<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: June 30, 1999 Commission File Number: 0-22610
DAVEL COMMUNICATIONS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 37-1064777
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
10120 WINDHORST ROAD, TAMPA, FL 33619
-------------------------------------
(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 August 13, 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>
ASSETS
June 30, December 31
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,359 $ 17,162
Restricted cash 790 790
Trade accounts receivable, net of allowance
for doubtfull accounts of $8,487 and $5,383, respectively 26,749 30,838
Other current assets 2,170 3,694
----------- -----------
Total current assets 41,068 52,484
PROPERTY AND EQUIPMENT 129,542 130,099
LOCATION CONTRACTS 31,821 34,252
GOODWILL 45,590 47,458
OTHER ASSETS 7,976 8,725
----------- -----------
Total assets $ 255,997 $ 273,018
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and obligations
under capital leases $ 19,259 $ 11,525
Accounts payable and accrued liabilities 26,409 34,393
----------- -----------
Total current liabilities 45,668 45,918
----------- -----------
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES 224,656 225,451
----------- -----------
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 (140,764) (124,781)
----------- -----------
Total shareholders' (deficit) equity (14,327) 1,649
----------- -----------
Total liabilities and shareholders' (deficit) equity $ 255,997 $ 273,018
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED JUNE 30, 1999 and 1998
(In thousands, except per share and share data)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Coin calls $ 29,787 $ 35,171
Non-coin calls 18,396 18,890
----------- -----------
Total revenues 48,183 54,061
----------- -----------
Costs and expenses
Telephone charges 10,502 12,212
Commissions 10,275 12,290
Field operation costs 13,947 13,983
Depreciation and amortization 8,347 9,954
Selling, general and administrative 4,684 4,468
Total operating costs and expenses 47,755 52,907
----------- -----------
Operating income 428 1,154
Interest expense (6,110) (5,827)
Other 194 180
----------- -----------
Loss from operations before income taxes (5,488) (4,493)
Income tax benefit -- (463)
----------- -----------
Net loss $ (5,488) $ (4,030)
=========== ===========
Basic and diluted loss per share $ (.53) $ (.55)
=========== ===========
Weighted average shares outstanding 10,536,860 8,482,594
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 and 1998
(In thousands, except per share and share data)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Coin calls $ 57,819 $ 65,960
Non-coin calls 35,701 35,298
----------- -----------
Total revenues 93,520 101,258
----------- -----------
Costs and expenses
Telephone charges 22,274 24,023
Commissions 20,691 23,256
Field operation costs 28,141 25,319
Depreciation and amortization 17,322 18,648
Selling, general and administrative 9,774 9,666
Restructuring costs -- 825
----------- -----------
Total operating costs and expenses 98,202 101,737
----------- -----------
Operating loss (4,682) (479)
Interest expense (11,377) (10,704)
Other 171 343
----------- -----------
Loss from operations before income taxes (15,888) (10,840)
Income tax benefit -- (1,456)
----------- -----------
Net loss $ (15,888) $ (9,384)
=========== ===========
Basic and diluted loss per share $ (1.52) $ (1.22)
=========== ===========
Weighted average shares outstanding 10,536,860 8,467,085
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DAVEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $(15,888) $ (9,384)
Adjustments to reconcile net loss to cash flows
from operating activities:
Gain on sale of property and equipment - (36)
Depreciation and amortization 17,322 18,648
Amortization of deferred financing costs 430 393
Deferred income taxes - 270
Restructuring charge - 825
Changes in assets and liabilities, net of
effects from acquisitions
Accounts receivable 4,089 (14,878)
Note receivable - 189
Other assets 1,285 (5,269)
Accounts payable and accrued liabilities (7,984) 5,408
-------- ---------
Net cash flows used in operating activities (746) (3,834)
-------- ---------
Cash flows from investing activities
Capital expenditures (6,785) (7,122)
Proceeds from sale of property and equipment - 51
Increase in other investing assets - (1,606)
Purchase of payphone assets, net of cash acquired (5,123) (215)
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 (11,908) (121,853)
-------- ---------
Cash flows from financing activities
Proceeds from long-term debt 11,500 120,700
Payments on long-term debt (4,316) (34,829)
Principal payments under capital lease obligations (245) (451)
Proceeds from sale of common stock - 28,517
Repurchase of preferred stock rights (95) -
Issuance of common stock through stock options and warrants 7 7
-------- ---------
Net cash flows provided by financing activities 6,851 113,944
-------- ---------
Net decrease in cash and cash equivalents (5,803) (11,743)
Cash and cash equivalents, beginning of period 17,162 25,401
-------- ---------
Cash and cash equivalents, end of period $ 11,359 $ 13,658
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Davel Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 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 and six month periods ended June 30, 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
and six month periods ended June 30, 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 43
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
6
<PAGE>
transactions that 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 periods ended June 30, 1998 is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Total revenues
Davel $ 24,707 $ 44,010
Peoples 29,354 57,248
-------- ---------
Combined $ 54,061 $ 101,258
======== =========
Net loss
Davel $ (636) $ (1,970)
Peoples (3,394) (7,414)
-------- ---------
Combined $ (4,030) $ (9,384)
======== =========
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
Working capital $ 8,892
Property and equipment, net 46,119
Goodwill 42,541
Identifiable intangible assets 11,565
---------
$ 109,117
=========
</TABLE>
7
<PAGE>
4. LONG TERM DEBT
--------------
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 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 were delivered no
later than April 15, 1999. The First Amendment contained amendments that
provided for the following:
. 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
. prepayment of debt from receipt of dial-around compensation accounts
receivable related to the period November 1996 through October 1997
. further limitations on permitted acquisitions as defined in the Credit
Agreement through June 30, 2000
. 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
. the introduction of a new information 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
. decreases in the minimum allowable interest coverage ratio through the
quarter ended June 30, 2000
. 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 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
8
<PAGE>
increases in interest rates on the Company's variable rate long-term debt. As of
June 30, 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 (5.4% as
of June 30, 1999). Interest rate differentials are paid or received every three
months and are recognized as adjustments to interest expense.
As of June 30, 1999, the Company has 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 $10,814,000 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 $4,325,000 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 June 30, 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 March 31, 1999 $ 754 $ 205 $ 787 $ 414 $ 2,160
Utilized during quarter ended
June 30, 1999 (119) (205) (787) (414) (1,525)
------ ------ ------ ------ --------
Remaining reserve at June 30, 1999 $ 635 $ - $ - $ - $ 635
====== ====== ====== ====== ========
</TABLE>
9
<PAGE>
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
"Telecommunications 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
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
10
<PAGE>
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 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 $10.7
million, $20.7 million, $8.3 million and $17.5 million for the three and six
month periods ended June 30, 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 Telecommunications 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
11
<PAGE>
the Telecommunications 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 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 LOSS
------------------
For the quarters ended June 30, 1999 and 1998, comprehensive loss was $5,488 and
$4,647, respectively. For the six months ended June 30, 1999 and 1998,
comprehensive loss was $15,888 and $9,874, respectively. The Company's
adjustment to comprehensive loss consists solely of unrealized losses on the
Company's available-for-sale securities.
8. EARNINGS PER SHARE:
-------------------
For the quarters ended June 30, 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 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 (in thousands, except per share and share data):
<TABLE>
<CAPTION>
For the three months ended June 30,
1999 1998
---- ----
<S> <C> <C>
Loss from continuing operations $ (5,488) $ (4,030)
Deduct:
Preferred stock dividend requirements (95) (597)
Preferred stock issuance cost accretion - (39)
----------- ----------
Loss applicable to common shareholders $ (5,583) $ (4,666)
=========== ==========
Weighted average common shares
outstanding 10,536,860 8,482,594
=========== ==========
Basic and diluted loss per share $ (.53) $ (.55)
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30,
1999 1998
---- ----
<S> <C> <C>
Loss from continuing operations $ (15,888) $ (9,384)
Deduct:
Preferred stock dividend requirements (95) (859)
Preferred stock issuance cost accretion - (78)
----------- ----------
Loss applicable to common shareholders $ (15,983) $ (10,321)
=========== ==========
Weighted average common shares
outstanding 10,536,860 8,467,085
=========== ==========
Basic and diluted loss per share $ (1.52) $ (1.22)
=========== ==========
</TABLE>
12
<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. In June
1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133".
SFAS No. 137 delays the effective date of SFAS No. 133 for one year, two fiscal
years beginning after June 15, 2000 and thus the Company will adopt SFAS No. 133
at that time. Adoption of this statement is not expected to significantly
impact the Company's consolidated financial position, results of operations or
cash flows.
13
<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 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 in the Company's
consolidated statement of operations from the date of acquisition.
During the second 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. 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.
If the non-coin call is handled by a long distance company on a commission
basis, the Company generally recognizes revenues in an amount equal to the
commission on that call paid to the Company by the long distance company.
During the second quarter, the Company converted certain non-coin calls placed
from a majority of its payphones that were being carried by its switch or
unbundled services arrangements to the Sprint network. Under its agreement
with Sprint, the Company receives commission revenues on operator service calls,
enhanced compensation for dial-around calls carried over the Sprint network and
revenues for marketing certain Sprint products on its payphones.
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-
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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 field operation costs.
Telephone charges consist of payments made by the Company to local access
providers for local access and use of their networks. Commission expense
represents payments to owners of locations where the Company's payphones are
installed. Field operation costs represent the cost of servicing and
maintaining the payphones on an ongoing basis, costs related to the operation of
the Company's long distance network and general and administrative costs related
to the Company's network of 32 divisional offices.
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 through
the second quarter of 1999, the Company experienced lower average coin call
volumes on its payphones than in prior periods, 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.
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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.
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 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
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assessment, (iii) other litigation seeking to modify or 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 June 30, 1999 Compared to Three Months Ended June 30, 1998
For the three months ended June 30, 1999, total revenues decreased
approximately $5.9 million, or 10.9%, from approximately $54.1 million in the
three months ended June 30, 1998 to approximately $48.2 million in the same
period of 1999. This decrease was primarily attributable to lower call volumes
on the Company's payphones resulting from higher coin rates, 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 $5.4 million, or 15.3%, from
approximately $35.2 million in the second quarter of 1998 to approximately $29.8
million in the second quarter of 1999. The decrease in coin call revenues was
primarily attributable to lower call volumes on the Company's payphones
resulting from higher coin rates, see "Local Coin Rates" above, increased
competition from wireless communication services and changes in call traffic and
the geographical mix of the Company's payphones.
Non-coin call revenues decreased approximately $0.5 million or 2.6 %, from
approximately $18.9 million in the three months ended June 30, 1998 to
approximately $18.4 million in the three months ended June 30, 1999. The
decrease in non-coin call revenues was primarily attributable to a decrease in
long distance calls routed through the Company's switch and presubscribed long
distance carriers, partially offset by an increase in dial-around call traffic
from the Company's payphones. Dial-around call revenue increased approximately
$2.4 million, from approximately $8.3 million in the three months ended June 30,
1998 to approximately $10.7 million in the second quarter of 1999. While dial-
around call revenues increased during the period, other non-coin call revenues,
consisting primarily of operator service calls, decreased approximately $2.9
million, from approximately $10.6 million in the second quarter of 1998 to
approximately $7.7 million in the three months ended June 30, 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 decreased approximately $1.7 million, or 14.0%, from
approximately $12.2 million in the second quarter of 1998 to approximately $10.5
million in the three months ended June 30, 1999. The decrease was primarily 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.
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Commissions decreased approximately $2.0 million, or 16.4%, from
approximately $12.3 million in the second quarter of 1998 to approximately $10.3
million in the three months ended June 30, 1999. The decrease was primarily
attributable to lower revenues from the Company's payphones. Commissions as a
percentage of revenues decreased to 21.3% for the three months ended June 30,
1999 as compared to 22.7 % for the three months ended June 30, 1998. The
decrease in commissions as a percentage of revenues was primarily attributable
to increases in certain types of non-coin call revenues that are excluded from
commission calculations on a portion of the Company's location agreements.
Field operation costs remained relatively stable at approximately $13.9
million in the three months ended June 30, 1999. The Company increased the
average number of dial-around calls recorded from 131 calls per phone per month
in the second quarter of 1998 to 175 calls per phone per month in the second
quarter of 1999. In connection with the increased number of dial-around calls
recorded in 1999, the Company began recording additional reserves for
uncollectible dial-around compensation. Before the effect of the reserve for
uncollectible dial-around receivables in the second quarter of 1999, field
operation costs would have been approximately $1.5 million lower than the second
quarter of 1998.
Depreciation and amortization expense decreased approximately $1.6 million,
or 16.1%, from the prior year, from $10.0 million in the second quarter of 1998
to approximately $8.3 million in the three months ended June 30, 1999. The
decrease was primarily due to reduced goodwill amortization as a result of the
finalization of purchase price accounting in the fourth quarter of 1998 related
to the acquisition of CCI, and a reduction in depreciation related to payphones
that became fully depreciated over the course the last year.
Selling, general and administrative expenses increased approximately $0.2
million, or 4.8 %, from approximately $4.5 million in the second quarter of 1998
to approximately $4.7 million in the three months ended June 30, 1999. The
increase was attributable to approximately $0.1 million in severance pay to
terminated employees and additional costs in the second quarter of 1999 related
to the consolidation of the Company's administrative functions into its
corporate offices in Tampa, Florida.
Other income remained relatively stable, increasing only $0.1 million in
the second quarter of 1999. Interest expense in the three months ended June 30,
1999 increased approximately $0.3 million, or 4.9%, compared to the prior-year
period, from approximately $5.8 million in 1998 to approximately $6.1 million in
the second 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 additional borrowings
in the first quarter of 1999 related to the acquisition of the assets of two
payphone companies totaling approximately $5.1 million.
Net loss increased approximately $1.5 million from the prior-year period,
from a net loss of approximately $4.0 million in the three months ended June 30,
1998 to a net loss of approximately $5.5 million in the second quarter of 1999.
Loss applicable to
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common shareholders increased approximately $0.9 million in the second quarter
of 1999, from a loss of approximately $4.7 million, or $0.55 per share, in the
three months ended June 30, 1998, to a loss of approximately $5.6 million, or
$0.53 per share, in the three months ended June 30, 1999. The Company made a
redemption payment to shareholders of record on April 19, 1999 of approximately
$0.1 million in connection with the termination of its preferred share purchase
rights plan in April 1999.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
For the six months ended June 30, 1999, total revenues decreased approximately
$7.7 million, or 7.6%, from approximately $101.3 million in the six months ended
June 30, 1998 to approximately $93.5 million in the same period of 1999. This
decrease was primarily attributable to lower call volumes on the Company's
payphones resulting from the higher coin rates, growth in wireless communication
services and changes in call traffic and the geographical mix of the Company's
payphones.
Coin call revenues decreased approximately $8.1 million, or 12.3%, from
approximately $66.0 million in the first two quarters of 1998 to approximately
$57.8 million in the first six months of 1999. The decrease in coin call
revenues was primarily attributable to lower call volumes on the Company's
payphones resulting from higher coin rates, 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 $0.4 million or 1.1 %, from
approximately $35.3 million in the six months ended June 30, 1998 to
approximately $35.7 million in the six months ended June 30, 1999. The increase
in non-coin call revenues was primarily attributable to an increase in dial-
around call traffic from the Company's payphones, partially offset by a decrease
in long distance calls routed through the Company's switch and presubscribed
long distance carriers. Dial-around call revenue increased approximately $3.2
million, from approximately $17.5 million in the six months ended June 30, 1998
to approximately $20.7 million in the first two quarters of 1999. While dial-
around call revenues increased during the period, other non-coin call revenues,
consisting primarily of operator service calls, decreased approximately $2.8
million, from approximately $17.8 million in the first two quarters of 1998 to
approximately $15.0 million in the six months ended June 30, 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 decreased approximately $1.7 million, or 7.3%, decreasing
from approximately $24.0 million in the six months ended June 30, 1998 to
approximately $22.3 million in the six months ended June 30, 1999. The decrease
was primarily 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 $2.6 million, or 11.0%, from
approximately $23.3 million in the first two quarters of 1998 to approximately
$20.7
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million in the six months ended June 30, 1999. The decrease was primarily
attributable to lower revenues from the Company's payphones. Commissions as a
percentage of revenues decreased to 22.1% for the six months ended June 30, 1999
as compared to 23.0% for the prior year period. The decrease in commissions as a
percentage of revenues was primarily attributable to increases in certain types
of non-coin call revenues that are excluded from commission calculations on a
portion of the Company's location agreements.
Field operation costs increased approximately $2.8 million, or 11.1%, from
approximately $25.3 million in the first two quarters of 1998 to approximately
$28.1 million in the six months ended June 30, 1999. The Company increased the
average number of dial-around calls recorded from 131 calls per phone per month
in the first and second quarters of 1998 to 175 calls per phone per month in the
comparable period in 1999. In connection with the increased number of dial-
around calls recorded in 1999, the Company began recording additional reserves
for uncollectible dial-around compensation. For the first six months of 1999,
the Company recorded approximately $2.6 million more in reserves for
uncollectible dial-around compensation than in the same period of 1998. Before
the effect of the reserve for uncollectible dial-around receivables in 1999,
field operation costs would have been approximately $0.2 million higher than the
first six months of 1998. Field operation costs for the first half of 1998
include field operation costs related to the operation of CCI's payphones only
since the date of acquisition in February 1998.
Depreciation and amortization expense decreased approximately $1.3 million,
or 7.1%, from the prior year, from $18.6 million in the first two quarters of
1998 to approximately $17.3 million in the six months ended June 30, 1999. The
decrease was primarily due to reduced goodwill amortization as a result of the
finalization of purchase price accounting in the fourth quarter of 1998 related
to the acquisition of CCI, and a reduction in depreciation related to payphones
that became fully depreciated over the course the last year.
Selling, general and administrative expenses increased approximately $0.1
million, or 1.1 %, from approximately $9.7 million in the first half of 1998 to
approximately $9.8 million in the six months ended June 30, 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 five of the six months of the prior
year period due to the use of the purchase method to record the transaction. The
Company also experienced additional costs in the first half of 1999 related to
the consolidation of its administrative functions into its corporate offices in
Tampa, Florida.
The Company recognized restructuring charges during the six months ended
June 30, 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.
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Other income remained relatively stable, increasing only $0.1 million in
the first two quarters of 1999. Interest expense in the six months ended June
30, 1999 increased approximately $0.9 million, or 8.3%, compared to the prior-
year period, from approximately $10.7 million in 1998 to approximately $11.6
million in the first two quarters 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 additional
borrowings in the first quarter of 1999 related to the acquisition of the assets
of two payphone companies totaling approximately $5.1 million.
Net loss increased approximately $6.5 million from the prior-year period,
from a net loss of approximately $9.4 million in the six months ended June 30,
1998 to a net loss of approximately $15.9 million in the first half of 1999.
Loss applicable to common shareholders increased approximately $5.7 million in
the first six months of 1999, from a loss of approximately $10.3 million, or
$1.22 per share, in the six months ended June 30, 1998 to a loss of
approximately $16.0 million, or $1.52 per share, in the six months ended June
30, 1999. The Company made a redemption payment to shareholders of record on
April 19, 1999 of approximately $0.1 million in connection with the termination
of its preferred share purchase rights plan in April 1999.
Liquidity and Capital Resources
Cash Flows
As of June 30, 1999, the Company had a current ratio of .90 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 $7.7 million related to
scheduled amortization of principal under the credit agreement entered into in
connection with the Peoples Merger, a decrease of $5.8 million in cash and cash
equivalents and a decrease of $4.1 million in accounts receivable.
Cash flows used in investing activities totaled approximately $11.9 million
in the six months ended June 30, 1999. Cash flows used in investing activities
consisted of capital expenditures of approximately $6.8 million for the
installation of new payphone locations and payments for securing payphone
location contracts, and approximately $5.1 million for the acquisition of the
assets of two payphone companies during the period. The Company's investing
activities in the first two quarters of 1999 were financed primarily through
long-term debt financing and cash reserves.
Cash flows from investing activities totaled approximately $121.8 million
in the six months ended June 30, 1998. Cash flows from investing activities
included capital expenditures of approximately $7.1 million for the installation
of new payphone locations and payments for securing payphone location contracts.
Investing activities in the first two quarters 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 two
quarters of 1998 were financed primarily through a net increase of $85.9 million
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in long-term debt financing and $28.5 million in proceeds from the issuance of
common stock.
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 Bank of America, formerly known as 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 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
Bank of America 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
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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 were delivered no later than April 15,
1999. The First Amendment contained amendments that provided for the following:
. 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
. prepayment of debt from receipt of dial-around compensation accounts
receivable related to the period November 1996 through October 1997
. further limitations on permitted acquisitions as defined in the Credit
Agreement through June 30, 2000
. 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
. 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
. decreases in the minimum allowable interest coverage ratio through the
quarter ended June 30, 2000
. 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 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 31, 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
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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.
Seasonality
The Company's revenues from its payphone operation 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
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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.
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 June 30, 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.
25
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
26
<PAGE>
EXHIBIT INDEX
Exhibits Description
- -------- -----------
10.1 First Amendment to Credit Agreement and Consent and Waiver, dated as
of April 8, 1999, among Davel Financing Company, L.L.C., Davel
Communications, Inc., NationsBank, N.A., as Administrative Agent, and
the other Lenders party thereto.
27.1 Financial Data Schedule
27
<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: August 16, 1999 /s/ Michael E. Hayes
-----------------------------
Michael E. Hayes
Senior Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
AND
CONSENT AND WAIVER
This FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT AND WAIVER (this
"Amendment") is entered into as of April 8, 1999 among DAVEL FINANCING COMPANY,
L.L.C., a Delaware limited liability company (the "Borrower"); DAVEL
COMMUNICATIONS, INC., a Delaware corporation (the "Parent") and the Domestic
Subsidiaries of the Borrower and the Parent as Guarantors, the Lenders party
hereto and NATIONSBANK, N.A., as Administrative Agent for the Lenders (the
"Administrative Agent"). Capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Credit Agreement (as defined below).
RECITALS
--------
WHEREAS, the Borrower, the Guarantors, the Lenders, the Administrative
Agent, BancBoston Robertson Stephens, Inc., as Syndication Agent and The Chase
Manhattan Bank, as Documentation Agent entered into that certain Credit
Agreement, dated as of December 23, 1998 (as it may be amended or modified from
time to time, the "Credit Agreement");
WHEREAS, the Borrower has informed the Lenders that it anticipates being
unable to meet certain financial covenants in the future;
WHEREAS, the Borrower has requested that the Lenders amend and/or waive
certain terms and provisions of the Credit Agreement, including, without
limitation, the financial covenants;
WHEREAS, the Borrower has requested that the Lenders consent to certain
actions it has taken or may take in the future; and
WHEREAS, the Lenders have agreed to do so, on the terms and subject to the
conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
---------
1. Waivers.
-------
Subject to the conditions set forth herein, the Lenders hereby agree as
follows:
<PAGE>
(a) The Lenders waive compliance, for the fiscal quarter ending March
31, 1999, with the financial covenants set forth in Section 7.2(a), (b) and
(c) of the Credit Agreement.
(b) The Lenders waive any Event of Default that exists as a result of
the Credit Parties acquisition of the assets of (i) Vend Lease Company,
Inc. for an aggregate purchase price of $2,698,087 pursuant to an asset
purchase agreement dated as of January 20, 1999 and (ii) Reliable
Payphones, Inc. for an aggregate purchase price of $2,502,716 pursuant to
an asset purchase agreement dated as of March 3, 1999; provided, however,
it is understood and agreed that the cash portion of the aggregate purchase
price for each such asset acquisition shall decrease the applicable cash
consideration limit contained in clause (h) of the definition of Permitted
Acquisitions set forth in Section 1.1 of the Credit Agreement.
(c) The Lenders waive the requirement set forth in Section 7.1(a) of
the Credit Agreement with respect to delivery of the annual financial
statements of the Credit Parties and their Subsidiaries for the fiscal year
ending December 31, 1998 within 90 days of the end of such fiscal year;
provided that such annual financial statements shall be delivered no later
than April 15, 1999. Failure to deliver such annual financial statements on
or before April 15, 1999 shall constitute an Event of Default.
Each of the above waivers are one-time waivers and shall not (i) be
construed to be a waiver of any other term or provision of the Credit Documents
or any other Default or Event of Default that may exist or (ii) be deemed to be
an agreement to waive future compliance with the terms of the Credit Documents
or waive any Default or Event of Default that may occur in the future.
2. Amendments.
----------
(a) Applicable Percentage. The definition of "Applicable Percentage"
set forth in Section 1.1 of the Credit Agreement is amended by adding a new
paragraph at the end of such definition to read as follows:
Notwithstanding anything in this definition to the contrary, for the
period between April 1, 1999 and June 30, 2000, the Applicable Percentages
for Eurodollar Loans (Revolving Loans and Term Loans) at each Pricing Level
set forth above, shall be .25% higher than the Applicable Percentages shown
in the pricing grid set forth above.
(b) Dial-Around Receivables. The Credit Agreement is amended by
adding the following definition to Section 1.1 of the Credit Agreement to
read as follows:
"Dial-Around Receivables" means those certain accounts receivable (in
the approximate aggregate amount of $7,000,000) owing to the Credit Parties
from long distance carriers in connection with the dial-around calls made
from November 1996 through October 1997.
2
<PAGE>
(c) Permitted Acquisitions. Clause (h) of the definition of
Permitted Acquisitions in the Credit Agreement is amended and restated in
its entirety to read as follows:
(h) the cash consideration for (i) all such Acquisitions during the
period from January 1, 1999 to June 30, 2000, shall not exceed $6,000,000
in the aggregate and (ii) all such Acquisitions during any twelve month
period beginning on or after July 1, 2000, shall not exceed $15,000,000
individually and $30,000,000 in the aggregate.
(d) Mandatory Prepayments. Section 3.3(b)(iii) of the Credit
Agreement is amended and restated in its entirety to read as follows:
(iii) Asset Sales. Immediately upon receipt by a Credit Party or any
of its Subsidiaries of proceeds from (A) any Asset Disposition or (B) the
collection of any of the Dial-Around Receivables, the Borrower shall
forward an amount equal to 100% of the Net Cash Proceeds of such Asset
Disposition or such collection of Dial-Around Receivables to the Lenders as
a prepayment of the Loans (to be applied as set forth in Section 3.3(c)
below).
(e) Conditions to Borrowing. A new clause (e) is added to Section
5.2 to the Credit Agreement to read as follows:
(e) Required Lenders Consent. During the period from April 1, 1999
to June 30, 2000, if after giving effect to the making of a Loan (and the
application of the proceeds thereof) or to the issuance of a Letter of
Credit, as the case may be, the sum of the Revolving Loans outstanding plus
LOC Obligations outstanding exceeds $50,000,000, the Lenders shall not be
obligated to make the Loan nor shall the Issuing Lender be required to
issue a Letter of Credit unless the Required Lenders consent to the making
of such Loan or the issuance of such Letter of Credit.
(f) Information Covenants. A new clause (l) is added to Section 7.1
of the Credit Agreement to read as follows:
(l) Within 30 days after the end of each month (beginning with March
1999), the Borrower shall provide to the Lenders a report showing the total
coin volume and the individual coin volume by phone for the prior month,
together with a comparison of such total coin volume and individual coin
volume for the same month during the prior fiscal year, in each case in a
form reasonably acceptable to the Administrative Agent.
3
<PAGE>
(g) Financial Covenants. Section 7.2 of the Credit Agreement is
amended and restated in its entirety to read as follows:
7.2 Financial Covenants.
-------------------
(a) Leverage Ratio. The Leverage Ratio, as of the last day of each
fiscal quarter of the Borrower, shall be less than or equal to the ratio
shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
April 1, 1999 through June 30, 1999 7.75 to 1.0
July 1, 1999 through September 30, 1999 6.75 to 1.0
October 1, 1999 through December 31, 1999 5.75 to 1.0
January 1, 2000 through March 31, 2000 4.75 to 1.0
April 1, 2000 through June 30, 2000 4.25 to 1.0
July 1, 2000 and thereafter 3.50 to 1.0
</TABLE>
(b) Interest Coverage Ratio. The Interest Coverage Ratio, for the
twelve month period ending on the last day of each fiscal quarter of the
Borrower, shall be greater than or equal to the ratio shown below for the
period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
April 1, 1999 through June 30, 1999 1.20 to 1.0
July 1, 1999 through September 30, 1999 1.30 to 1.0
October 1, 1999 through December 31, 1999 1.60 to 1.0
January 1, 2000 through March 31, 2000 2.00 to 1.0
April 1, 2000 through June 30, 2000 2.25 to 1.0
July 1, 2000 through September 30, 2000 3.25 to 1.0
October 1, 2000 through December 31, 2000 3.50 to 1.0
January 1, 2001 through December 31, 2001 3.75 to 1.0
January 1, 2002 and thereafter 4.00 to 1.0
</TABLE>
(c) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio,
for the twelve month period ending on the last day of each fiscal quarter
of the Borrower, shall be greater than or equal to the ratio shown below
for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
April 1, 1999 to June 30, 1999 .50 to 1.0
July 1, 1999 to September 30, 1999 .65 to 1.0
October 1, 1999 to December 31, 1999 .80 to 1.0
January 1, 2000 to March 31, 2000 1.05 to 1.0
April 1, 2000 and thereafter 1.10 to 1.0
</TABLE>
4
<PAGE>
(h) Capital Expenditures. Section 8.14 of the Credit Agreement is
amended and restated in its entirety to read as follows:
Section 8.14 Capital Expenditures.
The Credit Parties will not permit Capital Expenditures (a) for the
fiscal year ending December 31, 1999 to exceed, in the aggregate,
$11,000,000, (b) for the fiscal year ending December 31, 2000 to exceed, in
the aggregate, $13,000,000 and (c) for any fiscal year thereafter to
exceed, in the aggregate, $20,000,000 plus, in any year, up to $5,000,000
of any amounts permitted to be but not used for Capital Expenditures during
the most recent fiscal year.
3. Consent. Notwithstanding anything in the Credit Documents to the contrary,
including Section 8.8 of the Credit Agreement, the Lenders hereby consent to a
one time payment, not to exceed $110,000, to holders of preferred share purchase
rights of the Parent in connection with the redemption of a rights plan.
4. Conditions Precedent. The effectiveness of this Amendment is subject to
receipt by the Administrative Agent of the following:
(a) copies of this Amendment duly executed by the Credit Parties and
the Required Lenders;
(b) certified copies of resolutions or authorization of each Credit
Party approving and adopting this Amendment, the transactions contemplated
herein and authorizing execution and delivery hereof; and
(c) an opinion or opinions from counsel to the Credit Parties, in
form and substance satisfactory to the Administrative Agent, addressed to
the Administrative Agent on behalf of the Lenders and dated as of the date
hereof.
5. Amendment Fee. The Borrower agrees to pay, on or before April 12, 1999, to
the Administrative Agent for the account of each Lender that executes this
Amendment on or before April 12, 1999, a fee equal to the product of each such
Lender's Commitment multiplied by .35%; provided, however, the Borrower shall
have no obligation to pay any such fee until this Amendment has been approved by
the Required Lenders.
6. Good Standing Certificates. Within 30 days after the date hereof, the
Borrower shall deliver to the Adminstrative Agent copies of certificates of good
standing, existence or their equivalent with respect to each Credit Party
certified as of a recent date by the appropriate Governmental Authorities of the
state or other jurisdiction of such Credit Party's formation.
5
<PAGE>
7. Ratification of Credit Agreement. The term "Credit Agreement" as used in
each of the Credit Documents shall hereafter mean the Credit Agreement as
amended and modified by this Amendment. Except as herein specifically agreed,
the Credit Agreement, as amended by this Amendment, is hereby ratified and
confirmed and shall remain in full force and effect according to its terms,
including, without limitation, the liens granted pursuant to the Collateral
Documents.
8. Authority/Enforceability. Each of the Credit Parties, the Administrative
Agent and the Lenders represents and warrants as follows:
(a) It has taken all necessary action to authorize the execution,
delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered by such
Person and constitutes such Person's legal, valid and binding obligations,
enforceable in accordance with its terms, except as such enforceability may
be subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting creditors'
rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in
equity).
(c) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority or
third party is required in connection with the execution, delivery or
performance by such Person of this Amendment.
9. No Default. The Credit Parties represent and warrant to the Lenders that
(a) the representations and warranties of the Credit Parties set forth in
Section 6 of the Credit Agreement (as amended by this Amendment) are true and
correct in all material respects as of the date hereof, (b) after giving effect
to this Amendment, no event has occurred and is continuing which constitutes a
Default or an Event of Default and (c) that they have no claims, counterclaims,
offsets, credits (other than any credit for overpayment of interest or fees
under the Credit Documents of which the Credit Parties have no knowledge as of
the date hereof (each an "Overpayment Credit")) or defenses to their obligations
under the Credit Documents or to the extent they have any they (other than any
Overpayment Credit) are hereby released in consideration of the Lenders entering
into this Amendment.
10. Counterparts/Telecopy. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts of this Amendment by telecopy shall be effective as an
original and shall constitute a representation that an original shall be
delivered.
11. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered and this Amendment shall be
effective as of the date first above written.
BORROWER:
- --------
DAVEL FINANCING COMPANY, L.L.C.,
a Delaware limited liability company
By: DAVEL COMMUNICATIONS, INC.,
its sole managing member
By: /s/ Michael E. Hayes
----------------------------------
Name: Michael E. Hayes
Title: Senior Vice President and
Chief Financial Officer
PARENT GUARANTOR: DAVEL COMMUNICATIONS, INC.,
- ----------------
a Delaware corporation
By: /s/ Michael E. Hayes
------------------------------------------
Name: Michael E. Hayes
Title: Senior Vice President and
Chief Financial Officer
SUBSIDIARY GUARANTORS: DAVEL COMMUNICATIONS GROUP, INC.,
- ---------------------
an Illinois corporation
PEOPLES TELEPHONE COMPANY, INC.,
a New York corporation
PEOPLES TELEPHONE COMPANY, INC.,
a New Hampshire corporation
PEOPLES COLLECTORS, INC.,
a Delaware corporation
PTC CELLULAR, INC.,
a Delaware corporation
PTC SECURITY SYSTEMS, INC.,
a Florida corporation
<PAGE>
TELINK TELEPHONE SYSTEMS, INC.,
a Georgia corporation
SILVERADO COMMUNICATIONS CORP.,
a Colorado corporation
PEOPLES ACQUISITION CORP.,
a Pennsylvania corporation
TELALEASING ENTERPRISES, INC.,
an Illinois corporation
ADTEC COMMUNICATIONS, INC.,
a Florida corporation
INTERSTATE COMMUNICATIONS, INC.,
a Georgia corporation
T.R.C.A., INC.,
an Illinois corporation
DAVELTEL, INC.,
an Illinois corporation
DAVEL MEXICO, LTD.,
an Illinois corporation
COMMUNICATIONS CENTRAL INC.,
a Georgia corporation
CENTRAL PAYPHONE SERVICES, INC.,
a Georgia corporation
COMMUNICATIONS CENTRAL
OF GEORGIA, INC.,
a Georgia corporation
INVISION TELECOM, INC.,
a Georgia corporation
By: /s/ Michael E. Hayes
------------------------------
Name: Michael E. Hayes
Title: Treasurer of each of the
above-referenced Subsidiary Guarantors
<PAGE>
LENDERS:
- -------
NATIONSBANK, N.A.,
individually in its capacity as a Lender, in its
capacity as the Administrative Agent and Collateral
Agent, and in its capacity as the Issuing Lender
By: /s/ Valerie C. Mills
---------------------------------
Name: Valerie C. Mills
-------------------------------
Title: Managing Director
-------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
BANKBOSTON, N.A.
By: /s/ Jonathan D. Sharkey
----------------------------
Name: Jonathan D. Sharkey
---------------------------
Title: Vice President
--------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
THE CHASE MANHATTAN BANK
By: /s/ Jonathan E. Twichell
------------------------------
Name: Jonathan E. Twichell
----------------------------
Title: Vice President
----------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
PARIBAS
By: /s/ Steven M. Heinen
---------------------------
Name: Steven M. Heinen
-------------------------
Title: Managing Director
------------------------
By: /s/ Francois Delangle
---------------------------
Name: Francois Delangle
-------------------------
Title: Vice President
-------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Kurt D. Egertson
-----------------------------
Name: Kurt D. Egertson
---------------------------
Title: Vice President
---------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
THE FIRST NATIONAL BANK
OF CHICAGO
By: /s/ Richard R. Howard
------------------------------
Name: Richard R. Howard
----------------------------
Title: Vice President
----------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
FLEET BANK, N.A.
By: /s/ Eric S. Meyer
-----------------------------
Name: Eric S. Meyer
---------------------------
Title: Vice President
---------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
PNC BANK, NATIONAL ASSOCIATION
By: /s/ John T. Wilden
----------------------------
Name: John T. Wilden
--------------------------
Title: Vice President
--------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
LASALLE NATIONAL BANK
By: /s/ Richard G. Maier
----------------------------------------
Name: Richard G. Maier
--------------------------------------
Title: First Vice President-Leveraged Finance
--------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
THE BANK OF NEW YORK
By: /s/ Richard A. Raffetto
-----------------------------
Name: Richard A. Raffetto
---------------------------
Title: Vice President
---------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
CREDIT AGRICOLE INDOSUEZ
By: /s/ Raymond A. Falkenberg
-------------------------------------------
Name: Raymond A. Falkenberg
Title: Vice President, Manager
By: /s/ Ernest V. Hodge
-------------------------------------------
Name: Ernest V. Hodge
Title: Vice President
Senior Relationship Manager
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
HELLER FINANCIAL, INC.
By: /s/ Craig Gallehugh
----------------------------------------
Name: Craig Gallehugh
--------------------------------------
Title: Vice President
-------------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C.
CREDIT AGREEMENT AND CONSENT AND WAIVER
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ Ronald A. Mendel
------------------------------------
Name: Ronald A. Mendel
-----------------------------------
Title: Authorized Signatory
----------------------------------
By: /s/ Patricia W. Wilson
-------------------------------------
Name: Patricia W. Wilson
-----------------------------------
Title: Authorized Signatory
----------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By: /s/ Sheila Finnerty
---------------------
Name: Sheila Finnerty
--------------------
Title: Vice President
-------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
KZH CYPRESSTREE-1 LLC
By: /s/ Virginia Conway
----------------------
Name: Virginia Conway
---------------------
Title: Authorized Agent
--------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management Company, Inc.
its Managing Member
By: /s/ Catherine C. McDermott
-----------------------------
Name: Catherine C. McDermott
---------------------------
Title: Principal
--------------------------
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management Company, Inc.
its Managing Member
By: /s/ Catherine C. McDermott
-------------------------------
Name: Catherine C. McDermott
-------------------------------
Title: Principal
------------------------------
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CypressTree Investment Management Company, Inc.
as Portfolio Manager
By: /s/ Catherine C. McDermott
-------------------------------
Name: Catherine C. McDermott
-----------------------------
Title: Principal
----------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
EATON VANCE SENIOR INCOME TRUST
BY: EATON VANCE MANAGEMENT
AS INVESTMENT ADVISOR
By: /s/ Scott H. Page
----------------------------
Name: Scott H. Page
---------------------------
Title: Vice President
--------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By: /s/ Scott H. Page
--------------------------
Name: Scott H. Page
------------------------
Title: Vice President
-----------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
OXFORD STRATEGIC INCOME FUND
BY: EATON VANCE MANAGEMENT
AS INVESTMENT ADVISOR
By: /s/ Scott H. Page
--------------------------
Name: Scott H. Page
------------------------
Title: Vice President
-----------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
VAN KAMPEN SENIOR FLOATING RATE FUND
By: /s/ Jeffrey W. Maillet
------------------------------------
Name: Jeffrey W. Maillet
-----------------------------------
Title: Senior Vice President & Director
----------------------------------
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO DAVEL FINANCING COMPANY, L.L.C
CREDIT AGREEMENT AND CONSENT AND WAIVER
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
By:
-------------------------------
Name:
------------------------------
Title:
----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,359
<SECURITIES> 0
<RECEIVABLES> 26,749
<ALLOWANCES> 8,487
<INVENTORY> 0
<CURRENT-ASSETS> 41,068
<PP&E> 129,542
<DEPRECIATION> 0
<TOTAL-ASSETS> 255,997
<CURRENT-LIABILITIES> 48,668
<BONDS> 243,915
0
0
<COMMON> 105
<OTHER-SE> (14,432)
<TOTAL-LIABILITY-AND-EQUITY> 255,997
<SALES> 0
<TOTAL-REVENUES> 93,520
<CGS> 0
<TOTAL-COSTS> 98,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,377
<INCOME-PRETAX> (15,888)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,888)
<EPS-BASIC> (1.52)
<EPS-DILUTED> (1.52)
</TABLE>
