<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to sections 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
OR
[_] Transition report pursuant to sections 13
or 15 (d) of the Securities Exchange Act
of 1934 For the transition period from
_____ to _____
Commission file number 333-33639
EVERCOM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 75-2680266
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8201 Tristar Drive
Irving, Texas 75063
(972) 988-3737
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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 [_]
As of June 30, 2000, 16,033 shares of Class A common stock, par value
$0.01 per share, and 400 shares of Class B common stock, par value $0.01 per
share, were issued and outstanding.
Exhibits to the following documents filed with the Securities and
Exchange Commission have been incorporated by reference in Part II of this
Quarterly Report on Form 10-Q:
1. Registration Statement on Form S-4 (File No. 333-33639);
2. Quarterly Report on Form 10-Q, dated as of August 14, 1998; and
3. Quarterly Report on Form 10-Q, dated as of May 12, 1999.
1
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EVERCOM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................24
Item 2. Changes in Securities and Use of Proceeds..............24
Item 3. Defaults Upon Senior Securities........................24
Item 4. Submission of Matters to a Vote of Stockholders........24
Item 5. Other Information......................................24
Item 6. Exhibits and Reports on Form 8-K.......................25
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 1,987,732 $ 364,197
Accounts receivable........................................................ 38,262,832 40,040,378
Refundable income taxes.................................................... 364,204 200,930
Inventories................................................................ 3,512,073 3,225,955
Prepaid expenses and other current assets.................................. 380,797 659,361
Deferred income tax asset.................................................. 1,496,528 958,065
--------------- --------------
Total current assets.................................................. 46,004,166 45,448,886
PROPERTY AND EQUIPMENT.......................................................... 28,375,357 28,328,916
INTANGIBLE AND OTHER ASSETS..................................................... 97,729,033 90,027,149
--------------- --------------
TOTAL $ 172,108,556 $ 163,804,951
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable........................................................... $19,492,283 $21,522,962
Income taxes payable....................................................... 250,000 236,251
Accrued expenses........................................................... 21,201,463 18,172,694
Current portion of long-term debt.......................................... 12,434,468 13,119,814
--------------- --------------
Total current liabilities............................................. 53,378,214 53,051,721
LONG-TERM DEBT.................................................................. 159,526,766 155,625,000
OTHER LONG-TERM LIABILITIES..................................................... 705,000 359,183
DEFERRED INCOME TAXES........................................................... 1,496,528 958,065
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, Senior and First Preferred Series A, $.01 par value;
6,000 and 5,000 shares authorized, 5,925 and 5,000 shares issued
and outstanding, respectively (cumulative liquidation value of
$5,925,000 and $5,000,000 respectively) as of December 31, 1999 and
June 30, 2000.......................................................... 109 109
Common stock, $.01 par value; 50,000 shares authorized, 16,433 shares and
16,433 shares issued and outstanding as of December 31, 1999 and June
30, 2000................................................................ 164 164
Additional paid-in capital................................................. 26,080,416 25,643,415
Accumulated deficit........................................................ (69,078,641) (71,832,706)
--------------- --------------
Total stockholders' deficit........................................... (42,997,952) (46,189,018)
--------------- --------------
TOTAL................................................................. $ 172,108,556 $ 163,804,951
=============== ==============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
EVERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
----------------------------------------------------------------------
1999 2000 1999 2000
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
OPERATING REVENUE . . . . . . . . . . . . . . $ 60,160,064 $ 58,785,721 $ 119,335,358 $ 118,057,567
OPERATING EXPENSES:
Telecommunications costs . . . . . . . . . 26,451,252 23,946,722 53,312,623 48,653,805
Facility commissions . . . . . . . . . . . 18,085,177 18,949,902 36,112,894 37,727,809
Field operations and maintenance . . . . . 1,705,658 1,545,622 3,343,433 3,276,767
Selling, general, and administrative . . . 4,316,684 4,504,953 8,638,538 8,888,374
Depreciation . . . . . . . . . . . . . . . 1,758,398 2,048,628 3,465,392 4,015,022
Amortization of intangibles . . . . . . . 5,575,332 4,056,808 11,337,457 8,530,767
------------ ------------ -------------- --------------
Total operating expenses . . . . . . . 57,892,501 55,052,635 116,210,337 111,092,544
------------ ------------ -------------- --------------
OPERATING INCOME (LOSS). . . . . . . . . . . 2,267,563 3,733,086 3,125,021 6,965,023
INTEREST EXPENSE, NET. . . . . . . . . . . . 4,856,603 4,768,665 9,736,767 9,665,953
------------ ------------ -------------- --------------
LOSS BEFORE INCOME TAXES . . . . . . . . . . (2,589,040) (1,035,579) (6,611,746) (2,700,930)
INCOME TAX EXPENSE . . . . . . . . . . . . . 82,395 31,875 96,242 53,135
------------ ------------ -------------- --------------
NET LOSS . . . . . . . . . . . . . . . . . . $ (2,671,435) $ (1,067,454) $ (6,707,988) $ (2,754,065)
PREFERRED STOCK DIVIDEND AND ACCRETION
OF DISCOUNT. . . . . . . . . . . . . . . . 363,542 369,080 502,472 736,734
------------ ------------ -------------- --------------
NET LOSS APPLICABLE TO COMMON STOCK. . . . . $ (3,034,977) $ (1,436,534) $ (7,210,460) $ (3,490,799)
============ ============ ============== ==============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
EVERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Month Period
Ended June 30,
-------------------------------------
1999 2000
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (6,707,988) $ (2,754,065)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................................... 3,465,392 4,015,022
Amortization of intangible assets, including deferred
financing costs ......................................................... 11,841,900 9,055,547
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable.................................................... (5,878,042) (1,777,546)
Inventories............................................................ 131,609 286,118
Prepaid expenses and other assets....................................... 750,861 (234,725)
Accounts payable........................................................ (3,526,276) 2,030,679
Accrued expenses........................................................ 38,242 (2,986,154)
Income taxes............................................................ (74,754) 149,522
--------------- ----------------
Net cash provided by operating activities............................. 40,944 7,784,398
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................................... (4,007,064) (5,366,080)
Cash outflows for acquisitions................................................ (1,766,210) (825,433)
---------------- ----------------
Net cash used in investing activities...................................... (5,773,274) (6,191,513)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt............................................ 5,500,000
Payment of debt issuance costs................................................ (336,992)
Repayment of debt............................................................. (5,782,743) (3,216,420)
Proceeds from the issuance of preferred stock and warrants,
net of expenses............................................................. 4,895,337
--------------- ---------------
Net cash provided by (used in) financing activities........................ 4,275,602 (3,216,420)
--------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS......................................... (1,456,728) (1,623,535)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................ 1,691,762 1,987,732
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................... $ 235,034 $ 364,197
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest....................................................... $ 9,425,237 $ 9,088,421
=============== ===============
Cash paid (refunded) for income taxes........................................ $ 170,996 $ (96,390)
=============== ===============
NONCASH TRANSACTIONS:
Dividends payable............................................................ $ 357,431 $ 437,000
=============== ===============
Stock issued for acquisition of assets....................................... $ 150,000 $ -
=============== ===============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
EVERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 2000 for the three
-month and six-month periods ended June 30, 1999 and 2000 of Evercom, Inc. and
its subsidiaries (the "Company") have been prepared by the Company without
audit.
In the opinion of management, all necessary adjustments (which include
only normal recurring adjustments) to present fairly, in all material respects,
the consolidated financial position, results of operations, and cash flows as of
and for the respective periods, have been made. Certain information and footnote
disclosures normally included in annual consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the
Company's 1999 consolidated financial statements contained in its Form 10-K as
filed with the Securities and Exchange Commission on March 30, 2000.
Revenue Recognition
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
Financial Statements. In March 2000, SAB 101 was amended by SAB 101A which
delayed the implementation date of SAB 101 for calendar year end reporting
companies to the quarter ending June 30, 2000. In June 2000, SAB 101 was amended
a second time by SAB 101B further delaying the implementation date to no later
than the quarter ending December 31, 2000. The Company is currently evaluating
SAB 101 and does not believe SAB 101 will have a material effect on its revenues
and results of operations.
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," became effective as of the first quarter of 1998. This
statement requires companies to report and display comprehensive income and its
components (revenues, expenses, gains, and losses). Comprehensive income
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. For the Company,
comprehensive income is the same as net loss reported in the statements of
consolidated operations, since there were no other items of comprehensive income
for the periods presented.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires recognition of all derivative financial instruments as
6
<PAGE>
either assets or liabilities in consolidated balance sheets at fair value and
determines the method(s) of gain/loss recognition. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. The Company is currently evaluating
SFAS No. 133 and does not believe its adoption will have a material effect on
the consolidated financial statements.
7
<PAGE>
Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
--------------- -------------
(Unaudited)
<S> <C> <C>
Trade accounts receivable.................................................... $ 38,384,376 $ 41,421,816
Advance commissions receivable............................................... 1,870,475 925,510
Receivables related to acquisitions.......................................... 226,015 226,015
Recoverable Universal Service Fund fees...................................... 1,123,165 791,209
Employees and other.......................................................... 251,419 86,892
------------- ---------------
41,855,450 43,451,442
Less allowance for unbillable and
uncollectible chargebacks.................................................. (3,592,618) (3,411,064)
------------- ---------------
$ 38,262,832 $ 40,040,378
=============== ===============
</TABLE>
At December 31, 1999 and June 30, 2000, the Company had advanced
commissions to certain inmate facilities of $2,100,149 and $1,104,413
(unaudited), which are recoverable from such facilities as a reduction of earned
commissions at specified monthly amounts. Amounts included in accounts
receivable represent the estimated recoverable amounts during the next fiscal
year with the remaining balance recorded in other assets.
3.PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Leasehold improvements....................................................... $ 913,420 $ 940,661
Telephone system equipment................................................... 39,666,667 43,463,693
Vehicles..................................................................... 429,460 430,548
Office equipment............................................................. 2,540,215 2,683,441
------------- -------------
43,549,762 47,518,343
Less accumulated depreciation................................................ (15,174,405) (19,189,427)
------------- -------------
$ 28,375,357 $ 28,328,916
============= =============
</TABLE>
8
<PAGE>
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Intangible assets:
Acquired telephone contracts............................................ $ 67,761,060 $ 69,156,034
Noncompete agreements................................................... 568,611 568,611
Deferred loan costs..................................................... 8,636,059 8,636,059
Goodwill................................................................ 84,530,834 84,530,834
Other intangibles....................................................... 766,502 769,027
------------- -------------
$ 162,263,066 $ 163,660,565
Less accumulated amortization............................................. (65,195,703) (74,251,250)
------------- -------------
Total intangible assets...................................................... 97,067,363 89,409,315
Deposits..................................................................... 431,996 438,931
Other assets - noncurrent portion of commission advances to facilities....... 229,674 178,903
------------- -------------
$ 97,729,033 $ 90,027,149
============= =============
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Facility commissions............................................... $ 7,303,783 $ 7,688,743
Billing and collection fees........................................ 1,411,127 1,597,255
Uncollectible call chargebacks..................................... 4,554,260 1,596,711
Accrued acquisition and financing costs............................ 1,493,164 1,013,548
Accrued interest................................................... 64,782 117,534
Accrued excise taxes payable....................................... 1,847,889 1,685,946
Accrued dividends on preferred stock............................... 1,268,432 1,705,433
Accrued restructure costs.......................................... 17,796
Accrued payroll and bonuses........................................ 1,689,438 1,031,557
Other.............................................................. 1,550,792 1,735,967
------------- -------------
$ 21,201,463 $ 18,172,694
============= =============
</TABLE>
The accrual for uncollectible call chargebacks represents a reserve for
amounts collected from the various local exchange carriers ("LECs") or
third-party billing services that are expected to be charged back to the Company
in future periods.
9
<PAGE>
6. LONG-TERM DEBT
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ -------------
(Unaudited)
<S> <C> <C>
Senior Notes....................................................... $ 115,000,000 $ 115,000,000
Senior Credit Facility:
Revolving loan facility....................................... 11,500,000 14,500,000
Term loan acquisition facility................................ 39,875,000 33,687,500
Additional term loan facility................................. 5,500,000 5,500,000
Other ........................................................... 86,234 57,314
------------- -------------
171,961,234 168,744,814
Less current portion of long-term debt............................. (12,434,468) (13,119,814)
------------- -------------
$ 159,526,766 $ 155,625,000
============= =============
</TABLE>
Under the terms of the Senior Credit Facility, the term loan acquisition
facility is due in quarterly installments of $3,093,750, increasing to
$3,437,500 on March 31, 2001, with the remaining unpaid balance due on December
31, 2002. The additional term loan facility is due on December 31, 2002.
On June 30, 1998, the Company entered into an interest rate cap agreement
that has been designated as a hedge against the Company's variable interest rate
exposure under the Company's revolving and term loan agreement (the "Senior
Credit Facility"). At June 30, 2000, the interest rate cap has an aggregate
notional amount of $30.0 million, which matures in June 2001, and caps interest
on the London Interbank Offering Rate ("LIBOR") portion of the term loan, up to
the aggregate notional amount, at 7.5%, plus the applicable LIBOR margin.
7. SUBSEQUENT EVENT
On August 9, 2000, the Company's Senior Credit Facility group of lenders
approved an amendment to provide an additional $7.5 million term loan facility
to the Company under the Senior Credit Facility. $5.0 million of this additional
term facility will be immediately available to the Company and the remaining
$2.5 million will be available in the first quarter of 2001 if the Company
achieves $40.0 million of EBITDA for the fiscal year ending December 31, 2000.
All borrowings under this additional term facility will be due on December 31,
2002. The amendment increases the interest rate on all previously existing debt
balances under the Senior Credit Facility by 0.25%. The interest rate on
borrowings under the new term facility will be LIBOR plus 4.0%. The amendment
increases the Company's letter of credit facility under the revolving portion of
the Senior Credit Facility from $5.0 million to $10.0 million but does not
increase the Company's total borrowing capacity under the revolving portion of
the Senior Credit Facility. The Company negotiated this amendment to provide
additional capital for new business opportunities and to increase its working
capital.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
financial statements and the notes thereto contained elsewhere in this report.
Certain information contained in the discussion and analysis set forth below
included forward-looking statements that involve risks and uncertainties. See
"Special Note Regarding Forward-Looking Information; Risk Factors."
Overview
The Company is a provider of collect, prepaid, and debit calling services
to local, county, state, and private correctional facilities in the U.S. The
Company derives substantially all of its revenues from its operation of inmate
telecommunications systems located in correctional facilities in 44 states.
The Company's inmate telecommunications services consist of collect call,
prepaid, and debit card services. The Company enters into multi-year agreements
(generally three to five years) with the correctional facilities, pursuant to
which the Company serves as the exclusive provider of telecommunications
services to inmates within each facility. In exchange for the exclusive service
rights, the Company pays a percentage of its revenue from each correctional
facility as a commission to that facility. Typically, the Company installs and
retains ownership of the telephones and related equipment and provides
additional services to correctional facilities that are tailored to the
specialized needs of the corrections industry and to the requirements of the
individual correctional facility, such as call activity reporting and call
blocking. The Company also generates revenues from public pay telephones that
are ancillary to its inmate telephone business.
The Company accumulates call activity data from its various installations
and bills its revenues related to this call activity through LEC's or through
third-party billing services. In addition, the Company accrues the related
telecommunications costs for validating, transmitting, billing and collection,
and line and long-distance charges, along with commissions payable to the
facilities, and allowances for uncollectible accounts based on historical
experience.
The Company's traditional inmate business consists of collect, prepaid,
and debit calling services provided to correctional facilities. The Company also
provides validation, billing, and collection services for the inmate calls of a
major regional bell operating company ("RBOC"). Under the terms of the
agreement, the Company acquires at a discount the related accounts receivable
from the RBOC for the calls that the Company processes. When the receivables are
purchased, the Company accepts responsibility for all validation, uncollectible
accounts, and billing and collections costs, with no recourse to the RBOC. The
Company's revenues from this service equal the difference between the face value
of the receivables purchased and the amount it pays the RBOC for the discounted
accounts receivable. The contract term is three years and has no minimum volume
commitment. The Company pays no facility commissions under this agreement. In
August 1999, the Company began providing validation, billing and collection
services to a second inmate telecommunications provider. Under this agreement
the Company
11
<PAGE>
charges this customer a transaction fee and charges back all uncollectible
accounts to the customer.
The Company's principle operating expenses consist of (i)
telecommunications costs; (ii) commissions paid to correctional facilities,
which are typically expressed as a percentage of either gross or net revenues,
(iii) field operations and maintenance costs, which consist primarily of field
service on the Company's installed base of inmate telephones; and (iv) selling
general and administrative ("SG&A") costs.
Telecommunications Costs. The principle components of telecommunication
costs are long distance transmission costs, local access costs, third party
billing costs, and costs of uncollectible accounts. Historically, long distance
costs have consisted of charges for minutes of use purchased from interexchange
carriers ("IXCs"). The Company has also entered into agreements to lease lines
connecting urban areas and correctional facilities. Local access charges consist
of monthly line and usage charges paid to RBOCs and other LECs for
interconnection to the local network for local calls, which are computed on a
flat monthly charge plus, for certain LECs, and on a per message or per minute
usage rate based on the time and duration of the call. Third-party billing
charges consist of payments to LECs and other billing service providers for
billing and collecting revenues from called parties. Expenses associated with
uncollectible accounts are a significant cost in providing inmate
telecommunications services.
Commissions. The Company pays a percentage of its revenue from each
facility to that facility as a commission. Commissions are generally set for the
duration of the Company's multi-year contract with the facility, and in some
cases are subject to monthly minimum amounts. Commission rates are one of the
primary bases of competition for obtaining and retaining contracts. The
Company's ability to offer increasingly attractive commission rates to
facilities depends on its ability to control its operating expenses. Generally,
contracts for larger facilities have higher commission rates, but these higher
commission rates are typically offset by lower network charges, field
maintenance, and SG&A expenses as a percentage of revenue. The commission rates
paid by the Company have increased in each period, from 30.1% for the quarter
ended June 30, 1999 to 32.2% for the quarter ended June 30, 2000. This increase
is due primarily to higher facility commissions on renewals and new business.
Commission rates are expected to gradually increase as a percentage of revenues
in the future.
Field Operations and Maintenance. Field operations and maintenance consist of
maintenance costs associated with inmate phones and related equipment.
Selling, General and Administrative. SG&A expenses consist of corporate overhead
and selling expenses.
12
<PAGE>
Results of Operations
The following table sets forth, for the three months and six months ended
June 30, 1999 and 2000, respectively, the results of operations of the Company.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- -------------------------------------------
1999 2000 1999 2000
------------------------------------------- -------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenue . . . . . $60,160 100.0 % $58,786 100.0 % $ 119,335 100.0% $ 118,058 100.0 %
Operating Expenses:
Telecommunications
costs . . . . . . . . . 26,451 44.0 23,947 40.7 53,313 44.7 48,654 41.2
Facility commissions . . 18,085 30.1 18,950 32.2 36,113 30.3 37,728 32.0
Field operations and
maintenance . . . . . . 1,706 2.8 1,546 2.6 3,343 2.8 3,277 2.8
Selling, general and
administrative . . . 4,317 7.2 4,505 7.6 8,639 7.2 8,888 7.5
.
Depreciation . . . . . 1,758 2.9 2,048 3.5 3,465 2.9 4,015 3.4
.
Amortization of
intangibles. . . . . . 5,575 9.2 4,057 6.9 11,337 9.5 8,531 7.2
------- ----- ------- ----- --------- ----- --------- -----
Total operating
expenses. . . . . 57,892 96.2 55,053 93.6 116,210 97.4 111,093 94.1
------- ----- ------- ----- --------- ----- --------- -----
Operating income . . . . . 2,268 3.8 3,733 6.4 3,125 2.6 6,965 5.9
Interest expense, net. . . 4,857 8.1 4,768 8.1 9,737 8.1 9,666 8.2
------- ----- ------- ----- --------- ----- --------- -----
Loss before income taxes . (2,589) (4.3) (1,035) (1.7) (6,612) (5.5) (2,701) (2.3)
Income tax expense . . . . 82 0.1 32 0.1 96 0.1 53 0.0
------- ----- ------- ----- --------- ----- --------- -----
Net loss . . . . . . . . . $(2,671) (4.4)% $(1,067) (1.8)% $ (6,708) (5.6)% $ (2,754) (2.3)%
======= ===== ======= ===== ========= ===== ========= =====
EBITDA . . . . . . . . . . $ 9,601 16.0 % $ 9,838 16.7 % $17,927 15.0 % $ 19,511 16.5 %
======= ===== ======= ===== ========= ===== ========= =====
</TABLE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30,
1999.
Operating Revenues. The Company's operating revenues decreased by $1.4
million, or 2.3%, from $60.2 million for the three months ended June 30, 1999 to
$58.8 million for the three months ended June 30, 2000. The decrease in
operating revenue was due in part to enhanced validation procedures, which are a
direct result of the Company's recent system integrations. Validation is
designed to reduce the Company's exposure to bad debt by denying access to calls
to customers with higher credit risk, thereby reducing revenue along with bad
debt expense. The variance was also caused by the loss of certain contracts to
service inmate facilities as a result of market competition. These declines were
partially offset by new business won by the Company during the period and by the
acquisition of substantially all of the net assets of the inmate payphone
divisions of Alliance Tel-Com, Inc., KR&K, Inc., U.S. Connect, Inc.,
Telecommunications, Inc., and Lake-Tel, Inc. (collectively "Alliance") on June
1, 1999.
Operating Expenses. Total operating expenses decreased $2.8 million, from
$57.9 million for the three months ended June 30, 1999 to $55.1 million for the
three months ended June 30, 2000. Operating expenses as a percentage of
operating revenues decreased 2.6% from 96.2% for the three months ended June 30,
1999 to 93.6% for the three months ended June 30, 2000. The decrease in
operating expenses as a percentage of revenues is primarily due to the factors
discussed below.
Telecommunication costs decreased by $2.5 million, from $26.4 million for
the three months ended June 30, 1999 to $23.9 million for the three
13
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months ended June 30, 2000. Telecommunications costs represented 44.0% of
operating revenues for the three months ended June 30, 1999 and 40.7% of
operating revenues for the three months ended June 30, 2000. The decrease in
telecommunications costs as a percentage of operating revenues is primarily due
to i) a decline in bad debt expense as a result of enhanced validation due to
the Company's recent system integrations and ii) savings generated from new long
distance contracts.
Facility commissions increased by $0.9 million, from $18.1 million for
the three months ended June 30, 1999 to $19.0 million for the three months ended
June 30, 2000. Facility commissions represented 30.1% of operating revenues for
the three months ended June 30, 1999 and 32.2% of operating revenues for the
three months ended June 30, 2000, an increase of 2.1%. Commission expense as a
percentage of revenue for the Company's traditional inmate business was 33.7%
and 36.1% for the three months ended June 30, 1999 and 2000, respectively. This
increase is due to competition for new business and increased commission rates
on renewals. Commission rates are expected to gradually increase in the future.
Field operations and maintenance costs were $1.7 million for the three
months ended June 30, 1999 and $1.5 million for the three months ended June 30,
2000. Field operations and maintenance costs represented 2.8% of operating
revenues for the three months ended June 30, 1999, and 2.6% of operating
revenues for the three months ended June 30, 2000, a decrease of 0.2%. The
decrease as a percentage of operating revenues is primarily due to office
consolidations and system integrations.
SG&A costs increased by $0.2 million, from $4.3 million for the three
months ended June 30, 1999 to $4.5 million for the three months ended June 30,
2000. SG&A represented 7.2% of operating revenues for the three months ended
June 30, 1999 and 7.6% of operating revenues for the three months ended June 30,
2000, an increase of 0.4%. The increase is primarily due to increased staffing
to support enhancements to the Company's information systems and to execute new
sales initiatives.
Depreciation and amortization costs decreased by $1.2 million, from $7.3
million for the three months ended June 30, 1999 to $6.1 million for the three
months ended June 30, 2000. Depreciation and amortization costs represented
12.1% of operating revenues for the three months ended June 30,1999 and 10.4% of
operating revenues for the three months ended June 30,2000, a decrease of 1.7%.
The decrease as a percentage of operating revenues is primarily due to
amortization expense associated with the acquisitions of inmate facility
contracts by the Company. The Company amortizes acquired inmate facility
contracts over each contract's remaining term at the acquisition date. As the
contract terms expire, the acquired inmate facility contracts become fully
amortized and amortization expense declines.
Operating Income. The Company's operating income increased by $1.4 million,
from $2.3 million for the three months ended June 30,1999 to $3.7 million for
the three months ended June 30, 2000, substantially due to the factors described
above. The Company's operating income margin increased from 3.8% for the three
months ended June 30,1999 to 6.4% for the three months ended June 30,2000,
primarily as a result of the factors described above.
Interest Expense. Interest expense decreased from $4.9 million for the
three months ended June 30,1999 to $4.8 million for the three months ended
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June 30,2000. This decrease is primarily due to lower average debt outstanding
during the three months ended June 30, 2000.
Net Loss. The Company's net loss decreased by $1.6 million, from $2.7
million for the three months ended June 30,1999 to $1.1 million for the three
months ended June 30,2000, primarily as a result of the factors described above.
EBITDA . Earnings before interest, income taxes, depreciation, and
amortization ("EBITDA") increased from $9.6 million for the three months ended
June 30,1999 to $9.8 million for the three months ended June 30,2000. EBITDA as
a percentage of operating revenues increased from 16.0% for the three months
ended June 30,1999 to 16.7% for the three months ended June 30,2000, primarily
due to the factors described above. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles, the Company has included information concerning EBITDA in the
Form 10-Q because it is commonly used by certain investors and analysts as a
measure of a company's ability to service its debt obligations and is a
component of the Company's debt compliance ratios. EBITDA should not be used as
an alternative to, or be considered more meaningful than, operating income, net
income, or cash flows as an indicator of the Company's operating income. Two of
the Company's subsidiaries are subject to state income taxes. Consequently, the
Company accrues income tax expense even in a loss period.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Operating Revenues. The Company's operating revenues decreased by $1.2
million, or 1.0%, from $119.3 million for the six months ended June 30,1999 to
$118.1 million for the six months ended June 30,2000. The decrease in operating
revenues was due to i) the loss of the State of Alabama contract which
contributed $1.3 million of revenue during the six months ended June 30, 1999,
ii) enhanced validation procedures, which are a result of the Company's recent
system integrations and iii) the loss of certain contracts to service inmate
facilities as a result of market competition. These decreases were partially
offset by new business won by the Company during the period and by the
acquisition of Alliance on June 1, 1999.
Operating Expenses. Total operating expenses decreased $5.1 million, from
$116.2 million for the six months ended June 30, 1999 to $111.1 million for the
six months ended June 30, 2000. Operating expenses as a percentage of operating
revenues decreased 3.3% from 97.4% for the six months ended June 30, 1999 to
94.1% for the six months ended June 30, 2000. The decrease in operating expenses
as a percentage of revenues is primarily due to the factors discussed below.
Telecommunications costs decreased by $4.6 million, from $53.3 million
for the six months ended June 30, 1999 to $48.7 million for the six months ended
June 30, 2000. Telecommunications costs represented 44.7% of operating revenues
for the six months ended June 30, 1999 and 41.2% of operating revenues for the
six months ended June 30, 2000. The decrease in telecommunication costs as a
percentage of operating revenues is primarily due to i) savings generated from
new long distance contracts and ii) a decline in bad debt expense as a result of
enhanced validation due to the Company's recent system integrations.
Facility commissions increased by $1.6 million, from $36.1 million for the
six months ended June 30, 1999 to $37.7 million for the six months ended
15
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June 30, 2000. Facility commissions represented 30.3% of operating revenues for
the six months ended June 30, 1999 and 32.0% of operating revenues for the six
months ended June 30, 2000, an increase of 1.7%. Commission expense as a
percentage of revenue for the Company's traditional inmate business was 33.8%
and 35.6% for the six months ended June 30, 1999 and 2000, respectively. This
increase is due to competition for new business and increased commission rates
on renewals. Commission rates are expected to gradually increase in the future.
Field operations and maintenance costs were $3.3 million representing
2.8% of revenue for the six months ended June 30, 1999 and 2000, respectively.
SG&A costs increased by $0.3 million, from $8.6 million for the six
months ended June 30, 1999 to $8.9 million for the six months ended June 30,
2000. SG&A represented 7.2% of operating revenues for the six months ended June
30, 1999 and 7.5% of operating revenues for the six months ended June 30, 2000,
an increase of 0.3%. This increase is primarily due to increased staffing to
support enhancements to the Company's information systems and to execute new
sales initiatives. Additionally, the Company spent $0.2 million during the six
months ended June 30, 2000 for executive search fees.
Depreciation and amortization costs decreased by $2.3 million, from $14.8
million for the six months ended June 30, 1999 to $12.5 million for the six
months ended June 30, 2000. Depreciation and amortization costs represented
12.4% of operating revenues for the six months ended June 30, 1999 and 10.6% of
operating revenues for the six months ended June 30, 2000, a decrease of 1.8%.
The decrease as a percentage of operating revenues is primarily due to
amortization expense associated with the acquisitions of inmate facility
contracts by the Company. The Company amortizes acquired inmate facility
contracts over each contract's remaining term at the acquisition date. As the
contract terms expire, the acquired inmate facility contracts become fully
amortized and amortization expense declines.
Operating Income. The Company's operating income increased by $3.9 million,
from $3.1 million for the six months ended June 30, 1999 to $7.0 million for the
six months ended June 30, 2000, substantially due to the factors described
above. The Company's operating income margin increased from 2.6% for the six
months ended June 30, 1999 to 5.9% for the six months ended June 30, 2000,
primarily as a result of the factors described above.
Interest Expense. Interest expense was $9.7 million for the six months ended
June 30, 1999 and 2000, respectively.
Net Loss. The Company's net loss decreased by $3.9 million, from $6.7
million for the six months ended June 30, 1999 to $2.8 million for the six
months ended June 30, 2000, primarily as a result of the factors described
above.
EBITDA. EBITDA increased by $1.6 million from $17.9 million for the six
months ended June 30, 1999 to $19.5 million for the six months ended June 30,
2000. EBITDA as a percentage of operating revenues increased from 15.0% for the
six months ended June 30, 1999 to 16.5% for the six months ended June 30, 2000,
primarily due to the factors described above. Although EBITDA is not a measure
of performance calculated in accordance with generally accepted accounting
principles, the Company has included information concerning EBITDA in the
Form 10-Q because it is commonly used by certain investors and analysts as a
measure of a company's ability to
16
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service its debt obligations and is a component of the Company's debt compliance
ratios. EBITDA should not be used as an alternative to, or be considered more
meaningful than, operating income, net income, or cash flows as an indicator of
the Company's operating income. Two of the Company's subsidiaries are subject to
state income taxes. Consequently, the Company accrues income tax expense even in
a loss period.
17
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Liquidity and Capital Resources
The Company expects that its principal sources of liquidity will be cash
flow from operations and borrowings under the Senior Credit Facility. On August
9, 2000, the Company's Senior Credit Facility group of lenders approved an
amendment to provide an additional $7.5 million term loan facility to the
Company under the Senior Credit Facility. $5.0 million of this additional term
facility will be immediately available to the Company and the remaining $2.5
million will be available in the first quarter of 2001 if the Company achieves
$40.0 million of EBITDA for the fiscal year ending December 31, 2000. All
borrowings under this additional term facility will be due on December 31, 2002.
The amendment increases the interest rate on all previously existing debt
balances under the Senior Credit Facility by 0.25%. The interest rate on
borrowings under the new term facility will be LIBOR plus 4.0%. The amendment
increases the Company's letter of credit facility under the revolving portion of
the Senior Credit Facility from $5.0 million to $10.0 million but does not
increase the Company's total borrowing capacity under the revolving portion of
the Senior Credit Facility. The Company negotiated this amendment to provide
additional capital for new business opportunities and to increase its working
capital. The Company anticipates that its principal uses of liquidity will be to
provide working capital, fund capital investments, and meet debt service
requirements. Management expects that cash flow from operations, along with
additional borrowings under existing credit facilities, will be sufficient to
meet the Company's operating requirements for the next twelve months. The
Company currently anticipates that interest payments will be required of
approximately $18.3 million and $16.5 million for each of the fiscal years
ending December 31, 2000 and December 31, 2001, respectively, under the terms of
the Senior Notes and the Senior Credit Facility. As of June 30, 2000, the
Company had approximately $8.7 million of unused borrowing capacity under the
Senior Credit Facility. The Company anticipates that its primary capital
expenditures for the remainder of 2000 will be approximately $6.9 million for
capital items required to implement new contracts and contract renewals entered
into by the Company, upgrades of internal systems, and capital expenditures
associated with acquisitions in prior years. Total capital expenditures for the
fiscal year ending December 31, 2000 are expected to be $13.1 million.
In March 1999, the Company raised $5.0 million of equity from its
existing stockholders and warrant holders and/or their affiliates through the
issuance of 5,000 investment units at $1,000 per unit. Each unit consists of one
share of newly authorized First Preferred Series "A" Stock and a warrant to
acquire one share of the Company's Class "A" common stock for $1,000 per share.
The First Preferred Series "A" Stock is entitled to receive dividends at
the applicable First Preferred Series "A" Rate, payable quarterly. Dividends are
payable out of funds legally available therefore, will be payable only when, as,
and if declared by the Company's Board of Directors, shall be cumulative, and,
if undeclared or unpaid, shall bear interest at the applicable First Preferred
Series "A" Rate until paid. The First Preferred Series "A" Rate is eight percent
per annum through March 31, 2001, will be ten percent per annum from April 1,
2001 through June 30, 2001, and thereafter will increase by 0.5% for each
additional three month period, up to a maximum of 16% per annum. The First
Preferred Series "A" Stock ranks senior to all classes of common stock but ranks
junior to the Senior Preferred Stock with respect to dividend rights and rights
upon liquidation. The warrants have a strike price of $1,000 per share and will
expire if not
18
<PAGE>
exercised before December 31, 2007. As a result of the issuance of the First
Preferred Series "A" Stock and warrants, the Company was required to obtain a
waiver from its Senior Credit Facility group of lenders that waived the lenders'
rights to the proceeds raised by the Company from the issuance.
In conjunction with the March 1999 equity offering, the preferred
dividend rates on the Senior Preferred Stock were modified to mirror the
preferred dividend rates on the First Preferred Series "A" Stock.
Also in March 1999, and in conjunction with the issuance of First
Preferred Series "A" Stock and warrants, the Company amended its Senior Credit
Facility. The amendment increased the Company's borrowing capacity under the
term loan facility of the Senior Credit Facility by $5.5 million, which bears
interest at similar rates to the existing borrowings under the Senior Credit
Facility. The Company borrowed the additional $5.5 million in March 1999 and
concurrently repaid $5.0 million under the revolving loan facility of the Senior
Credit Facility.
Net cash provided by operating activities was $0.1 million for the six
months ended June 30, 1999, as compared to $7.8 million for the six months ended
June 30, 2000. This increase was due to a $1.7 million increase in operating
income before consideration of depreciation and amortization coupled with a $6.1
million increase due to the timing of certain cash receipts and disbursements.
During the six months ended June 30, 2000, the Company's LECs increased reserves
for uncollectible chargebacks, thereby reducing cash payments to the Company for
receivable collections. The Company expects the LECs to continue this trend over
the remaining quarters of 2000.
Cash used in investing activities was $5.8 million for the six months
ended June 30, 1999, as compared to $6.2 million for the six months ended June
30, 2000, consisting primarily of both cash outflows for investments in new
business and customer contract renewals and the payments of $1.8 million and
$0.8 million, respectively, of acquisition costs relating to the acquisitions
made by the Company in prior years.
Cash provided by financing activities was $4.3 million for the six months
ended June 30, 1999, as compared to cash used of $3.2 million for the six months
ended June 30, 2000. Cash used by financing activities during the six months
ended June 30, 2000 consisted primarily of principal repayments under the Senior
Credit Facility. Cash provided by financing activities for the six months ended
June 30, 1999 consisted of funds raised through the issuance of the First
Preferred Series "A" Stock, proceeds from borrowings under the Senior Credit
Facility, offset by principal repayments of borrowings under the Senior Credit
Facility.
The Senior Credit Facility, as amended on August 9, 2000 consists of (a) a
$55.0 million term loan acquisition facility all of which has been borrowed and
upon which $21.3 million of scheduled principal payments had been made as of
June 30, 2000, (b) $13.0 million of additional term loan facilities of which
$5.5 million has been borrowed as of June 30, 2000, with $5.0 million being
currently available, and $2.5 million becoming available by March 31, 2001
subject to certain financial performance being achieved as described further
herein, and (c) a $25.0 million revolving loan facility (which includes a $10.0
million letter of credit facility) upon which $14.5 million had been borrowed as
of June 30, 2000. Scheduled principal payments under the term loan facilities
may not be reborrowed. Amounts borrowed under the Senior Credit Facility bear
interest, at the option of the
19
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Company, at either (i) the Base Rate (i.e., the higher of Canadian Imperial Bank
of Commerce's ("CIBC") reference rate or the overnight federal funds rate plus
0.5%) plus a margin that varies from 100 to 225 basis points, depending on the
Company's Total Debt to EBITDA Ratio (as defined in the Senior Credit Facility);
or (ii) the LIBOR plus a margin that varies from 225 to 400 basis points,
depending on the Company's Total Debt to EBITDA Ratio.
The Senior Credit Facility requires quarterly interest payments to be made
on base rate loans and periodic interest-only payments based on the applicable
interest period on LIBOR loans, at least quarterly, in each case until maturity.
In addition, the Senior Credit Facility requires mandatory prepayments out of
the proceeds of certain equity or debt offerings, asset dispositions, receipt of
insurance proceeds not applied as provided in the Senior Credit Facility, and
receipts of funds from certain escrow accounts. Remaining scheduled principal
payments of outstanding balances on the term loan facilities as of June 30, 2000
are approximately $6.2 million, $13.8 million and $19.2 million during the years
ended December 31, 2000, 2001, and 2002, respectively. All outstanding principal
and interest under the Senior Credit Facility is due December 31, 2002. The
Senior Credit Facility is secured by substantially all of the assets of the
Company and its subsidiaries.
On June 30, 1998, the Company entered into an interest rate cap agreement
that has been designated as a hedge against the Company's variable interest rate
exposure under the Senior Credit Facility. At June 30, 2000, the interest rate
cap has an aggregate notional amount of $30.0 million, which matures in June
2001, and caps interest on the LIBOR portion of the term loan, up to the
aggregate notional amount, at 7.5%, plus the applicable LIBOR margin.
As of August 10th, 2000, the Company had $13.7 million of available
borrowing capacity under the Senior Credit Facility, including $5.0 million of
capacity under the new term facility.
As of June 30, 2000, the Company had approximately $169.1 million of
indebtedness outstanding, including the current portion, a deficit in
stockholders' equity of $46.2 million, and $0.4 million of cash.
As of June 30, 2000, the Company's indebtedness included (i) $115.0 million
of 11.0% Senior Notes due 2007 (the "Senior Notes"), (ii) $53.7 million of
indebtedness under the Senior Credit Facility, and (iii) $0.4 million of other
indebtedness.
The Company intends to evaluate additional acquisitions to expand its base
of installed inmate telephones and value added services and will continue to
evaluate possible acquisition opportunities. There can be no assurance that the
Company will have sufficient available capital resources to realize its
acquisition strategy. Such future acquisitions, depending on their size and the
form of consideration, may require the Company to seek additional debt or equity
financing.
Changes in Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB101"), Revenue Recognition in
Financial Statements. In March 2000, SAB 101 was amended by SAB 101A which
delayed the implementation date of SAB 101 for calendar year end reporting
20
<PAGE>
companies to the quarter ending June 30, 2000. In June 2000, SAB 101 was amended
a second time by SAB 101B further delaying the implementation date to no later
than the quarter ending December 31, 2000. The Company is currently evaluating
SAB 101 and does not believe SAB 101 will have a material effect on its revenues
and results of operations.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998, and requires recognition of all derivative
financial instruments as either assets or liabilities in consolidated balance
sheets at fair value and determines the method(s) of gain/loss recognition. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. The Company
is currently evaluating the effect of SFAS No. 133 and does not believe its
adoption will have a material effect on the consolidated financial statements.
Special Note Regarding Forward-Looking Information
Certain statements in this Quarterly Report Form 10-Q constitute
forward-looking statements. These forward-looking statements are all statements
that are not statements of historical fact or that might otherwise be considered
opinion, belief, or projection. These forward-looking statements involve known
and unknown risks, uncertainties, and other factors that may cause the actual
results, levels of activity, performance, or achievements of the Company, or
industry results, to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by such
forward-looking statements. The risks, uncertainties, and other factors to which
forward-looking statements are subject include, among others, those set forth
under the caption "Risk Factors" in the Company's Form 10-Q filed on May 12,
1999, which is available from the Company, from the Securities and Exchange
Commission at prescribed rates, and at the web-site www.sec.gov. Such factors
include without limitation, the following: competitors with greater resources;
risks associated with market growth stagnating or declining; lack of patents and
possible infringement; technological change and new services; control by
principal shareholders; changes in the telecommunications industry; availability
of key personnel; and changes in or the failure to comply with, governmental
regulations. All subsequent written or oral forward-looking statements
attributable to the company or persons acting on its behalf are expressly
qualified in their entirety by such factors.
In some cases, forward-looking statements can be identified by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology. Although the Company believes that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, as a result of the foregoing and other factors, no assurance can be
given as to the future results, levels of activity, performance, or
achievements, and neither the Company nor any other person assumes
responsibility for the accuracy and completeness of such forward-looking
statements. All forward-looking statements included in this Quarterly Report on
Form 10-Q are based on information available to the Company on the date hereof,
and the Company is
21
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under no duty to update any of the forward-looking statements after the date
hereof.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder for the Company is not significantly
different from the information set forth in Item 7A Quantitative and Qualitative
Disclosures About Market Risk included in the 1999 Form 10-K and is therefore
not presented herein.
23
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time a party to legal proceedings that arise in
the ordinary course of business. Management does not believe that the resolution
of any threatened or pending legal proceedings will have a material adverse
affect on the Company.
None of the Company's internally developed call processing technology has
been patented. Accordingly, such technology and intellectual property rights
could infringe on other parties' intellectual property rights and could be
contested or challenged. The Company has received notice from two parties that
certain features of the Company's call processing technology may infringe upon
such parties' patents. Should the Company's call processor or any material
feature thereof be determined to violate applicable patents, the Company would
be required to cease using these features or to obtain appropriate licenses for
the use of such technology.
From time to time, inmate telecommunications providers are parties to
proceedings initiated by inmates, consumer protection advocates or individual
called parties alleging that excessive rates are being charged with respect to
inmate collect calls. The Company is currently named in such proceedings in
various jurisdictions. The plaintiffs in such proceedings generally seek class
action certification against all inmate telecommunications providers as
defendants, with all recipients of calls from inmate facilities as plaintiffs.
The Company recently obtained dismissal of one such proceeding and is seeking
dismissal in the other proceedings in which it is named.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
24
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description of Exhibit
3.1 Certificate of Incorporation of the Company (filed as Exhibit 3.1 to
the Company's Registration Statement No. 333-33639 and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference). 3.3 Certificate of Amendment to Restated Certificate of
Incorporation of the Company, dated as of July 23, 1998 (filed as
Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q, dated as
of August 14, 1998 and incorporated herein by reference).
3.4 Certificate of Amendment to Restated Certificate of Incorporation of
the Company, dated as February 11, 1999. (filed as Exhibit 3.4 to the
Company's Quarterly Report on Form-10-Q dated as of May 12, 1999 and
incorporated herein by reference).
4.1 Indenture, dated as of June 27, 1997, between the Company and U.S.
Trust Company of Texas, N.A. (filed as Exhibit 4.1 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.2 Form of Note (contained in Indenture filed as Exhibit 4.2 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
4.3 Form of Subsidiary Guaranty (contained in Indenture filed as Exhibit
4.3 to the Company's Registration Statement No. 333-33639 and
incorporated herein by reference).
4.4 Registration Rights Agreement, dated as of June 27, 1997, between the
Company and the Initial Purchaser (filed as Exhibit 4.4 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
4.5 Registration Rights Agreement, dated as of December 27, 1996m by and
among the Company and certain Holders named therein (filed as Exhibit
4.5 to the Company's Registration Statement No. 333-33639 and
incorporated herein by reference).
4.6 Shareholders Agreement, dated as December 27, 1996, by among the
Company and certain Persons named therein (filed as Exhibit 4.6 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
4.7 Warrant Agreement, dated as of December 27, 1996, between the Company
and CIBC Wood Gundy Ventures, Inc. (filed as Exhibit 4.7 to the
Company's Registration Statement No. 333-33639 and incorporated herein
by reference).
4.8 Warrant Agreement, dated as of December 27, 1996, between the Company
and Gregg L. Engles (filed as Exhibit 4.8 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.9 Warrant Agreement, dated as of December 27, 1996, between the Company
and Gregg L. Engles (filed as Exhibit 4.9 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.10 Warrant Agreement, dated as of December 27, 1996, between the Company
and Gregg L. Engles (filed as Exhibit 4.10 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.11 Warrant Agreement, dated as of December 27, 1996, between the Company
and Onyx Talton Partners, L.P. (filed as Exhibit 4.11
25
<PAGE>
to the Company's Registration Statement No. 333-33639 and
incorporated herein by reference).
4.12 Warrant Agreement, dated as of December 27, 1996, between the Company
and Onyx Talton Partners, L.P. (filed as Exhibit 4.12 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.13 Warrant Agreement, dated as of December 27, 1996, between the Company
and Onyx Talton Partners, L.P. (filed as Exhibit 4.13 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.14 Warrant Agreement, dated as of December 27, 1996, between the Company
and Joseph P. Urso (filed as Exhibit 4.14 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.15 Warrant Agreement, dated as of December 27, 1996, between the Company
and Joseph P. Urso (filed as Exhibit 4.15 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.16 Warrant Agreement, dated as of December 27, 1996, between the Company
and Joseph P. Urso (filed as Exhibit 4.16 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.17 Warrant Agreement, dated as of December 27, 1996, between the Company
and Todd W. Follmer (filed as Exhibit 4.17 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.18 Warrant Agreement, dated as of December 27, 1996, between the Company
and Todd W. Follmer (filed as Exhibit 4.18 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.19 Warrant Agreement, dated as of December 27, 1996, between the Company
and Todd W. Follmer (filed as Exhibit 4.19 to the Company's
Registration Statement No. 333-33639 and incorporated herein by
reference).
4.20 Form of Warrant Agreement, dated as of March 12, 1999 (filed as
Exhibit 4.20 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and incorporated herein by reference).
10.1*Amendment No. 4 to Second Amended and Restated Credit Agreement, dated
as of August 9, 2000, by and among the Company, the Lenders (as
defined therein), and Canadian Imperial Bank of Commerce, as
Administrative Agent and Document Agent.
27.1*Financial Data Schedule
* Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period subject to this
Quarterly Report on Form 10-Q.
26
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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.
EVERCOM, INC.
By:/s/ TERRY MATLACK
Terry Matlack
Chief Executive Officer
By:/s/ KEITH KELSON
Keith Kelson
Chief Financial Officer
Date: August 11, 2000
27
