<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1999 Commission File Number: 0-22610
DAVEL COMMUNICATIONS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 37-1064777
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
10120 WINDHORST ROAD, TAMPA, FL 33619
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(Address of principal executive offices) (Zip Code)
Registrant`s telephone number: (813) 628-8000
------------------------
Indicate by check mark whether the Registrant has (1) 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. |X| Yes |_| No
As of May 14, 1999, the number of shares outstanding of the Registrant`s Common
Stock was 10,536,860.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except per share and share data)
<TABLE>
<CAPTION>
March 31 December 31
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 19,873 $ 17,162
Restricted cash 790 790
Trade accounts receivable, net of allowance
for doubtful accounts of $6,953 and $5,383,
respectively 29,490 30,838
Other current assets 5,885 3,694
--------- ---------
Total current assets 56,038 52,484
PROPERTY AND EQUIPMENT 132,637 130,099
LOCATION CONTRACTS 33,359 34,252
GOODWILL 46,144 47,458
OTHER ASSETS 7,634 8,725
--------- ---------
Total assets $ 275,812 $ 273,018
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and
obligations under capital leases $ 16,839 $ 11,525
Accounts payable and accrued liabilities 36,130 34,393
--------- ---------
Total current liabilities 52,969 45,918
--------- ---------
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES 231,587 225,451
--------- ---------
SHAREHOLDERS' (DEFICIT) EQUITY
Preferred stock - $.01 par value, 1,000,000 shares
authorized, none issued and outstanding -- --
Common stock - $.01 par value, 50,000,000 shares
authorized, 10,536,860 and 10,536,155 shares issued
and outstanding, respectively 105 105
Additional paid-in capital 126,332 126,325
Accumulated deficit (135,181) (124,781)
--------- ---------
Total shareholders' (deficit) equity (8,744) 1,649
--------- ---------
Total liabilities and shareholders' (deficit) equity $ 275,812 $ 273,018
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31
(In thousands, except per share and share data)
1999 1998
---- ----
Revenues
Coin calls $ 28,032 $ 30,789
Non-coin calls 17,305 16,408
---------- ---------
Total revenues 45,337 47,197
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Costs and expenses
Telephone charges 11,772 11,811
Commissions 10,416 10,966
Service, maintenance and network costs 10,561 9,226
Depreciation and amortization 8,975 8,694
Selling, general and administrative 8,723 7,308
Restructuring costs -- 825
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Total operating costs and expenses 50,447 48,830
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Operating loss (5,110) (1,633)
Interest expense (5,411) (4,877)
Other 121 163
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Loss from operations before income taxes (10,400) (6,347)
Income tax benefit -- (993)
---------- ---------
Net loss $ (10,400) $ (5,354)
========== =========
Basic and diluted loss per share $ (.99) $ (.67)
========== =========
Weighted average shares outstanding 10,536,837 8,451,404
========== =========
The accompanying notes are an integral part of these statements.
<PAGE>
DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31
(In thousands)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash flows from operating activities
Net loss $(10,400) $ (5,354)
Adjustments to reconcile net loss to cash flows
from operating activities:
Gain on sale of property and equipment -- (18)
Depreciation and amortization 8,975 8,694
Amortization of deferred financing costs 139 196
Deferred income taxes -- (46)
Restructuring charge -- 825
Changes in assets and liabilities, net of
effects from acquisitions
Accounts receivable 1,348 (2,984)
Note receivable -- (39)
Other assets (1,673) (3,343)
Accounts payable and accrued liabilities 1,737 (6,732)
-------- ---------
Net cash flows provided by (used in) operating activities 126 (8,801)
-------- ---------
Cash flows from investing activities
Capital expenditures (2,526) (1,809)
Proceeds from sale of property and equipment -- 42
Payments for certain contracts (1,223) (913)
Purchase of payphone assets, net of cash acquired (5,123) --
Purchase of Indiana Telcom, net of cash acquired -- (11,317)
Purchase of Communications Central Inc., net of cash acquired -- (101,644)
-------- ---------
Net cash flows used in investing activities (8,872) (115,641)
-------- ---------
Cash flows from financing activities
Proceeds from long-term debt 11,500 120,700
Payments on long-term debt -- (9,542)
Principal payments under capital lease obligations (50) (242)
Issuance of common stock through stock options and warrants 7 155
-------- ---------
Net cash flows provided by financing activities 11,457 111,071
-------- ---------
Net increase (decrease) in cash and cash equivalents 2,711 (13,371)
Cash and cash equivalents, beginning of period 17,162 25,401
-------- ---------
Cash and cash equivalents, end of period $ 19,873 $ 12,030
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Davel Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
The accompanying unaudited consolidated financial statements have been prepared
by the Company and include the accounts of its subsidiaries. These statements
reflect all adjustments, consisting of only normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of
financial results for the three month periods ended March 31, 1999 and 1998, in
accordance with generally accepted accounting principles for interim financial
reporting. Certain information and footnote disclosures normally included in
audited financial statements have been omitted pursuant to such rules and
regulations. These interim consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and the
notes thereto for the years ended December 31, 1998 and 1997 and Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Form 10-Q and in the Company's Form 10-K for the
year ended December 31, 1998. The results of operations for the three month
periods ended March 31, 1999 and 1998 are not necessarily indicative of the
results for the full year.
1. DESCRIPTION OF BUSINESS
Davel Communications, Inc. (the "Company" or "Davel") was incorporated on June
9, 1998 under the laws of the State of Delaware to effect the merger, on
December 23, 1998 (the "Peoples Merger"), of Davel Communications Group, Inc.
("Old Davel"), with Peoples Telephone Company, Inc. ("Peoples Telephone"). As a
result of the Peoples Merger, the Company is the largest independent payphone
service provider in the United States, with approximately twice the number of
payphones as the second largest independent payphone service provider. The
Company operates in a single business segment within the telecommunications
industry, operating, servicing and maintaining a system of payphones in 42
states and the District of Columbia and provides operator services to these
payphones. The Company's headquarters is located in Tampa, Florida, with
divisional and administrative facilities in 32 dispersed geographic locations.
Pursuant to an Agreement and Plan of Merger dated July 5, 1998 as amended and
restated on October 22, 1998, the Peoples Merger was consummated on December 23,
1998. The stock-for-stock transaction was approved by the shareholders of the
two companies, with the Company continuing as the surviving corporation in the
merger. Under the merger agreement, each outstanding share of Peoples Telephone
common stock was converted into the right to receive 0.235 common shares of the
Company and resulted in the issuance of 3,812,810 shares of common stock to the
common shareholders of Peoples Telephone. In addition, the outstanding shares of
Peoples Telephone's Series C Preferred Stock and accrued Preferred Stock
dividends were converted into 892,977 shares of common stock. This transaction
has been accounted for as a pooling of interests, and accordingly, the financial
statements of the Company have been restated to reflect the combined financial
position and operating results as if the companies had operated as one entity
since inception. For periods preceding the merger, there were no intercompany
<PAGE>
transactions which required elimination from the combined consolidated results
of operations.
Selected financial information for the combining entities included in the
consolidated statement of operations for the quarter ended March 31, 1998 is as
follows:
1998
----
Total revenues
Davel $ 19,303
Peoples 27,894
--------
Combined $ 47,197
========
Net loss
Davel $ (1,334)
Peoples (4,020)
--------
Combined $ (5,354)
========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reclassification
Certain reclassifications have been made to conform to the 1999 presentation.
3. ACQUISITION
On February 3, 1998, the Company completed its acquisition of Communications
Central, Inc. (the "CCI Acquisition") at a price of $10.50 per share in cash, or
approximately $70.2 million in the aggregate, assumed CCI's outstanding debt of
$36.7 million and incurred $2.2 million in transaction costs. The CCI
Acquisition has been accounted for by the purchase method, and accordingly the
results of operations are included in the Company's consolidated statement of
operations from the date of acquisition. Goodwill associated with the
acquisition will be amortized over fifteen years using straight-line
amortization. The allocation of the purchase price of the CCI Acquisition is
summarized as follows:
Working capital $ 8,892
Property and equipment, net 46,119
Goodwill 42,541
Identifiable intangible assets 11,565
---------
$ 109,117
=========
<PAGE>
4. LONG TERM DEBT
In connection with the Peoples Merger on December 23, 1998, the Company entered
into a senior credit facility ("Senior Credit Facility") with NationsBank N.A.
(the "Administrative Agent") and the other lenders named therein. The Senior
Credit Facility provides for borrowings by the Company from time to time of up
to $280 million for working capital and other corporate purposes.
Indebtedness of the Company under the Senior Credit Facility is secured by
substantially all of its and its subsidiaries' assets, including but not limited
to their equipment, inventory, receivables and related contracts, investment
property, computer hardware and software, bank accounts and all other goods and
rights of every kind and description and is guaranteed by the Company.
The Company's borrowings under the Senior Credit Facility bear interest at a
floating rate and may be maintained as Base Rate Loans (as defined in the Senior
Credit Facility) or, at the Company's option, as Eurodollar Loans (as defined in
the Senior Credit Facility). Base Rate Loans shall bear interest at the Base
Rate (defined as the higher of (i) the applicable prime lending rate of
NationsBank, N.A. Bank of or (ii) the Federal Reserve reported certificate of
deposit rate plus 1%). Eurodollar Loans shall bear interest at the Eurodollar
Rate (as defined in the Senior Credit Facility), plus a margin based on
leverage.
The Company is required to pay the lenders under the Senior Credit Facility a
commitment fee of 0.5%, payable in arrears on a quarterly basis, on the average
unused portion of the Senior Credit Facility during the term of the facility.
The Company is also required to pay an annual agency fee to the Agent. In
addition, the Company was also required to pay an arrangement fee for the
account of each bank in accordance with the banks' respective pro rata share of
the Senior Credit Facility. The Agent and the lenders will receive such other
fees as have been separately agreed upon with the Agent.
The Senior Credit Facility requires the Company to meet certain financial tests,
including, without limitation, maximum levels of Senior Secured Debt as a ratio
of EBITDA (as defined in the Senior Credit Facility), minimum interest coverage,
minimum fixed charge coverage and maximum amount of capital expenditures. The
Senior Credit Facility also contains certain covenants which, among other
things, will limit the incurrence of additional indebtedness, prepayments of
other indebtedness (including the Notes), liens and encumbrances and other
matters customarily restricted in such agreements.
The Senior Credit Facility contains customary events of default, including
without limitation, payment defaults, breaches of representations and
warranties, covenant defaults, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, judgement defaults, failure of any
guaranty or security document supporting the Senior Credit Facility to be in
full force and effect, and a change of control of the Company.
On April 8, 1999, the Company and the Lenders agreed to the First Amendment to
Credit Agreement and Consent and Waiver (the "First Amendment") which waived
compliance,
<PAGE>
for the fiscal quarter ending March 31, 1999, with the financial covenants set
forth in the Senior Credit Facility. In addition, the First Amendment waived any
event of default related to two small acquisitions made by the Company in the
first quarter of 1999, and waived the requirement that the Company deliver
annual financial statements to the Lenders within 90 days of December 31, 1998,
provided that such financial statements shall be delivered no later than April
15, 1999. The First Amendment contained amendments that provided for the
following:
o amendment of the applicable percentages for Eurodollar Loans for the
period between April 1, 1999 and June 30, 2000 at each pricing level to
0.25% higher than those in the previous pricing grid
o prepayment of debt from receipt of dial-around compensation accounts
receivable related to the period November 1996 through October 1997
o further limitations on permitted acquisitions as defined in the Credit
Agreement through June 30, 2000
o during the period April 1, 1999 to June 30, 2000, required lenders consent
for the making of loans or the issuance of letters of credit if the sum of
revolving loans outstanding plus letter of credit obligations outstanding
exceeds $50.0 million
o the introduction of a new information covenant to provide certain
operating data to the Lenders on a monthly basis
o increases in the maximum allowable ratio of funded debt to EBITDA through
the quarter ended June 30, 2000
o decreases in the minimum allowable interest coverage ratio through the
quarter ended June 30, 2000
o decreases in the minimum allowable fixed charge coverage ratio through the
quarter ended June 30, 2000
The Company believes that it is probable that it will comply with the loan
covenants for the next twelve months and, as such, has not classified the
obligations under the Senior Credit Facility as current liabilities.
The First Amendment also limits capital expenditures and requires the payment of
an amendment fee equal to the product of each Lender's commitment multiplied by
0.35%.
In connection with the provisions of its Senior Credit Facility and the
Company's overall interest rate management objectives, the Company utilizes
derivative financial instruments to reduce its exposure to market risks from
significant increases in interest rates. The Company's strategy is to purchase
interest rate swaps, collars and caps from large financial institutions that in
the aggregate maintain notional amounts exceeding 40% of the Company's
outstanding long-term debt balance to limit the impact of increases in interest
rates on the Company's variable rate long-term debt. As of March 31, 1999, the
Company has two interest rate swap agreements with an aggregate notional amount
of $23 million with a termination date of March 2001. The interest rate swaps
require the Company to pay fixed rates of 5.9% in exchange for variable rate
payments based on the U.S. three month LIBOR (5.0% as of March 31, 1999).
Interest rate differentials are paid or received every three months and are
recognized as adjustments to interest expense.
<PAGE>
During the three months ended March 31, 1999, the Company purchased two interest
rate cap agreements with an aggregate notional amount of $40 million that
terminate in March 2000. The interest rate cap agreements require premium
payments to the counterparty based on the notional amount of the contract that
are capitalized and amortized to interest expense over the life of the contract.
These agreements entitle the Company to receive quarterly payments from the
counterparties for amounts, if any, by which the U.S. three month LIBOR rate
exceeds 7%. In addition, the Company entered into an interest rate collar
agreement with a large financial institution that terminates in February 2002.
The notional amount of the interest rate collar is $25 million and the agreement
has a cap rate of 7% and a floor rate of 4.8% based on the U.S. one month LIBOR
rate.
The Company does not hold or issue derivative financial instruments for trading
purposes. The Company is exposed to credit risk in the event of nonperformance
by the counterparties; however, the Company does not anticipate nonperformance
by any of its counterparties. The carrying amount and fair value of these
contracts are not significant.
5. NON-RECURRING AND RESTRUCTURING COSTS
In connection with the Peoples Merger, the Company recognized non-recurring
costs of $10,814 in 1998. These costs include legal fees, investment banking
fees, accounting fees and change of control payments. In addition, the Company
recognized restructuring costs of $4,325 related to the Peoples Merger and other
restructurings. These costs were composed of payments incurred in connection
with early lease terminations, facility closing costs, a writedown of the value
of the former Peoples headquarters and employee termination benefits for 143
excess field operations and administrative personnel. The following table
summarizes reserves utilized during the quarter ended March 31, 1999.
<TABLE>
<CAPTION>
Facility Employee Merger
Closing Termination Closing
Costs Costs Other Costs Total
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Non-recurring and
restructuring charge
at January 1, 1999 $ 889 $ 1,293 $787 $ 3,769 $ 6,738
Utilized during
quarter ended March
31, 1999 (135) (1,088) -- (3,355) (4,578)
----- ------- ---- ------- -------
Remaining reserve at
March 31, 1999 $ 754 $ 205 $787 $ 414 $ 2,160
===== ======= ==== ======= =======
</TABLE>
6. PROVISION FOR DIAL-AROUND COMPENSATION
On September 20, 1996, the Federal Communications Commission (FCC) adopted rules
in a docket entitled In the Matter of Implementation of the Payphone
Reclassification and Compensation Provisions of the Telecommunications Act of
1996, FCC 96-388 (the 1996 Payphone Order), implementing the payphone provisions
of Section 276 of the Telecommunications Act of 1996 (the Telcom Act). The 1996
Payphone Order, which became effective November 7, 1996, initially mandated
dial-around compensation for both access code calls and 800 subscriber calls at
a flat rate of $45.85 per payphone per
<PAGE>
month (131 calls multiplied by $0.35 per call). Commencing October 7, 1997, and
ending October 6, 1998, the $45.85 per payphone per month rate was to transition
to a per-call system at the rate of $0.35 per call. Several parties filed
petitions for judicial review of certain of the FCC regulations including the
dial-around compensation rate. On July 1, 1997, the U.S. Court of Appeals for
the District of Columbia Circuit (the Court) responded to appeals related to the
1996 Payphone Order by remanding certain issues to the FCC for reconsideration.
These issues included, among other things, the manner in which the FCC
established the dial-around compensation for 800 subscriber and access code
calls, the manner in which the FCC established the interim dial-around
compensation plan and the basis upon which interexchange carriers (IXCs) would
be required to compensate payphone service providers (PSPs). The Court remanded
the issue to the FCC for further consideration, and clarified on September 16,
1997, that it had vacated certain portions of the FCC's 1996 Payphone Order,
including the dial-around compensation rate. Specifically, the Court determined
that the FCC did not adequately justify (i) the per-call compensation rate for
800 subscriber and access code calls at the deregulated local coin rate of
$0.35, because it did not sufficiently justify its conclusion that the costs of
local coin calls are similar to those of 800 subscriber and access code calls;
and (ii) the allocation of the payment obligation among the IXCs for the period
from November 7, 1996, through October 6, 1997.
In accordance with the Court's mandate, on October 9, 1997, the FCC adopted and
released its Second Report and Order in the same docket, FCC 97-371 (the 1997
Payphone Order). This order addressed the per-call compensation rate for 800
subscriber and access code calls that originate from payphones in light of the
decision of the Court which vacated and remanded certain portions of the FCC's
1996 Payphone Order. The FCC concluded that the rate for per-call compensation
for 800 subscriber and access code calls from payphones is the deregulated local
coin rate adjusted for certain cost differences. Accordingly, the FCC
established a rate of $0.284 ($0.35 - $0.066) per call for the first two years
of per-call compensation (October 7, 1997, through October 6, 1999). The IXCs
were required to pay this per-call amount to PSPs, including the Company,
beginning October 7, 1997. After the first two years of per-call compensation,
the market-based local coin rate, adjusted for certain costs defined by the FCC
as $0.066 per call, was to be the surrogate for the per-call rate for 800
subscriber and access code calls. These new rule provisions were made effective
as of October 7, 1997.
On March 9, 1998, the FCC issued a Memorandum Opinion and Order, FCC 98-481,
which extended and waived certain requirements concerning the provision by the
LECs of payphone-specific coding digits which identify a call as originating
from a payphone. Without the transmission of payphone-specific coding digits
some of the IXCs have claimed they are unable to identify a call as a payphone
call eligible for dial-around compensation. With the stated purpose of ensuring
the continued payment of dial-around compensation the FCC, by Memorandum and
Order issued on April 3, 1998, left in place the requirement for payment of
per-call compensation for payphones on lines that do not transmit the requisite
payphone-specific coding digits, but gave the IXCs a choice for computing the
amount of compensation for payphones on LEC lines not transmitting the
payphone-specific coding digits of either accurately computing per-call
compensation from their databases or paying per-phone, flat-rate compensation
computed by multiplying the $0.284 per call rate by the nationwide average
number of 800 subscriber
<PAGE>
and access code calls placed from RBOC payphones for corresponding payment
periods. Accurate payments made at the flat rate are not subject to subsequent
adjustment for actual call counts from the applicable payphone.
On May 15, 1998, the Court again remanded the per-call compensation rate to the
FCC for further explanation without vacating the $0.284 per call rate. The Court
opined that the FCC had failed to explain adequately its derivation of the
$0.284 default rate. The Court stated that any resulting overpayment would be
subject to refund and directed the FCC to conclude its proceedings within a
six-month period from the effective date of the Court's decision.
In response to the Court's second remand, the FCC conducted further proceedings
and sought additional comment from interested parties to address the relevant
issues posed by the Court. On February 4, 1999, the FCC released its Third
Report and Order, and Order on Reconsideration of the Second Report and Order
(the "1999 Payphone Order"), in which the FCC abandoned its efforts to derive a
"market-based" default dial-around compensation rate and instead adopted a
"cost-based" rate of $0.24 per dial-around call. This new rate became effective
April 21,1999, and will serve as the default rate through January 31, 2002. The
new rate will also be applied retroactively to the period beginning on October
7, 1997, less a $0.002 amount to account for FLEX ANI payphone tracking costs,
for a net compensation rate of $0.238 per call. The 1999 Payphone Order deferred
a final ruling on the interim period (November 7, 1996 to October 6, 1997)
treatment to a later, as yet unreleased, order, however, it appears from the
1999 Payphone Order that the $0.238 per call rate will also be applied to the
initial interim period from November 7, 1996 to October 6, 1997. Upon
establishment of the interim period rate, the FCC has further ruled that a
true-up will be made for all payments or credits (with applicable interest) due
and owing between the IXCs and the PSPs, including Davel, for the payment period
commencing on November 7, 1996 through the effective date of the new $0.24 per
call rate.
The Company recorded dial-around compensation revenue of approximately $10.0
million and $8.5 million for the three month periods ended March 31, 1999 and
1998, respectively.
The Company's counsel, Rammelkamp, Bradney, Kuster, Fritsche & Lindsay, P.C., is
of the opinion that the Company is legally entitled to fair compensation under
the Telcom Act for dial-around calls the Company delivered to any carrier during
the period from November 7, 1996, through October 6, 1997. Based on the
information available, the Company believes that the minimum amount it is
entitled to as fair compensation under the Telcom Act for the period from
November 7, 1996, through October 6, 1997, is $31.18 per payphone per month and
the Company, based on the information available to it, does not believe that it
is reasonably possible that the amount will be materially less than $31.18 per
payphone per month. While the amount of $0.238 per call constitutes the
<PAGE>
Company's position of the appropriate level of fair compensation, certain IXCs
have asserted in the past, are asserting and are expected to assert in the
future that the appropriate level of fair compensation should be lower than
$0.238 per call. If the level of fair compensation is ultimately determined to
be an amount less than $0.238 per call, such determination could result in a
material adverse impact on the Company's results of operations and financial
position.
7. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires unrealized gains
or losses on the Company's available-for-sale securities, which, prior to
adoption, were reported separately in shareholders' equity, to be included in
other comprehensive loss. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130.
The components of comprehensive loss are as follows
1999 1998
---- ----
Net loss $(10,400) $(5,354)
Unrealized gain on investment -- 128
-------- -------
Comprehensive loss $(10,400) $(5,226)
======== =======
8. EARNINGS PER SHARE:
For the quarters ended March 31, 1999 and 1998 the treasury stock method was
used to determine the dilutive effect of the options and warrants on earnings
per share data. The following table summarizes the restated net loss from
continuing operations per share and the weighted average number of shares
outstanding used in the computations in accordance with SFAS No. 128. In
accordance with SFAS No. 128, the following table reconciles net income and
weighted average shares outstanding to the amounts used to calculate the basic
and diluted earnings per share for each of the quarters ended March 31, 1999 and
1998 (in thousands, except per share and share data):
1999 1998
---- ----
Loss from continuing operations $ (10,400) $ (5,354)
Deduct:
Cumulative preferred stock dividend requirement -- (262)
Preferred stock issuance cost accretion -- (39)
------------ -----------
Loss applicable to common shareholders $ (10,400) $ (5,655)
============ ===========
Weighted average common shares outstanding 10,536,837 8,451,404
============ ===========
Basic and diluted loss per share $ (.99) $ (.67)
============ ===========
<PAGE>
Diluted earnings per share is equal to basic earnings per share since the
exercise of outstanding options and warrants would be anti-dilutive for all
periods presented.
9. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 133 Accounting
for Derivative Instruments and Hedging Activities, which requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position at fair value unless specific hedge criteria are met. The
Company is required to adopt the provisions of SFAS No. 133 in 2000. Adoption of
this statement is not expected to significantly impact the Company's
consolidated financial position, results of operations or cash flows.
<PAGE>
ITEM 2.
MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto appearing
elsewhere herein.
Certain of the statements contained below are forward-looking statements
(rather than historical facts) that are subject to risks and uncertainties that
could cause actual results to differ materially from those described in the
forward-looking statements.
General
On December 23, 1998, the Company and Peoples Telephone merged together in
a transaction accounted for as a pooling-of-interests. As such, the results of
both companies have been restated as if they had been combined for all periods
presented.
On February 3, 1998 the Company completed its acquisition of
Communications Central Inc. ("CCI") in a transaction accounted for by the
purchase method, and accordingly the results of operations of CCI are included
the Company's consolidated statement of operations from the date of acquisition.
During the first quarter of 1999, the Company derived its revenues from
two principal sources: coin calls and non-coin calls. Coin calls represent calls
paid for by callers with coins deposited in the payphone. Coin call revenues are
recorded in the amount of coins collected from the payphones.
Non-coin calls made from the Company's payphones generate revenues in an
amount that depends upon whether the Company or a long distance company handles
the call. If the non-coin call is handled by the Company through its switch or
an "unbundled" services arrangement, the Company recognizes non-coin revenues
equal to the total amount charged for the call. If the non-coin call is handled
by a long distance company, the Company generally recognizes revenues in an
amount equal to the commission on that call paid to the Company by the long
distance company. Under an unbundled services arrangement, the Company performs
certain functions necessary to service non-coin calls, uses the long distance
company's switching equipment and its other services on an as-needed basis, and
pays the long distance company on an unbundled basis for the operator services
actually used to complete these calls.
The Company also recognizes non-coin revenues from calls that are dialed
from its payphones to gain access to a long distance company other than the one
pre-programmed into the telephone; this is commonly referred to as "dial-around"
access. The Company also derives non-coin revenue from certain local exchange
carriers ("LECs") for intraLATA non-coin calls.
The principal costs related to the ongoing operation of the Company's
payphones include telephone charges, commissions, and service, maintenance and
network costs. Telephone charges consist of payments made by the Company to
local access providers
<PAGE>
for local access and use of their networks. Commission expense represents
payments to owners of locations where the Company's payphones are installed.
Service, maintenance and network costs represent the cost of servicing and
maintaining the payphones on an ongoing basis, costs related to the operation of
the Company's switch and, in connection with unbundled services arrangements,
the fees paid for those services.
Regulatory Impact on Revenue
Local Coin Rates
In ensuring "fair compensation" for all calls, the FCC previously
determined that local coin rates from payphones should be generally deregulated
by October 7, 1997, but provided for possible modifications or exemptions from
deregulation upon a detailed showing by an individual state that there are
market failures within the state that would not allow market-based rates to
develop. On July 1, 1997, a federal court issued an order which upheld the FCC's
authority to deregulate local coin call rates. In accordance with the FCC's
ruling and the court order, certain LECs and independent payphone service
providers, including the Company, increased rates for local coin calls from $.25
to $.35. Given the lack of direction on the part of the FCC on specific
requirements for obtaining a state exemption, the Company's inability to predict
the responses of individual states or the market, and the Company's inability to
provide assurance that deregulation, if and where implemented, will lead to
higher local coin call rates, the Company is unable to predict the ultimate
impact on its operations of local coin rate deregulation. In 1998 and the first
quarter of 1999, the Company experienced lower coin call volumes on its
payphones resulting from the increased rates, increased competition from
wireless communication services and changes in call traffic and the geographic
mix of the Company's payphones.
Dial Around Compensation
On September 20, 1996, the Federal Communications Commission ("FCC")
adopted rules which became effective November 7, 1996 (the "1996 Payphone
Order"), initially mandating dial-around compensation for both access code calls
and 800 subscriber calls at a flat rate of $45.85 per payphone per month (131
calls multiplied by $0.35 per call). Commencing October 7, 1997 and ending
October 6, 1999 the $45.85 per payphone per month rate was to transition to a
per-call system at the rate of $0.35 per call. Several parties challenged
certain of the FCC regulations including the dial-around compensation rate. On
July 1, 1997, a federal court vacated certain portions of the FCC's 1996
Payphone Order, including the dial-around compensation rate.
In accordance with the court's mandate, on October 9, 1997, the FCC
adopted a second order (the "1997 Payphone Order"), establishing a rate of
$0.284 per call for the first two years of per-call compensation (October 7,
1997 through October 6, 1999). The IXCs were required to pay this per-call
amount to payphone service providers, including the Company, beginning October
7, 1997. On May 15, 1998, the court again remanded the per-call compensation
rate to the FCC for further explanation without vacating the $.284 default rate.
<PAGE>
In accordance with the court's second mandate, on February 4, 1999, the
FCC released a third order (the "1999 Payphone Order"), in which the FCC
abandoned its efforts to derive a "market based" default dial-around
compensation rate and instead adopted a "cost based" rate of $.24 per
dial-around call. This rate became effective on April 21, 1999, and will serve
as a default rate through January 31, 2002. The new rate will also be applied
retroactively to the period beginning on October 7, 1997, less a $.002 amount to
account for FLEX ANI payphone tracking costs, for a net compensation rate of
$.238 applicable during this retroactive period. It also appears from the 1999
Payphone Order that this new rate will be applied to the initial "interim"
period, running from November 7, 1996 through October 7, 1997; however, the 1999
Payphone Order deferred a final ruling on the interim period treatment to a
later, as yet unreleased, order. Upon establishment of the interim period, the
FCC has further ruled that a true-up will be made for all payments or credits
(with applicable interest at 11.25%) due and owing between the IXCs and the
PSPs, including the Company, for the payment period commencing on November 7,
1996 through the effective date of the new $.24 per call rate.
The Company believes that it is legally entitled to fair compensation
under the Telecommunications Act for dial-around calls which the Company
delivered to any carrier during the period from November 7, 1996 to October 6,
1997. Based on the information available, the Company believes that the minimum
amount it is entitled to as fair compensation under the Telecommunications Act
for the period from November 7, 1996 to October 6, 1997 is $31.18 per payphone
per month (131 calls multiplied by $0.238 per call) and the Company, based on
the information available to it, does not believe that it is reasonably possible
that the amount will be materially less than $31.18 per payphone per month.
While the amount of $0.24 per call constitutes the Company's assessment of
the minimum level of fair compensation following the April 21, 1999 effective
date, certain IXCs have asserted in the past, are asserting and are expected to
assert in the future that the appropriate level of fair compensation should be
lower than $0.24 per call.
The payment levels for dial-around calls prescribed in the 1996 and 1997
Payphone Orders significantly increase dial-around compensation revenues to the
Company over the levels received prior to implementation of the
Telecommunications Act (although the 1999 Payphone Order has now moderated those
increases). However, market forces and factors outside the Company's control
could significantly affect these revenue increases. These factors include the
following: (i) the final resolution of the $.24 rate recently ordered by the FCC
and the possibility of subsequent appeals to the courts, (ii) the resolution by
the FCC of the method of allocating the initial interim period flat-rate
assessment among the IXCs and the number of calls to be used in determining the
amount of the assessment, (iii) the possibility of other litigation seeking to
modify or
<PAGE>
overturn the 1999 Payphone Order or portions thereof, (iv) the IXCs' reaction to
the FCC's recognition that existing regulations do not prohibit an IXC from
blocking 800 subscriber numbers from payphones in order to avoid paying per-call
compensation on such calls, and (v) ongoing technical or other difficulties in
the responsible carriers' ability and willingness to properly track or pay for
dial-around calls actually delivered to them.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
For the three months ended March 31, 1999, total revenues decreased
approximately $1.9 million, or 3.9%, from approximately $47.2 million in the
three months ended March 31, 1998 to approximately $45.3 million in the same
period of 1999. This decrease was primarily attributable to lower call volumes
on the Company's payphones resulting from the growth in wireless communication
services and changes in call traffic and the geographical mix of the Company's
payphones.
Coin call revenues decreased approximately $2.8 million, or 9.0%,
decreasing from approximately $30.8 million in the first quarter of 1998 to
approximately $28.0 million in the first quarter of 1999. The decrease in coin
call revenues was primarily attributable to lower call volumes on the Company's
payphones resulting from increased competition from wireless communication
services and changes in call traffic and the geographical mix of the Company's
payphones.
Non-coin call revenues increased approximately $0.9 million or 5.5%,
increasing from approximately $16.4 million in the three months ended March 31,
1998 to approximately $17.3 million in the three months ended March 31, 1999.
The increase in non-coin call revenues was primarily attributable to an increase
in dial-around call traffic on the Company's payphones. Dial-around revenue
increased approximately $1.7 million, rising from approximately $8.3 million in
the three months ended March 31, 1998 to approximately $10.0 million in the
first quarter 1999. While dial-around call revenues increased during the period,
other non-coin call revenues, consisting primarily of operator service calls,
decreased approximately $0.8 million, from approximately $8.1 million in the
first quarter of 1998 to approximately $7.3 million in the three months ended
March 31, 1999. The decrease in operator service calls was primarily due to
increased dial-around call traffic and increased competition from wireless
calling alternatives.
Telephone charges remained relatively stable at $11.8 million for the
quarters ended March 31, 1999 and 1998. The Company's average monthly telephone
charge on a per phone basis decreased from approximately $52 in 1998 to $48 in
1999 due to more favorable contracts with LECs and Competitive Local Exchange
Carriers for local line access. The company is currently negotiating contracts
that it believes will further reduce local access charges on a per-phone basis,
but is unable to estimate the impact of further telephone charge reductions at
this time.
Commissions decreased approximately $0.6 million, or 5.0%, decreasing from
approximately $11.0 million in the first quarter of 1998 to approximately $10.4
million in the three months ended March 31, 1999. The decrease was primarily
<PAGE>
attributable to lower revenues from the Company's payphones. Commissions as a
percentage of revenues remained relatively stable at 23.0% for the three months
ended March 31, 1999 as compared to 23.2% for the three months ended March 31,
1998.
Service, maintenance and network costs increased approximately $1.3
million, or 14.5%, increasing from approximately $9.2 million in the first
quarter of 1998 to approximately $10.6 million in the three months ended March
31, 1999. The increase was primarily due to the recording of approximately $0.9
million in reserves for uncollectible dial-around compensation in the first
quarter of 1999 and due to the fact that costs related to the operation of
payphones and administrative facilities acquired in the CCI Acquisition are
included in only two of the three months of the prior year period ended March
31, 1998 due to the use of the purchase method to record the transaction.
Depreciation and amortization expense increased approximately $0.3
million, or 3.2%, from the prior year, rising from $8.7 million in the first
quarter of 1998 to approximately $9.0 million in the three months ended March
31, 1999. The increase was primarily due to the fact that costs related to the
operation of payphones and administrative facilities acquired in the CCI
Acquisition are included in only two of the three months of the prior year
period ended March 31, 1998 due to the use of the purchase method to record the
transaction.
Selling, general and administrative expenses increased approximately $1.4
million, or 19.4%, increasing from approximately $7.3 million in the first
quarter of 1998 to approximately $8.7 million in the three months ended March
31, 1999. The increase was attributable to the fact that selling, general and
administrative expenses related to the operation of payphones and administrative
facilities acquired in the CCI Acquisition are included in only two of the three
months of the prior year period ended March 31, 1998 due to the use of the
purchase method to record the transaction. The Company also experienced
additional costs in the first quarter of 1999 related to the consolidation of
its administrative functions into a single, larger facility in Tampa, Florida.
The Company recognized restructuring charges during the quarter ended
March 31, 1998 of approximately $0.8 million related to the integration and
restructuring of the Company following the CCI Acquisition. The restructuring
charges were primarily related to severance pay for terminated employees, lease
termination costs and costs related to the closing of redundant facilities.
Other income decreased approximately $42,000 or 25.8% in the first quarter
of 1999 over the prior-year period, decreasing from approximately $163,000 in
1998 to approximately $121,000 in 1999. This decrease resulted primarily from a
decrease in interest income resulting from lower cash balances in the Company's
interest-bearing accounts in the first quarter of 1999 over the first quarter of
1998. Interest expense in the three months ended March 31, 1999 increased
approximately $0.5 million, or 10.9%, increasing from approximately $4.9 million
in the first quarter of 1998 to approximately $5.4 million in the first quarter
of 1999. This increase resulted primarily from the incurrence of additional
indebtedness in December 1998 related to transaction costs incurred in
connection with the Peoples Merger and $11.5 million in long term debt incurred
in the first quarter of 1999.
<PAGE>
The Company's effective income tax rate decreased due to uncertainties
related to the realizability of income tax benefits on the Company's net
operating losses.
Net loss increased approximately $5.0 million from the prior-year
period, increasing from a net loss of approximately $5.4 million in the three
months ended March 31, 1998 to a net loss of approximately $10.4 million in the
first quarter of 1999. Loss applicable to common shareholders increased
approximately $4.7 million in the first quarter of 1999, increasing from
approximately $5.7 million, or $0.67 per share, in the three months ended March
31, 1998 to approximately $10.4 million, or $0.99 per share, in the three months
ended March 31, 1999.
Liquidity and Capital Resources
Cash Flows
As of March 31, 1999, the Company had a current ratio of 1.06 to 1, as
compared to a current ratio of 1.14 to 1 on December 31, 1998. The decrease was
primarily attributable to an increase in current maturities of long-term debt
and obligations under capital leases of approximately $5.3 million related to
scheduled amortization of principal under the credit agreement entered into in
connection with the Peoples Merger.
Cash flows from investing activities totaled approximately $8.9 million in
the three months ended March 31, 1999. Cash flows from investing activities
consisted of capital expenditures of approximately $2.5 million for the
installation of new payphone locations, approximately $1.2 million in payments
for securing payphone location contracts and approximately $5.1 million for the
purchase of payphone assets. The Company's investing activities in the first
quarter of 1999 were financed primarily through an increase of $11.5 million in
long-term debt financing.
Cash flows from investing activities totaled approximately $115.6 million
in the three months ended March 31, 1998. Cash flows from investing activities
included capital expenditures of approximately $1.8 million for the installation
of new payphone locations and approximately $0.9 million in payments for
securing payphone location contracts. Investing activities in the first quarter
of 1998 also included expenditures of approximately $11.3 million for the
purchase of the assets of Indiana Telcom and approximately $101.6 million for
the acquisition of Communications Central Inc. The Company's investing
activities in the first quarter of 1998 were financed primarily through an
increase of $120.7 million in long-term debt financing.
Credit Agreement
In connection with the merger with Peoples Telephone on December 23, 1998,
the Company entered into a senior credit facility ("Senior Credit Facility")
with NationsBank, N.A. (the "Administrative Agent") and the other lenders named
therein. The Senior Credit Facility provides for borrowings by Davel from time
to time of up to $280.0 million for working capital and other corporate
purposes.
Indebtedness of the Company under the Senior Credit Facility is secured by
substantially all of its and its subsidiaries' assets, including but not limited
to their equipment, inventory, receivables and related contracts, investment
property, computer
<PAGE>
hardware and software, bank accounts and all other goods and rights of every
kind and description and is guaranteed by Davel and all its subsidiaries.
The Company's borrowings under the Senior Credit Facility bear interest at
a floating rate and may be maintained as Base Rate Loans (as defined in the
Senior Credit Facility) or, at the Company's option, as Eurodollar Loans (as
defined in the Senior Credit Facility). Base Rate Loans shall bear interest at
the Base Rate (defined as the higher of (i) the applicable prime lending rate of
NationsBank, N.A. or (ii) the Federal Reserve reported certificate of deposit
rate plus 1%). Eurodollar Loans shall bear interest at the Eurodollar Rate (as
defined in the Senior Credit Facility), plus a margin based on leverage.
The Company is required to pay the lenders under the Senior Credit
Facility a commitment fee, payable in arrears on a quarterly basis, on the
average unused portion of the Senior Credit Facility during the term of the
facility. The Company is also required to pay an annual agency fee to the Agent.
In addition, the Company was also required to pay an arrangement fee for the
account of each bank in accordance with the banks' respective pro rata share of
the Senior Credit Facility. The Agent and the lenders will receive such other
fees as have been separately agreed upon with the Agent.
The Senior Credit Facility requires the Company to meet certain financial
tests, including, without limitation, maximum levels of Senior Secured Debt as a
ratio of EBITDA (as defined in the Senior Credit Facility), minimum interest and
fixed charge ratios and maximum amount of capital expenditures. The Senior
Credit Facility also contains certain covenants which, among other things, will
limit the incurrence of additional indebtedness, prepayments of other
indebtedness (including the Notes), liens and encumbrances and other matters
customarily restricted in such agreements.
In the first quarter of 1999, the Company gave notice to the
Administrative Agent that lower than expected performance in the first quarter
of 1999 would result in the Company's inability to meet certain financial
covenants contained in the Senior Credit Facility. On April 8, 1999, the Company
and the Lenders agreed to the First Amendment to Credit Agreement and Consent
and Waiver (the "First Amendment") which waived compliance, for the fiscal
quarter ending March 31, 1999, with the financial covenants set forth in the
Senior Credit Facility. In addition, the First Amendment waived any event of
default related to two acquisitions made by the Company in the first quarter of
1999, and waived the requirement that the Company deliver annual financial
statements to the Lenders within 90 days of December 31, 1998, provided that
such financial statements shall be delivered no later than April 15, 1999. The
First Amendment contained amendments that provided for the following:
o amendment of the applicable percentages for Eurodollar Loans for the
period between April 1, 1999 and June 30, 2000 at each pricing level to
0.25% higher than those in the previous pricing grid
o prepayment of debt from receipt of dial-around compensation accounts
receivable related to the period November 1996 through October 1997
o further limitations on permitted acquisitions as defined in the Credit
Agreement through June 30, 2000
<PAGE>
o during the period April 1, 1999 to June 30, 2000, required lenders'
consent for the making of loans or the issuance of letters of credit if
the sum of revolving loans outstanding plus letter of credit obligations
outstanding exceeds $50.0 million
o the introduction of a new covenant to provide certain operating data to
the Lenders on a monthly basis increases in the maximum allowable ratio of
funded debt to EBITDA through the quarter ended June 30, 2000
o decreases in the minimum allowable interest coverage ratio through the
quarter ended June 30, 2000
o decreases in the minimum allowable fixed charge coverage ratio through the
quarter ended June 30, 2000
The Company believes that it is probable that it will comply with the loan
covenants for the next twelve months and, as such, has not classified the
obligations under the Senior Credit Facility as current liabilities.
The First Amendment also places limits on capital expenditures and
required the payment of an amendment fee equal to the product of each Lender's
commitment multiplied by 0.35%.
The Senior Credit Facility contains customary events of default, including
without limitation, payment defaults, breaches of representations and
warranties, covenant defaults, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, judgment defaults, failure of any
guaranty or security document supporting the Senior Credit Facility to be in
full force and effect, and a change of control of the Company.
The Company believes that cash generated from operations and available
borrowings under the Senior Credit Facility will be sufficient to fund the
Company's forseeable cash requirements, including capital expenditures through
December 23, 2003. The Company also believes that it will be able to fund any
future acquisitions through a combination of cash generated from operations,
additional borrowings and the issuance of shares of the Company's Common Stock.
There can be no assurance, however, that the Company will continue to expand at
its current rate or that additional financing will be available when needed or,
if available, will be available on terms acceptable to the Company.
Impact of Inflation
Inflation is not considered a material factor affecting the Company's
business. General operating expenses such as salaries, employee benefits and
occupancy costs are, however, subject to normal inflationary pressures.
<PAGE>
Seasonality
The Company's revenues from its payphone operating regions are affected by
seasonal variations, geographic distribution of payphones and type of location.
Because many of the Company's payphones are located outdoors, weather patterns
have differing effects on the Company's results depending on the region of the
country where they are located. Most of the Company's payphones in the
southeastern United States produce substantially higher call volume in the first
and second quarters than at other times during the year, while the Company's
payphones throughout the midwestern and eastern United States produce their
highest call volumes during the second and third quarters. While the aggregate
effect of the variations in different geographical regions tend to counteract
the effect of one another, the Company has historically experienced higher
revenue and income in the second and third quarters than in the first and fourth
quarters. Changes in the geographical distribution of its payphones may in the
future result in different seasonal variations in the Company's results.
Year 2000 Issue
The Company is working to resolve the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has assessed the
impact of the year 2000 on both its computer programs and its computer systems.
As the Company acquires other payphone assets, it will continue to assess the
impact of the year 2000 on such acquired assets. To date, the Company has spent
approximately $0.2 million in assessing and addressing year 2000 issues and
estimates that its total costs will not exceed $0.5 million, which is
approximately 25% of the Company's budgeted expenditures for information
technology. The Company does not believe that these costs will have a material
effect on its financial position. The Company is also in the process of
addressing the potential impact of the year 2000 on its suppliers and other
parties on whom it relies in providing payphone and operator services. The
Company intends to complete this assessment by June 30, 1999. The failure of
third parties on which the Company relies to address their year 2000 issues in a
timely manner could result in a material financial risk to the Company. Through
its assessment of the impact of year 2000 on both its computer programs and
systems, the Company believes that it has sufficient resources available to
implement new and modified computer systems to address the impact of the year
2000, and accordingly, has not to date identified any need for other contingency
planning. However, the Company's continuing assessment of its assets and of
third parties external to the Company may reveal the need for contingency
planning in the future. The Company plans to devote all resources required to
resolve any significant year 2000 issues in a timely manner.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks related to changes in interest rates. The
Company's objective is to minimize the volatility in earnings and cash flow from
these risks. In connection with the provisions of its long-term debt agreement
and the Company's overall interest rate objectives, the Company utilizes
derivative financial instruments to reduce its interest rate exposure to market
risks from significant increases in interest rates. The Company's strategy is to
purchase interest rate swaps, collars and caps from large financial institutions
that in the aggregate maintain notional amounts exceeding 40% of the Company's
outstanding long-term debt balance to limit the impact of increases in interest
rates on the Company's variable rate long-term debt.
Based on the Company's overall interest rate exposure at March 31, 1999, a ten
percent increase in interest rates would not have a material impact on the
financial position, results of operations or cash flows of the Company. These
effects of hypothetical changes in interest rates, however, ignore other effects
the same movement may have arising from other variables, and actual results
could differ from the sensitivity calculations of the Company. The Company
regularly assesses these variables, establishes policies and business practices
to protect against the adverse effects of interest rate fluctuations and does
not anticipate any material losses generated by these risks.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) On March 22, 1999, the Company filed a Current Report on Form 8-K,
dated January 31, 1999, with the Securities and Exchange Commission, reporting
the post-merger financial results of the Company following the closing of the
merger with Peoples Telephone.
<PAGE>
EXHIBIT INDEX
Exhibits Description
- - - - - - - -------- -----------
27.1 Financial Data Schedule
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.
DAVEL COMMUNICATIONS, INC.
Date: May 17, 1999 /s/ Michael E. Hayes
------------------------------------------------
Michael E. Hayes
Senior Vice President and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,873
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<RECEIVABLES> 29,490
<ALLOWANCES> 6,593
<INVENTORY> 0
<CURRENT-ASSETS> 56,038
<PP&E> 132,637
<DEPRECIATION> 0
<TOTAL-ASSETS> 275,812
<CURRENT-LIABILITIES> 52,969
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0
0
<COMMON> 105
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<TOTAL-LIABILITY-AND-EQUITY> 275,812
<SALES> 45,337
<TOTAL-REVENUES> 45,337
<CGS> 50,447
<TOTAL-COSTS> 50,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,411
<INCOME-PRETAX> (10,400)
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