining the results of Tel-Save and STF for
each year in the three-year period ended December 31, 1996 and the six months
ended June 30, 1997.
As a result of the Merger, the merged companies will incur certain acquisition
and transition related costs in connection with consummating the transaction and
integrating the operations of Tel-Save and STF. The acquisition and transition
related costs consist principally of professional and registration fees,
employment contract termination costs and other costs associated with the
integration of the two businesses resulting from the Merger. While the exact
timing, nature and amount of these acquisition and transition related costs are
subject to change, Tel-Save anticipates that a one-time pretax charge of
approximately $16.0 million for incremental acquisition-related costs will be
recorded in the quarter in which the Merger is consummated. The estimate is
comprised of the following amounts:
Total
(in thousands)
--------------
Professional fees $ 7,000
Employment contract termination costs 7,000
Registration and other regulatory costs 1,000
Other 1,000
-----------
$ 16,000
===========
The incremental acquisition-related costs have been reflected as an increase in
accounts payable and accrued expenses - trade and other in the Unaudited Pro
Forma Combined Condensed Balance Sheet as of June 30, 1997. These costs have not
been reflected in the Unaudited Pro Forma Combined Condensed Statement of
Operations for any period presented.
These Unaudited Pro Forma Combined Condensed Financial Statements have been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Tel-Save and STF, which
were previously filed with the Securities and Exchange Commission.
In addition, the Unaudited Pro Forma Combined Condensed Financial Statements
give effect to the following transactions for the periods indicated:
o The acquisition of American Business Alliance ("ABA") by Tel-Save after
giving effect to the pro forma adjustments described in the Unaudited Pro
Forma Combined Condensed Financial Statements for Tel-Save and ABA and the
acquisition of Xxxxxxxxx Industries, Inc. ("FII") by STF after giving
effect to the pro forma adjustments described in the Unaudited Pro Forma
Combined Financial Statements for STF and FII. The acquisitions of ABA and
FII were consummated on December 13, 1996 and March 13, 1996, respectively,
and were accounted for as purchases. Accordingly, Tel-Save's historical
financial statements reflect the results of operations of ABA solely for
the periods on or after December 14, 1996 and STF's historical financial
statements reflect the results of operations of FII on or after March 14,
1996. The Unaudited Pro Forma Combined Condensed Statement of Operations
for the year ended December 31, 1996 reflects these acquisitions as if they
had occurred at the beginning of that year.
o The redemption of STF Series J Redeemable Special Preferred Stock (the
"Series J Preferred Stock") for $21.5 million as stipulated in the Merger
Agreement pursuant to the certificate-designated liquidation preference of
$21.5 million. The Unaudited Pro Forma Combined Condensed Balance Sheet
gives effect to the redemption as if it had occurred on June 30, 1997 . The
Unaudited Pro Forma Combined Condensed Statements of Operations give effect
to the decrease in interest income and elimination of dividends associated
with such redemption as if it had occurred on the date such stock was
issued, March 13, 1996.
o The conversion of STF Series I 6% Cumulative Convertible Preferred Stock
(the "Series I Preferred Stock") into Tel-Save Common Stock based on the
current liquidation value of $26.302 million, the certificate-designated
conversion price of $6.375 and the Exchange Ratio (as defined in the Merger
Agreement).
o The acquisition of the outstanding STF Senior Subordinated Notes (the "STF
Notes") by Tel-Save subsequent to the signing of the Merger Agreement. In
connection with the acquisition of FII, Shared Technologies issued $163.637
million in STF Notes. The STF Notes bear an annual interest rate of 12.25%
with the principal fully due on March 1, 2006. Interest does not begin
accruing until March 1, 1999 and the discount on the STF Notes is being
amortized using the effective interest method over the three year period
ending March 1, 1999. To date, Tel-Save has acquired approximately 90% of
the outstanding STF Notes at a premium of 1% over the face value and it is
assumed, for purposes of these Unaudited Pro Forma Combined Condensed
Financial Statements, that Tel-Save will acquire those that remain
outstanding prior to the consummation of the Merger.
The Unaudited Pro Forma Combined Condensed Balance Sheet reflects (i) the
elimination of such STF Notes and the write-off of the associated unamortized
deferred financing costs and discount for STF and the elimination of the related
investment, (ii) the charge related to the excess of acquisition cost over the
carrying amount of the STF Notes ("premium") and (iii) the net proceeds from the
issuance by Tel-Save, in a private placement not registered under the Securities
Act of 1933, of approximately $250 million (which does not assume the exercise
of any underwriters' overallotment option) in convertible subordinated notes
("TS Notes") at an assumed interest rate of 4.5% (which securities would not be
able to be offered or resold absent registration under the Securities Act of
1933 or an applicable exception from such registration), to finance the
acquisition of the STF Notes and the repayment of approximately $78 million in
outstanding STF credit facility term loans ("Credit Facility Term Loans") (prior
to the issuance of the TS Notes, the acquisition of the STF Notes was financed
by short term margin and bridge loans). The non-recurring write-off of the
unamortized deferred financing costs of $6.812 million and the premium of
$30.998 million, net of the related $12.855 million tax benefit, that will be
charged to expense upon consummation of the Merger have not been reflected in
the Unaudited Pro Forma Combined Condensed Statement of Operations. The
Unaudited Pro Forma Combined Condensed Statement of Operations reflects (i) the
differential between the interest on the Credit Facility Term Loans and the
amortization of the STF Note discount and the interest on the TS Notes that
will ultimately be used to finance the acquisition of the STF Notes and the
repayment of the Credit Facility Term Loans and (ii) the differential
between the amortization of STF's deferred financing costs and the deferred
debt issue costs for the TS Notes.
A separate Unaudited Pro Forma Combined Condensed Financial Statement of
Operations for Tel-Save and STF for the year ended December 31, 1996 is also
presented to reflect solely the Merger since it would constitute the historical
financial statement of operations after restatement for the pooling of
interests.
The Unaudited Pro Forma Combined Condensed Financial Statements are presented
for illustrative purposes only and are not necessarily indicative of the
operating results or financial position that would have occurred had the Merger,
the acquisitions of ABA and FII, the acquisition of the STF Notes and the
repayment of a portion of STF's Credit Facility Term Loans been consummated at
the dates indicated, nor is it necessarily indicative of future operating
results or the financial position of the merged companies.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
Historical Historical Pro Forma Pro Forma
Tel-Save STF Adjustments Combined
-------------- ---------------- ------------------ ------------------
ASSETS
Current assets:
Cash, cash equivalents and investments $ 43,146 $ 1,783 $ - $ 44,929
Accounts receivable, net 39,788 33,356 - 73,144
Advances to partitions and note receivables 27,639 - - 27,639
Inventories - 4,063 - 4,063
Prepaid AOL marketing costs-current 60,086 - - 60,086
Prepaid expenses and other current assets 9,849 2,660 - 12,509
-------------- ---------------- ------------------ ------------------
Total current assets 180,508 41,862 - 222,370
Property and equipment, net 45,194 68,830 - 114,024
Investments in affiliates - 651 - 651
Intangibles, net 23,479 258,779 - 282,258
Prepaid AOL marketing costs 35,212 - - 35,212
Other assets 5,880 326 - 6,206
-------------- ---------------- ------------------ ------------------
Total Assets $ 290,273 $ 370,448 $ - $ 660,721
============== ================ ================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses:
Trade and other $ 29,005 $ 33,498 $ (843)(2d) $ 61,660
Partitions 5,081 - - 5,081
Sales and excise taxes payable 1,808 - - 1,808
Other 1,220 - - 1,220
Current portion of long-term debt and capital
lease obligations - 15,374 - 15,374
-------------- ---------------- ------------------ ------------------
Total current liabilities 37,114 48,872 (843) 85,143
Long-term debt and capital lease obligations, less
current portion - 239,988 - 239,988
Redeemable put warrant - 816 - 816
Convertible preferred stock - 25,000 (25,000) (2d) -
Special preferred stock - 14,757 - 14,757
-------------- ---------------- ------------------ ------------------
Total liabilities 37,114 329,433 (25,843) 340,704
-------------- ---------------- ------------------ ------------------
STOCKHOLDERS' EQUITY:
Preferred stock - 8 (4) (2b)(2c) 4
Common stock 647 63 36 (2a) 776
26 (2d)
4 (2b)
Additional paid-in capital 233,465 76,379 (36) (2a) 335,625
25,817 (2d)
Retained earnings (deficit) 23,607 (35,435) - (11,828)
Treasury stock (4,560) - - (4,560)
-------------- ---------------- ------------------ ------------------
Total stockholders' equity 253,159 41,015 25,843 320,017
-------------- ---------------- ------------------ ------------------
Total liabilities and stockholders' equity $ 290,273 $ 370,448 $ - $ 660,721
============== ================ ================== ==================
Pro Forma Pro Forma
Adjustments Combined
------------------ -------------------
ASSETS
Current assets:
Cash, cash equivalents and investments $ (21,500) (2e) $ 23,429
165,273 (2g)
(165,273) (2g)
Accounts receivable, net - 73,144
Advances to partitions and note receivables - 27,639
Inventories - 4,063
Prepaid AOL marketing costs-current - 60,086
Prepaid expenses and other current assets 2,380 (2f) 27,744
12,855 (2g)
------------------ -------------------
Total current assets (6,265) 216,105
Property and equipment, net - 114,024
Investments in affiliates - 651
Intangibles, net (6,812) (2g) 282,446
7,000 (2g)
Prepaid AOL marketing costs - 35,212
Other assets - 6,206
------------------ -------------------
Total Assets $ (6,077) $ 654,644
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses:
Trade and other $ 16,000 (2f) $ 77,660
Partitions - 5,081
Sales and excise taxes payable - 1,808
Other - 1,220
Current portion of long-term debt and capital
lease obligations - 15,374
------------------ -------------------
Total current liabilities 16,000 101,143
Long-term debt and capital lease obligations, less
current portion (134,275) (2g) 277,986
165,273 (2g)
(165,273) (2g)
(77,727) (2g)
250,000 (2g)
Redeemable put warrant - 816
Convertible preferred stock - -
Special preferred stock (14,757) (2e) -
------------------ -------------------
Total liabilities 39,241 379,945
------------------ -------------------
STOCKHOLDERS' EQUITY:
Preferred stock - 4
Common stock - 776
Additional paid-in capital - 335,625
Retained earnings (deficit) (6,743) (2e) (57,146)
(13,620) (2f)
(24,955) (2g)
Treasury stock - (4,560)
------------------ -------------------
Total stockholders' equity (45,318) 274,699
------------------ -------------------
Total liabilities and stockholders' equity $ (6,077) $ 654,644
================== ===================
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical Historical Pro Forma
Tel-Save STF Combined
----------------- ----------------- ------------------
Sales $ 146,192 $ 95,618 $ 241,810
Cost of sales 146,081 46,630 192,711
----------------- ----------------- ------------------
Gross profit 111 48,988 49,099
Selling, general and administrative 7,953 34,334 42,287
Operating income (loss) ----------------- ----------------- ------------------
(7,842) 14,654 6,812
Other income (expenses):
Equity in loss of affiliate - (186) (186)
Net interest expense - (14,480) (14,480)
Investment and other income, net 7,128 - 7,128
----------------- ----------------- ------------------
Income (loss) before provision (benefit) for income taxes (714) (12) (726)
Provision (benefit) for income taxes (279) 208 (71)
----------------- ----------------- ------------------
Net income (loss) $ (435) $ (220) $ (655)
================= ================= ==================
Preferred stock dividends - 2,299 2,299
----------------- ----------------- ------------------
Net income (loss) applicable to common stock $ (435) $ (2,519) $ (2,954)
================= ================= ==================
Net income (loss) per share - primary (1), (3) $ (0.01) $ (0.16) $ (0.04)
================= ================= ==================
Weighted average common and common equivalent
shares outstanding - primary (1), (3) 66,367 15,788 76,285
================= ================= ==================
Net income (loss) per share - fully diluted (1), (3) $ (0.01) $ (0.16) $ (0.04)
================= ================= ==================
Weighted average common and common equivalent shares
outstanding - fully diluted (1), (3) 66,479 15,788 76,397
================= ================= ==================
Acquisition of
Merger STF Notes and
Related Issuance of TS
Pro Forma Notes Pro Forma Pro Forma
Adjustments Adjustments Combined
------------------ -------------------- -----------------
Sales $ - - $ 241,810
Cost of sales - - -
------------------ -------------------- -----------------
Gross profit - - 49,099
Selling, general and administrative - - 42,287
------------------ -------------------- -----------------
Operating income (loss) - - 6,812
Other income (expenses):
Equity in loss of affiliate - - (186)
Net interest expense (538) (2i) 5,310 (2h) (9,708)
Investment and other income, net - - 7,128
------------------ -------------------- -----------------
Income (loss) before provision (benefit) for income taxes (538) 5,310 4,046
Provision (benefit) for income taxes (183) (2k) 1,805 (2k) 1,551
------------------ -------------------- -----------------
Net income (loss) $ (355) $ 3,504 $ 2,495
================== ==================== =================
Preferred stock dividends (2,299) (2j) - -
------------------ -------------------- -----------------
Net income (loss) applicable to common stock $ 1,944 $ $ 2,495
================== ==================== =================
Net income (loss) per share - primary (1), (3) $ 0.03
=================
Weighted average common and common equivalent
shares outstanding - primary (1), (3) 76,285
=================
Net income (loss) per share - fully diluted (1), (3) $ 0.03
=================
Weighted average common and common equivalent shares
outstanding - fully diluted (1), (3) 76,397
=================
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Merger
Related
Pro Forma Pro Forma Pro Forma
Tel-Save & ABA STF & FII Adjustments
--------------- ----------------- -------------------------
Sales $ 233,067 $ 184,524 $ -
Cost of sales 207,779 94,287 -
--------------- ----------------- -------------------------
Gross profit 25,288 90,237 -
Selling, general and administrative 13,294 66,868 -
--------------- ----------------- -------------------------
Operating income 11,994 23,369 -
Other income (expenses):
Equity in loss of affiliate - (3,927) -
Interest expense - (28,108) (851) (2i)
Investment and other income, net 10,121 - -
--------------- ----------------- -------------------------
Income (loss) before provision for income taxes and
extraordinary item 22,115 (8,666) (851)
Provision for income taxes 8,337 773 (289) (2k)
--------------- ----------------- -------------------------
Income (loss) before extraordinary item 13,778 (9,439) (562)
Preferred stock dividends - 3,241 (3,241) (2j)
--------------- ----------------- -------------------------
Income (loss) before extraordinary
item applicable to common stockholders $ 13,778 $ (12,680) $ 2,679
=============== ================= =========================
Income (loss) before extraordinary item per share-primary (1),(3) $ 0.24 $ (0.85)
=============== =================
Weighted average common and common equivalent
shares outstanding - primary (1),(3) 57,002 14,967
=============== =================
Income (loss) before extraordinary item per share-fully
diluted (1),(3) $ 0.24 $ (0.85)
=============== =================
Weighted average common and common equivalent
shares outstanding - fully diluted (1),(3) 58,027 14,967
=============== =================
Acquisition of
STF Notes and Issuance Pro Forma
of TS Notes Pro Forma Tel-Save &
Adjustments STF
---------------------------- ------------------
Sales $ - $ 417,591
Cost of sales - 302,066
---------------------------- ------------------
Gross profit - 115,525
Selling, general and administrative - 80,162
---------------------------- ------------------
Operating income - 35,363
Other income (expenses):
Equity in loss of affiliate - (3,927)
Interest expense 7,726 (2h) (21,233)
Investment and other income, net - 10,121
---------------------------- ------------------
Income (loss) before provision for income taxes and
extraordinary item 7,726 20,324
Provision for income taxes 2,627 (2k) 11,447
---------------------------- ------------------
Income (loss) before extraordinary item 5,099 8,876
Preferred stock dividends - -
---------------------------- ------------------
Income (loss) before extraordinary
item applicable to common stockholders $ 5,099 $ 8,876
============================ ==================
Income (loss) before extraordinary item per share-primary (1),(3) $ 0.13
==================
Weighted average common and common equivalent
shares outstanding - primary (1),(3) 66,404
==================
Income (loss) before extraordinary item per share-fully
diluted (1),(3) $ 0.13
==================
Weighted average common and common equivalent
shares outstanding - fully diluted (1),(3) 67,429
==================
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(1) EXCHANGE RATIO
Under the Merger Agreement, each outstanding share of STF Common
Stock will be converted into 0.6282 shares of Tel-Save Common
Stock, based on the Exchange Ratio (as defined in the Merger
Agreement). This Exchange Ratio was used in computing share and
per share amounts in the accompanying unaudited pro forma
combined condensed financial statements.
(2) PRO FORMA ADJUSTMENTS
BALANCE SHEET ADJUSTMENTS:
(a) To reflect the issuance of shares based on the 0.6282 Exchange Ratio,
calculated as follows:
15,715 shares of Common stock x Exchange Ratio
9,872
9,872 shares @ $0.01 par value $ 99
Adjustment to reflect conversion of acquired STF Common Stock less
issuance of Tel-Save Common Stock $ 36
(b) To reflect the conversion of shares of the STF Series C Preferred
Stock on a two-for-one basis into STF Common Stock (which was
converted on July 25, 1997, August 1, 1997 and August 7, 1997).
(c) To reflect the conversion of STF Series D Preferred Stock on a
one-for-one basis into Tel-Save Series A Preferred Stock.
(d) To reflect the conversion of STF Series I Preferred Stock into
Tel-Save Common Stock, calculated using the Exchange Ratio:
Liquidation preference ($25,000+ 4% accretion of $1,302)/
$6.375 4,126
4,126 shares x Exchange Ratio 2,592
2,592 shares @ $0.01 par value $ 26
Additional paid-in capital ($25,843 less $26 par value) $ 25,817
(e) To reflect the redemption at liquidation preference value of STF
Series J Preferred Stock for $21.5 million.
(f) To reflect certain acquisition-related costs and expenses, net of
$2,380 in income taxes, as described in the introduction to the
"Unaudited Pro Forma Combined Condensed Financial Statements."
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(g) To reflect Tel-Save's acquisition of the STF Notes, the repayment of a
portion of STF's Credit Facility Term Loans by Tel-Save from the
issuance of the TS Notes, the write-off of deferred debt issue costs
and premium over the carrying value and the tax benefit related to
such write-offs.
Issuance of TS Notes $ 250,000
Debt issue costs (7,000)
--------------
Net proceeds $ 243,000
==============
Application of net proceeds
Repayment of debt used to acquire STF Notes $ 165,273
Repayment of portion of STF Credit Facility Term Loans 77,727
--------------
Total $ 243,000
==============
Tel-Save cost of acquisition of STF Notes $ 165,273
Carrying value of STF Notes on STF's books 134,275
--------------
Premium paid over carrying value 30,998
Write-off of deferred financing costs 6,812
--------------
Total non-recurring charges 37,810
Less: Tax benefit related to non-recurring charges 12,855
--------------
Net change $ 24,955
==============
OPERATING RESULTS ADJUSTMENTS:
(h) To reflect the differential between (i) the interest expense and the
amortization of the STF Notes discount and deferred STF financing
costs recorded as interest expense in connection with the STF Notes
and Credit Facility Term Loans and (ii) the interest expense and the
amortization of deferred debt issue costs on the TS Notes.
Six months
Year Ended ended
12/31/96 6/30/97
--------------- ------------------
Interest, amortization of discount and deferred financing costs
recorded by STF on STF Notes and Credit Facility Term Loans $ 17,740 $ 11,635
Interest and amortization of debt issue costs on TS Notes 10,014 6,325
--------------- ------------------
$ 7,726 $ 5,310
=============== ==================
(i) To reflect reduction in interest income at 5% on the cash used for the
redemption of the STF Series J Preferred Stock.
(j) To reflect the elimination of STF Series J Preferred Stock dividends.
(k) To reflect the tax effect on the decrease in net interest expense.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(3) The Unaudited Pro Forma Combined Condensed Financial Statements contemplate
that the Closing Date Market Price (as defined in the Merger Agreement)
will be equal to $17.9083 per share. To the extent the Closing Date Market
Price varies from $17.9083 per share, the weighted average common and
common equivalent shares outstanding, and thus net income and income before
extraordinary item per share, will vary as well. The following table
represents net income and income before extraordinary item per share
applicable to common stockholders if the Closing Date Market Price was
$10.00, $17.9083 and $20.00 per share.
Closing Date Market Price
--------------------------------------------------
$ 10.0000 $ 17.9083 $ 20.0000
-------------- --------------- ---------------
(in thousands, except per share amounts)
Exchange Ratio 1.1250 0.6282 0.5625
============== =============== ===============
Six months ended June 30, 1997:
Net income applicable to common stock $ 2,495 $ 2,495 $ 2,495
============== =============== ===============
Net income per share - primary $ 0.03 $ 0.03 $ 0.03
============== =============== ===============
Weighted average common and common
equivalent shares outstanding - primary 84,129 76,285 75,248
============== =============== ===============
Net income per share - fully diluted $ 0.03 $ 0.03 $ 0.03
============== =============== ===============
Weighted average common and common
equivalent shares outstanding - fully diluted 84,241 76,397 75,360
============== =============== ===============
Year ended December 31, 1996:
Income before extraordinary item applicable
to common stock $ 8,876 $ 8,876 $ 8,876
============== =============== ===============
Income before extraordinary item
per share - primary $ 0.12 $ 0.13 $ 0.14
============== =============== ===============
Weighted average common and common
equivalent shares outstanding - primary 73,840 66,404 65,421
============== =============== ===============
Income before extraordinary item
per share - fully diluted $ 0.12 $ 0.13 $ 0.13
============== =============== ===============
Weighted average common and common
equivalent shares outstanding - fully diluted 74,865 67,429 66,446
============== =============== ===============
TEL-SAVE & ABA
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Period of
January 1, 1996- Pro Forma
Historical December 13, 1996 Adjustments Pro Forma
Tel-Save ABA ABA Tel-Save & ABA
---------------- ----------------- ------------------ ------------------
Sales $ 232,424 $ 7,172 $ (6,529)(1) $ 233,067
Cost of sales 200,597 15,845 (5,301)(2) 207,779
(3,362)(3)
------------------------------------------------------------------------------
Gross profit (loss) 31,827 (8,673) 2,134 25,288
Selling, general and administrative 10,039 2,796 459 (4) 13,294
------------------------------------------------------------------------------
Operating income (loss) 21,788 (11,469) 1,675 11,994
Investment and other income, net 10,585 9 (473)(5) 10,121
------------------------------------------------------------------------------
Income (loss) before provision for income taxes and 32,373 (11,460) 1,202 22,115
Provision for income taxes 12,205 - (3,868)(6) 8,337
------------------------------------------------------------------------------
Net income $ 20,168 $(11,460) $ 5,070 $ 13,778
==============================================================================
Net income extraordinary per share-primary $ 0.35 $ 0.24
============== ===============
Weighted average common and common equivalent
shares outstanding - primary 57,002 57,002
============== ===============
Net income per share-fully diluted $ 0.35 $ 0.24
============== ===============
Weighted average common and common equivalent
shares outstanding - fully diluted 58,027 58,027
============== ===============
(1) To reflect the elimination of intercompany revenues.
(2) To reflect the elimination of intercompany cost of sales.
(3) To reflect the capitalization of deferred customer
acquisition costs. Prior to acquisition, ABA's policy was to
expense all marketing costs as incurred. Tel-Save's policy
was to capitalize direct marketing costs and amortize them
over a period of six months. Effective April 1, 1997, the
Company changed its policy to expense all direct marketing
costs as incurred.
(4) To reflect the amortization of goodwill over 40 years.
Effective April 1, 1997, the Company changed the life of the
goodwill associated with the acquisition of ABA to 15 years.
(5) To reflect interest at 5% on the cash portion of the
acquisition price.
(6) To reflect the tax benefit relating to the utilization of
ABA's current operating loss and the pro forma adjustments.
STF & FII
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Period of
January 1, 1996- Pro Forma
Historical March 13, 1996 Adjustments Pro Forma
STF FII FII STF & FII
---------------- ------------------ ------------------ ------------------
Sales $ 157,241 $ 27,283 $ - $ 184,524
Cost of sales 82,572 11,917 (202)(1) 94,287
----------------------------------------------------------------------------
Gross profit 74,669 15,366 202 90,237
Selling, general and administrative 55,329 10,737 1,414 (2) 66,868
(612)(1)
-----------------------------------------------------------------------------
Operating income 19,340 4,629 (600) 23,369
Other income (expenses):
Equity in loss of affiliate (3,927) - - (3,927)
Interest expense (22,888) (4,373) (622)(5) (28,108)
(247)(3)
22 (4)
Investment and other income, net - - - -
-----------------------------------------------------------------------------
Income (loss) before provision for income taxes and
extraordinary item (7,475) 256 (1,447) (8,666)
Provision for income taxes 783 - (10)(6) 773
-----------------------------------------------------------------------------
Income (loss) before extraordinary item (8,258) 256 (1,437) (9,439)
Preferred stock dividends 2,366 963 (88)(7) 3,241
-----------------------------------------------------------------------------
Loss before extraordinary
item applicable to common stockholders $(10,624) $ (707) $ (1,349) $ (12,680)
=============================================================================
Loss before extraordinary item per share-primary $ (0.77) $ (0.85)
================ ===================
Weighted average common and common equivalent
shares outstanding - primary 13,787 1,180 14,967
================ ============== ===================
Loss before extraordinary item per
share-fully diluted $ (0.77) $ (0.85)
================ ===================
Weighted average common and common equivalent
shares outstanding - fully diluted 13,787 1,180 14,967
================ ============== ===================
(1) To reflect the estimated effect of certain cost savings and increases
associated with the consolidation of the operations of STF and FII:
Net S, G & A savings $ 612
Network savings 202
------------
$ 814
============
(2) To reflect the amortization ($1,581) of the goodwill resulting from the
purchase of FII offset by the elimination of goodwill previously
recorded on FII"s books ($167).
(3) To reflect the amortization of capitalized financing fees of $9,646
associated with the assumption of $240,000 in new debt. Additional
interest expense was recorded based on an amortization period of 10
years for $5,120 of the fees and 7 years for the remaining $4,526. The
allocation of fees was based on the actual costs incurred for the
respective amounts of zero coupon bonds and bank debt issued.
(4) To reflect the reclassification of the amortization of certain deferred
costs resulting from the retiring of STF's existing credit facility.
(5) A pro forma adjustment has been made to reflect the reduction in
interest expense relating to the net change in outstanding debt as
described in (3) above as if it had occurred on January 1, 1996.
$115 million in zero coupon bonds 12 1/4% interest $ 2,935
$125 million in bank debt 8.6% interest 2,240
Retirement of 12 1/4% notes (3,190)
Retirement of FII indebtedness (1,275)
Retirement of STF indebtedness (88)
-------------
$ 622
=============
A 1/2% change in the estimated interest rates for the $125 million in
bank debt would result in a change in the interest expense of $156 on
an annual basis.
(6) To reduce state income taxes to an estimated minimum required amount.
(7) To reflect the issuance of new preferred stock and the retirement of FII
preferred stock.
Preferred stock dividends added:
STF cumulative preferred stock dividends $ (625)
STF special preferred stock dividends (250)
Preferred stock dividends eliminated:
FII preferred stock dividends 963
------------
$ 88
============
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical Historical Pro Forma
Tel-Save STF Combined
---------------- ------------------ ------------------
Sales $ 232,424 $ 157,241 $ 389,665
Cost of sales 200,597 82,572 283,169
---------------- ------------------ ------------------
Gross profit 31,827 74,669 106,496
Selling, general and administrative 10,039 55,329 65,368
---------------- ------------------ ------------------
Operating income 21,788 19,340 41,128
Other income (expenses):
Equity in loss of affiliate - (3,927) (3,927)
Interest expense - (22,888) (22,888)
Investment and other income, net 10,585 - 10,585
---------------- ------------------ ------------------
Income (loss) before provision for income taxes and
extraordinary item 32,373 (7,475) 24,898
Provision for income taxes 12,205 783 12,988
---------------- ------------------ ------------------
Income (loss) before extraordinary item 20,168 (8,258) 11,910
Preferred stock dividends - 2,366 2,366
---------------- ------------------ ------------------
Income (loss) before extraordinary
item applicable to common stockholders $ 20,168 $ (10,624) $ 9,544
================ ================== ==================
Income (loss) before extraordinary item per share-primary (1),(2) $ 0.35 $ (0.77) $ 0.15
================ ================== ==================
Weighted average common and common equivalent
shares outstanding - primary (1),(2) 57,002 13,787 65,663
================ ================== ==================
Income (loss) before extraordinary item per share-fully
diluted (1),(2) $ 0.35 $ (0.77) $ 0.14
================ ================== ==================
Weighted average common and common equivalent
shares outstanding - fully diluted (1),(2) 58,027 13,787 66,688
================ ================== ==================
(1) Exchange Ratio
Under the Merger Agreement, each outstanding share of STF Common Stock
will be converted into 0.6282 shares of Tel-Save Common Stock, based on
the Exchange Ratio (as defined in the Merger Agreement). This Exchange
Ratio was used in computing share and per shares amounts in the
accompanying unaudited pro forma combined condensed financial
statements.
(2) The Unaudited Pro Forma Combined Condensed Financial Statements
contemplate that the Closing Date Market Price (as defined in the Merger
Agreement) will be equal to $17.9083 per share. To the extent the
Closing Date Market Price varies from $17.9083 per share, the weighted
average common and common equivalent shares outstanding, and thus income
before extraordinary item per share, will vary as well. The following
table represents income before extraordinary item per share applicable
to common stockholders if the Closing Date Market Price was $10.00,
$17.9083 and $20.00 per share.
Closing Date Market Price
------------------------------------------------------------
$10.0000 $ 17.9083 $ 20.0000
------------------------------------------------------------
(in thousands, except per share amounts)
Exchange Ratio 1.1250 0.6282 0.5625
============================================================
Income before extraordinary item applicable
to common stock $ 9,544 $ 9,544 $ 9,544
================ ================== ==================
Income before extraordinary item
per share - primary $ 0.13 $ 0.15 $ 0.15
================ ================== ==================
Weighted average common and common
equivalent shares outstanding - primary 72,512 65,663 64,757
================ ================== ==================
Income before extraordinary item
per share - fully diluted $ 0.13 $ 0.14 $ 0.15
================ ================== ==================
Weighted average common and common
equivalent shares outstanding - fully diluted 73,537 66,688 65,782
================ ================== ==================
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical Historical Pro Forma
Tel-Save STF Combined
---------------- ---------------- ----------------
Sales $ 180,102 $ 47,086 $ 227,188
Cost of sales 156,121 28,872 184,993
---------------- ---------------- ----------------
Gross profit 23,981 18,214 42,195
Selling, general and administrative 6,280 16,188 22,468
---------------- ---------------- ----------------
Operating income 17,701 2,026 19,727
Other income (expenses):
Equity in loss of affiliate - (1,752) (1,752)
Gain on sale of subsidiary stock - 1,375 1,375
Interest expense - (677) (677)
Investment and other income, net 331 - 331
---------------- ---------------- ----------------
Income before provision for income taxes 18,032 972 19,004
Provision for income taxes 7,213 45 7,258
---------------- ---------------- ----------------
Net income $ 10,819 $ 927 $ 11,746
================ ================ ================
Preferred stock dividends - 398 398
---------------- ---------------- ----------------
Net income applicable to common stockholders $ 10,819 $ 529 $ 11,348
================ ================ ================
Net income per share - primary (1),(2) $ 0.32 $ 0.06 $ 0.29
================ ================ ================
Weighted average common and common equivalent
shares outstanding - primary (1),(2) 33,605 8,482 38,933
================ ================ ================
Net income per share - fully diluted (1),(2) $ 0.32 $ 0.06 $ 0.29
================ ================ ================
Weighted average common and common equivalent
shares outstanding - fully diluted (1),(2) 33,605 8,482 38,933
================ ================ ================
(1) Exchange Ratio
Under the Merger Agreement, each outstanding share of STF Common Stock will
be converted into 0.6282 shares of Tel-Save Common Stock, based on the
Exchange Ratio (as defined in the Merger Agreement). This Exchange Ratio
was used in computing share and per share amounts in the accompanying
unaudited pro forma combined condensed financial statements.
(2) The Unaudited Pro Forma Combined Condensed Financial Statements contemplate
that the Closing Date Market Price (as defined in the Merger Agreement)
will be equal to $17.9083 per share. To the extent the Closing Date Market
Price varies from $17.9083 per share, the weighted average common and
common equivalent shares outstanding, and thus income before extraordinary
item per share, will vary as well. The following table represents income
before extraordinary item per share applicable to common stockholders if
the Closing Date Market Price was $10.00, $17.9083 and $20.00 per share.
Closing Date Market Price
--------------------------------------------------------
$ 10.0000 $ 17.9083 $ 20.0000
--------------------------------------------------------
(in thousands, except per share amounts)
Exchange Ratio 1.1250 0.6282 0.5625
========================================================
Income before extraordinary item applicable
to common stock $ 11,348 $ 11,348 $ 11,348
================ ================ ================
Income before extraordinary item
per share - primary $ 0.26 $ 0.29 $ 0.30
================ ================ ================
Weighted average common and common
equivalent shares outstanding - primary 43,147 38,933 38,376
================ ================ ================
Income before extraordinary item
per share - fully diluted $ 0.26 $ 0.29 $ 0.30
================ ================ ================
Weighted average common and common
equivalent shares outstanding - fully diluted 43,147 38,933 38,376
================ ================ ================
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical Historical Pro Forma
Tel-Save STF Combined
---------------- ---------------- ----------------
Sales $ 82,835 $ 45,367 $ 128,202
Cost of sales 70,104 26,172 96,276
---------------- ---------------- ----------------
Gross profit 12,731 19,195 31,926
Selling, general and administrative 3,442 16,909 20,351
---------------- ---------------- ----------------
Operating income 9,289 2,286 11,575
Other income (expenses):
Minority interest in net income of subsidiaries - (128) (128)
Interest expense - (359) (359)
Investment and other income, net 66 - 66
---------------- ---------------- ----------------
Income before provision for income taxes and extraordinary
item 9,355 1,799 11,154
Provision (benefit) for income taxes 3,742 (487) 3,255
---------------- ---------------- ----------------
Net income $ 5,613 $ 2,286 $ 7,899
================ ================ ================
Preferred stock dividends - 478 478
---------------- ---------------- ----------------
Net income applicable to common stockholders $ 5,613 $ 1,808 $ 7,421
================ ================ ================
Net income per share - primary (1),(2) $ 0.18 $ 0.27 $ 0.21
================ ================ ================
Weighted average common and common equivalent
shares outstanding - primary (1),(2) 30,663 6,792 34,930
================= ================ ================
Net income per share - fully diluted (1),(2) $ 0.18 $ 0.27 $ 0.21
================ ================ ================
Weighted average common and common equivalent
shares outstanding - fully diluted (1),(2) 30,663 6,792 34,930
================= ================ ================
(1) Exchange Ratio
Under the Merger Agreement, each outstanding share of STF Common Stock will
be converted into 0.6282 shares of Tel-Save Common Stock, based on the
Exchange Ratio (as defined in the Merger Agreement). This Exchange Ratio
was used in computing share and per share amounts in the accompanying
unaudited pro forma combined condensed financial statements.
(2) The Unaudited Pro Forma Combined Condensed Financial Statements contemplate
that the Closing Date Market Price (as defined in the Merger Agreement)
will be equal to $17.9083 per share. To the extent the Closing Date Market
Price varies from $17.9083 per share, the weighted average common and
common equivalent shares outstanding, and thus income before extraordinary
item per share, will vary as well. The following table represents income
before extraordinary item per share applicable to common stockholders if
the Closing Date Market Price was $10.00, $17.9083 and $20.00 per share.
Closing Date Market Price
-------------------------------------------------------
$10.0000 $ 17.9083 $ 20.0000
-------------------------------------------------------
(in thousands, except per share amounts)
Exchange Ratio 1.1250 0.6282 0.5625
=======================================================
Income before extraordinary item applicable
to common stock $ 7,421 $ 7,421 $ 7,421
================ ================ ================
Income before extraordinary item
per share - primary $ 0.19 $ 0.21 0.22
================ ================ ================
Weighted average common and common
equivalent shares outstanding - primary 38,304 34,930 34,484
================ ================ ================
Income before extraordinary item
per share - fully diluted $ 0.19 $ 0.21 $ 0.22
================ ================ ================
Weighted average common and common
equivalent shares outstanding - fully diluted 38,304 34,930 34,484
================ ================ ================
