FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended: JUNE 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
Commission File Number: 0-16479
PEOPLES TELEPHONE COMPANY, INC.
(Exact Name of registrant as specified in its charter)
NEW YORK 13-2626435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
2300 NORTHWEST 89TH PLACE, MIAMI, FLORIDA 33172
(Address of principal executive offices) (Zip Code)
(305) 593-9667
(Registrant's telephone number, including area code)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 Par Value,
outstanding at June 30, 1995: 15,882,200 shares.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
ASSETS 1995 1994
----------- ------------
(UNAUDITED) (RESTATED)
<S> <C> <C>
Current assets
Cash and cash equivalents ....................................... $ 5,820 $ 7,663
Accounts receivable, net of allowance for doubtful accounts of
$4,623 and $6,035 .............................................. 16,029 17,682
Inventory ....................................................... 3,820 2,981
Prepaid expenses and other current assets ...................... 4,228 3,276
Net assets of prepaid calling card and international telephone
center business .............................................. - 2,595
Net assets of discontinued operations ........................... 27,433 25,780
--------- ---------
Total current assets ......................................... 57,330 59,977
Property and equipment, net ....................................... 73,171 76,379
Location contracts, net ........................................... 30,234 31,877
Goodwill, net ..................................................... 5,844 6,221
Intangible assets, net ............................................ 2,507 2,802
Other assets, net ................................................. 5,309 11,882
Deferred income taxes ............................................. 3,406 1,453
Investment in unconsolidated affiliate ............................ 3,087 -
--------- ---------
Total assets ................................................. $ 180,888 $ 190,591
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current maturities of long-term debt .......... $ 22 $ 14,286
Current portion of obligations under capital leases ............. 2,035 2,738
Accounts payable and accrued expenses ........................... 23,055 22,799
Accrued interest payable ........................................ 1,054 1,061
Income and other taxes payable .................................. 2,674 2,691
--------- ---------
Total current liabilities .................................... 28,840 43,575
Notes payable and long-term debt .................................. 104,575 94,390
Obligations under capital leases .................................. 3,971 3,911
--------- ---------
Total liabilities ............................................ 137,386 141,876
--------- ---------
Commitments and contingencies ..................................... - -
Shareholders' equity:
Preferred stock; $.01 par value; 4,300 shares authorized;
none issued and outstanding ................................... - -
Convertible preferred stock; Series B, $.01 par value; 600 shares
authorized; none issued and outstanding ....................... - -
Common stock; $.01 par value; 25,000 shares authorized;
15,882 and 15,789 shares issued and outstanding ............... 159 158
Capital in excess of par value .................................. 58,259 58,143
Accumulated deficit ............................................. (14,916) (9,586)
--------- ---------
Total shareholders' equity ................................... 43,502 48,715
--------- ---------
Total liabilities and shareholders' equity ................... $ 180,888 $ 190,591
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
---------- ----------
(RESTATED)
<S> <C> <C>
Revenues
Coin calls .............................................................. $19,871 $19,141
Non-coin calls .......................................................... 9,652 7,952
Service and other ....................................................... - 410
------- -------
Total revenues ....................................................... 29,523 27,503
Costs and expenses
Telephone charges ....................................................... 9,525 10,026
Commissions ............................................................. 6,894 5,589
Field service and collection ............................................ 5,046 5,069
Depreciation and amortization ........................................... 4,777 4,370
Selling, general and administrative ..................................... 2,491 3,851
Interest ................................................................ 1,831 1,319
Loss from operations of prepaid calling card and
international telephone centers ....................................... - (661)
Loss on disposal of prepaid calling card and
international telephone centers ....................................... - -
Litigation settlement expense ........................................... 925 -
Other ................................................................... 109 -
------- -------
Total costs and expenses ............................................. 31,598 29,565
Loss from continuing operations before income taxes ....................... (2,075) (2,062)
Benefit from income taxes ................................................. - 762
------- -------
Loss from continuing operations ........................................... (2,075) (1,300)
------- -------
Discontinued operations
Loss from operations, net of tax benefit of $351 ........................ - (624)
(Loss) income on disposition ............................................. - -
------- -------
Loss from discontinued operations ....................................... - (624)
Extraordinary loss from extinguishment of debt, net ..................... -
------- -------
Net loss .............................................................. $(2,075) $(1,924)
======= =======
Earnings (loss) per common share
Loss from continuing operations........................................... $ (.13) $ (.08)
Loss from discontinued operations ........................................ - (.04)
Extraordinary loss from extinguishment of debt, net ...................... - -
------- -------
Net loss.............................................................. $ (.13) $ (.12)
======= =======
Weighted average common and common equivalent shares
outstanding .............................................................. 15,869 15,786
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
---------- ----------
(RESTATED)
<S> <C> <C>
Revenues
Coin calls ........................................ $38,931 $36,998
Non-coin calls .................................... 17,924 14,921
Service and other ................................. 122 711
------- -------
Total revenues ................................. 56,977 52,630
Costs and expenses
Telephone charges ................................. 18,015 18,330
Commissions ....................................... 13,191 10,466
Field service and collection ...................... 9,674 9,986
Depreciation and amortization ..................... 9,518 8,483
Selling, general and administrative ............... 4,860 6,523
Interest .......................................... 3,310 2,308
Loss from operations of prepaid calling card and
international telephone centers ................. - 68
Loss on disposal of prepaid calling card and
international telephone centers ................. - -
Litigation settlement expense ..................... 925 -
Other ............................................. 136 -
------- -------
Total costs and expenses ....................... 59,629 56,164
Loss from continuing operations before income taxes . (2,652) (3,534)
Benefit from income taxes ........................... 216 1,231
------- -------
Loss from continuing operations ..................... (2,436) (2,303)
------- -------
Discontinued operations
Loss from operations, net of tax benefit of $972 .. - (1,678)
(Loss) income on disposition ...................... - -
------- -------
Loss from discontinued operations ................. - (1,678)
Extraordinary loss from extinguishment of debt, net (2,894) -
------- -------
Net loss ...................................... $(5,330) $(3,981)
======= =======
Earnings (loss) per common share
Loss from continuing operations .................... $ (.16) $ (.15)
Loss from discontinued operations .................. - (.10)
Extraordinary loss from extinguishment of debt, net (.18) -
------- -------
Net loss ....................................... $ (.34) $ (.25)
======= =======
Weighted average common and common equivalent shares
outstanding ........................................ 15,850 15,798
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
(RESTATED)
<S> <C> <C>
Cash flow from operating activities:
Net loss .............................................................. $(5,330) $ (3,981)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................................... 9,518 8,483
Deferred income taxes ............................................. (1,953) (2,281)
Extraordinary loss from extinguishment of debt .................... 2,894 -
Gain on sale of assets ............................................ - (2,015)
Change in assets and liabilities:
Decrease (increase) in accounts receivable ................... 1,653 (4,121)
Increase in inventory ........................................ (839) (1,502)
(Increase ) decrease in prepaid expenses and
other current assets ........................................ (952) 812
Decrease (increase) in other assets .......................... 3,649 (3,968)
Increase in investment in unconsolidated affiliate ........... (3,087) -
Increase (decrease) in accounts payable and
accrued expenses ......................................... 256 (230)
(Decrease) increase in accrued interest...................... (7) 314
(Decrease) increase in taxes payable ......................... (17) 644
Net effect of discontinued operations ........................ (58) 2,735
------- --------
Net cash provided (used in) by operating activities ..................... 5,727 (5,110)
Cashflow from investing activities:
Payments for acquisitions and certain contracts ..................... (805) (16,284)
Property and equipment additions .................................... (3,160) (8,077)
Proceeds from sale of assets ........................................ 1,000 2,400
Investments in joint ventures ....................................... - (1,888)
------- --------
Net cash used in investing activities ................................... (2,965) (23,849)
Cash flow from financing activities:
Net borrowings under note payable to bank ........................... (4,079) 29,861
Debt issuance costs ................................................. - (1,318)
Principal payments under capital lease obligations .................. (643) (537)
Exercise of stock options and warrants .............................. 302 1,211
Officer loans ....................................................... (185) -
------- --------
Net cash (used in ) provided by financing activities .................... (4,605) 29,217
--------
Net (decrease) increase in cash and cash equivalents .................... (1,843) 258
Cash and cash equivalents at beginning of period ........................ 7,663 4,529
------- --------
Cash and cash equivalents at end of period .............................. $ 5,820 $ 4,787
======= ========
</TABLE>
5
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND JUNE 30, 1994
(UNAUDITED)
NOTE 1 - UNAUDITED INTERIM INFORMATION:
The accompanying interim consolidated financial data are unaudited; however, in
the opinion of management, the interim data include all adjustments necessary
for a fair presentation of the results for the interim periods. The quarter
ended June 30, 1994 and the six months ended June 30, 1994 included adjustments
of $3.4 million and $5.5 million, respectively, for, among other things, amounts
incurred for settling disputes and claims and bad debt reserves.
The results of operations for the three months and the six months ended June 30,
1995 are not necessarily indicative of the results to be expected for the year
ending December 31, 1995.
The interim unaudited consolidated financial statements should be read in
conjunction with the restated audited consolidated financial statements and
notes thereto for the year ending December 31, 1994 as set forth in the
Company's Form 10-K/A No. 2.
NOTE 2 - EARNINGS PER SHARE:
The treasury stock method was used to determine the dilutive effect of options
and warrants on earnings per share data. For 1995 and 1994, common stock
equivalents were excluded since the effect would be anti-dilutive.
Therefore, fully diluted earnings per share is not presented.
See earnings (loss) per common share calculation as summarized on page 10.
NOTE 3 - LONG-TERM DEBT:
Amounts due under the Company's revolving line of credit and various other notes
payable of approximately $105.1 million were refinanced in July 1995 through the
sale of $100 million of 12 1/4% Senior Notes due 2002 and the issuance of
150,000 shares of Series C Cumulative Convertible Preferred Stock for $15
million (see Note 7). Accordingly, such amounts have been classified as
long-term in the accompanying Consolidated Balance Sheet.
In June 1995, the Company settled a lawsuit filed against it by Ascom
Communications, Inc. (ACI) for approximately $5.7 million. This amount was equal
to the amounts previously recorded for promissory notes issued in connection
with the 1993 purchase of ACI. These notes were repaid in connection with the
refinancing discussed above.
As a result of a March 1995 amendment to its revolving line of credit, the
Company recorded an extraordinary loss of $4.6 million for the write-off of
deferred financing costs, before the income tax benefit of approximately $1.7
million.
NOTE 4 - INVESTMENTS IN UNCONSOLIDATED AFFILIATE:
During February, 1995, the Company sold its prepaid calling card business to
Global Link Teleco Corporation ("Global Link") for approximately $6.3 million.
The Company received $1 million in cash, a $5.3 million promissory note due
February 1998, bearing interest at 8.5%, payable quarterly, and shares of common
stock of Global Link. For financial accounting purposes, the net gain of
approximately $3.4 million will be deferred until cash is received.
6
<PAGE>
As a result of the February 1995 transaction, and because of a drafting error
discovered in May 1995 that did not reflect the intentions of the parties, the
Company's interest in the outstanding common stock of Global Link was 28.8%
instead of the intended 19.99%. To correct this error, the Company has agreed
with Global Link to reduce its share ownership to the intended 19.99% level.
The Company's investment in Global Link is accounted for using the equity
method. The Company's share of the results of operations of Global Link from the
divestiture date through June 30, 1995 are included in "Other" in the Statements
of Operations. The 1994 results of operations of the prepaid calling card
business have been segregated and reported as a separate component of income
from continuing operations.
The Company's investment in Global Link represents $6.6 million of outstanding
notes receivable less the $3.4 million deferred gain on the February 1995
transaction and $0.1 million representing the Company's share of Global Link's
first and second quarter 1995 operating results.
NOTE 5 - INCOME TAXES:
At June 30, 1995, the Company recorded a valuation allowance of approximately
$0.8 million against deferred tax assets generated during the quarter ended June
30, 1995. A valuation allowance was provided to reduce the deferred tax assets
to a level which, more likely than not, will be realized.
NOTE 6- DISCONTINUED OPERATIONS:
In 1994, in connection with the planned divestiture of the inmate telephone and
cellular telephone operations, the Company recorded a provision for the
estimated impairment of asset values and losses through the anticipated
divestiture date, net of income taxes, of $2.5 million and $4.8 million,
respectively. The cellular telephone operations provision is net of an estimated
gain on disposition of approximately $1.1 million and includes a valuation
allowance of approximately $3.4 million against deferred tax assets that may not
be realized upon the disposition of the cellular telephone operations. This
provision included approximately $(0.1) million and $(2.0) million for the
estimated operating income (losses) of the inmate telephone and cellular
telephone operations, respectively, for the six months ended June 30, 1995.
The following combining tables set forth the results of operations of the inmate
telephone and cellular telephone operations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1995
--------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------ -------------- -------
<S> <C> <C> <C>
Revenues ................................... $7,307 $ 2,158 $ 9,465
------ ------- -------
Loss from operations before income taxes... (164) (1,071) (235)
Benefit from income taxes .................. 62 - 62
------ ------- -------
Net loss ................................... $ (102) $(1,071) $(1,173)
====== ======= =======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
1994
---------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- -------
<S> <C> <C> <C>
Revenues .............................................. $10,904 $ 2,982 $13,886
------- ------- -------
Income (loss) from operations before income taxes .... 476 (1,451) (975)
(Provision for) benefit from income taxes ............. (105) 545 (440)
------- ------- -------
Net income (loss) ..................................... $ 371 $ (906) $ (535)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1995
---------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- -------
<S> <C> <C> <C>
Revenues .............................................. $15,413 $ 4,662 $20,075
------- ------- -------
Loss from operations before income taxes ............. (85) (2,232) (2,317)
Benefit from income taxes ............................. 32 - 32
Net loss .............................................. $ (53) $(2,232) $ 2,285
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- -------
<S> <C> <C> <C>
Revenues .............................................. $21,284 $ 5,812 $27,096
------- ------- -------
Income (loss) from operations before income taxes .... 676 (3,327) (2,651)
(Provision for) benefit from income taxes ............. (180) 1,249 1,069
------- ------- -------
Net income (loss) ..................................... $ 496 $(2,078) $(1,582)
======= ======= =======
</TABLE>
NOTE 7 - SUBSEQUENT EVENTS:
During July 1995, the Company completed the sale of $100 million of Senior Notes
due 2002 (the "Senior Notes") and the issuance of 150,000 shares of Series C
Cumulative Convertible Preferred Stock (the "Preferred Stock") for $15 million.
The net proceeds of approximately $109.5 million from the Senior Notes and the
Preferred Stock were used to repay the outstanding balance due under the
Company's revolving line of credit and certain other notes payable (see Note 3).
The Senior Notes bear interest at 12 1/4% per annum, payable semiannually
beginning January 15, 1996. The Senior Notes are senior unsecured obligations of
the Company and are redeemable at the option of the Company, in whole or in
part, on or after July 15, 2000 at pre-established redemption prices together
with accrued and unpaid interest to the redemption date.
The Preferred Stock cumulates dividends at an annual rate of 7%, which is
payable in cash or, at the Company's option during the first three years, will
cumulate. The Preferred Stock is immediately convertible into shares of Common
Stock of the Company at an initial conversion price of $5.25 per share and is
mandatorily redeemable by the Company 10 years after issuance. Pursuant to the
terms of the Preferred Stock, the holders are entitled to elect two of the six
members of the Company's Board of Directors. In connection with the sale of the
Preferred Stock, the Company issued warrants to purchase 275,000 shares of
Common Stock of the Company to a third party who assisted with the transaction.
The initial exercise price of the warrants is $5.25 per share.
8
<PAGE>
Simultaneously with the sale of the Senior Notes and issuance of the Preferred
Stock, the Company executed the Fourth Amended and Restated Loan and Security
Agreement (the "Loan Agreement") with Creditanstalt Bankverein (the "Bank"). The
Loan Agreement provides for a new $40 million credit facility bearing interest
at rates ranging from the Bank's prime rate plus 1 1/2% to LIBOR plus 3%. All
outstanding principal balances are due in full April 30, 1999 and interest is
payable monthly for loans based on the prime rate and quarterly for loans based
on the LIBOR rate. A commitment fee of 1/2 of 1% is charged on the aggregate
daily unused balance of the credit facility under the Loan Agreement. The Loan
Agreement is secured by substantially all of the Company's assets and contains
certain restrictive covenants which, among other things, require the Company to
maintain certain net worth and cash flow levels and places certain restrictions
on the payment of dividends.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
During July 1995, the Company reached an agreement in principle for the
settlement (the "Proposed Settlement") of a lawsuit seeking class action
certification, brought by two shareholders against the Company and certain of
its officers and directors in the United States District Court, Southern
District of Florida, alleging the violation of certain federal securities laws.
The Company's share of the Proposed Settlement of approximately $0.9 million has
been recorded in the accompanying Statements of Operations. The Proposed
Settlement is subject to approval by the District Court.
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
JUNE 30,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Loss from continuing operations ............................. $(2,075) $(1,300)
Loss from discontinued operations ........................... - (624)
------- -------
Net loss .................................................... $(2,075) $(1,924)
======= =======
Number of shares:
Weighted average shares used in the per share computation ... 15,869 15,786
======= =======
Earnings (loss) per common and common equivalent share:
Loss from continuing operations ............................. $ (.13) $ (.08)
Loss from discontinued operations ........................... - (.04)
------- -------
Net loss .................................................... $ (.13) $ (.12)
======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Loss from continuing operations ............................. $(2,436) $(2,303)
Loss from discontinued operations ........................... - (1,678)
Extraordinary loss from extinguishment of debt, net ......... (2,894) -
------- -------
Net loss .................................................... $(5,330) $(3,981)
======= =======
Number of shares:
Weighted average shares used in the per share computation ... 15,850 15,798
======= =======
Earnings (loss) per common and common equivalent share:
Loss from continuing operations ............................. $ (.16) $ (.15)
Loss from discontinued operations ........................... - (.10)
Extraordinary loss from extinguishment of debt, net ......... (.18) -
------- -------
Net loss .................................................... $ (.34) $ (.25)
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis compares the quarter ended June
30, 1995 to the quarter ended June 30, 1994 and the six months ended June 30,
1995 to the six months ended June 30, 1994, and should be read in conjunction
with the consolidated financial statements and notes thereto appearing elsewhere
in this Form 10-Q and in conjunction with Management's Discussion and Analysis
appearing in the Company's Form 10-K/A No. 2 for the year ended December 31,
1994. The financial results discussed below relate to continuing operations
which primarily consist of the public pay telephone business.
REVENUES
The Company primarily derives its revenues from coin and non-coin calls.
Coin revenue is generated exclusively from calls made by depositing coins in the
Company's public pay telephones. Coin revenue represented approximately 67.3%
and 69.6% of total revenues from continuing operations for the quarters ended
June 30, 1995 and 1994 and 68.3% and 70.3% for the six months ended June 30,
1995 and 1994, respectively. Coin revenue increased 3.8% to $19.9 million during
the quarter ended June 30, 1995 and 5.2% to $38.9 million for the six months
ended June 30, 1995 compared to the same periods in 1994. This revenue growth
was primarily attributable to growth in the Company's installed base of public
pay telephones. The Company's average installed public pay telephone base was
approximately 40,000 for the six months ended June 30, 1995, compared to an
average of approximately 37,000 for the same period in 1994. The decline in coin
revenues per telephone was primarily attributable to the addition of telephones
between periods having a lower average coin revenue per telephone than did the
Company's installed base during 1994. The Company believes that the number of
coin calls made at its public pay telephones may decrease over time. The Company
believes, that among other things, this decrease will be primarily attributable
to more public pay telephones in closer proximity to the Company's telephones,
alternative methods of calling such as wireless technologies and increased usage
of prepaid calling cards.
Non-coin revenue represented approximately 32.7% and 28.9% of total
revenues from continuing operations for the quarters ended June 30, 1995 and
1994 and 31.5% and 28.4% for the six months ended June 30, 1995 and 1994,
respectively. Non-coin revenue is derived from calling card calls, credit card
calls, collect calls and third party billed calls. For the quarter ended June
30, 1995, revenues from non-coin calls increased 21.4% to approximately $9.7
million, compared to the quarter ended June 30, 1994. Non-coin revenue increased
20.1% to approximately $17.9 million for the six months ended June 30, 1995 as
compared to the same period in 1994. These increases were primarily attributable
to the increase in the Company's installed base of public pay telephones
described above and an increase in the number of calls placed through third
party operator service providers. During the second quarter of 1995 the Company
signed a contract with AT&T to act as its primary third-party operator service
provider. Prior to the execution of this agreement, non-coin calls were routed
through the Company's private label operator service program. In addition,
non-coin revenue for the second quarter of 1995 includes approximately $0.5
million for the collection of previous underpayments of compensation.
The Company records the total amount the end user pays for the call (net
of taxes) as revenue when the call is completed through the Company's private
label operator service. In contrast, the Company records as revenue the amount
it receives from the third-party operator service provider which represents a
negotiated percentage of the total amount the caller pays for the call. The
Company uses its private label operator service or a third party operator
service provider based on which service the Company believed netted it the
highest gross margin from the call.
11
<PAGE>
OPERATING EXPENSES
Operating expenses include telephone charges, commissions, field
service and collection expenses and selling, general and administrative
expenses. Telephone charges consist of local line charges to LECs which include
costs of basic service and transport of local coin calls, long distance
transmission charges and network costs and billing, collection and validation
costs. Commissions represent payments to Property Owners for revenues generated
by public pay telephones located on their properties. Field service and
collection expenses represent the costs of servicing and maintaining the
telephones on an ongoing basis, costs of collecting coin from the telephones,
and other related operational costs. Selling, general and administrative
expenses primarily consist of payroll and related costs, legal and other
professional fees, promotion and advertising expenses, property, gross receipts
and certain other taxes, corporate travel and entertainment, and various other
expenses. Total operating expenses were approximately 81.1% and 89.2% of total
revenues from continuing operations for the quarters ended June 30, 1995 and
1994, respectively. For the six months ended June 30, 1995, total operating
expenses were 80.3% of total revenues as compared to 86.1% for the same period
in 1994.
Telephone charges decreased as a percentage of total revenues from
continuing operations to 32.3% for the quarter ended June 30, 1995, compared to
36.5% for the same period in 1994. The decrease in telephone charges is due to a
decline in the number of calls placed through the Company's private label
operator system which is partially offset by an increase in telephone charges as
a result of an increase in the Company's installed public pay telephone base.
The Company pays the costs incurred to transmit, bill, collect and validate the
call when the call is completed through its private label operator services. In
contrast, the Company incurs no such cost when a third party operator service
provider completes the call. For the six months ended June 30, 1995 and 1994,
telephone charges were 31.6% and 34.8% of revenues, respectively. Telephone
charges for the six months ended June 30, 1995 include a reduction of
interexchange carrier expenses related to a settlement with a service provider
for certain billing errors and underpayment of operator service revenue of
approximately $1.3 million. Telephone charges for the six months ended June 30,
1994 included one-time income adjustments of approximately $0.6 million for a
contract signing bonus and volume discounts credited to the Company by certain
of its service providers.
Commissions as a percentage of total revenues from continuing
operations were approximately 23.4% and 20.3% for the quarters ended June 30,
1995 and 1994, respectively. For year to date 1995, commissions were 23.2% of
revenues from continuing operations versus 19.9% for the same period in 1994.
The increase in commissions as a percentage of revenues was primarily
attributable to higher commission rates paid in connection with the recently
obtained Atlanta Hartsfield International Airport account.
Field service and collection expenses as a percentage of total
revenues from continuing operations were 17.1% and 18.4% for the second quarter
of 1995 and 1994, respectively. For the six months ended June 30, 1995, field
service and collection expenses were 17.0% compared with 19.0% for the same
period in 1994. The decrease in these expenses was primarily attributable to the
Company's efforts to reduce operating expenses which were commenced in June
1994 and included the downsizing of the Company's field personnel. Selling,
general and administrative expenses decreased to 8.4% of total revenues from
continuing operations in the second quarter 1995 versus 14.0% for the second
quarter 1994. For the six moths ended June 30, 1995, selling, general and
administrative expenses were 8.5% of revenue versus 12.4% for the same period in
1994. The decrease in selling, general and administrative expenses was primarily
attributable to the cost reduction plan and reengineering efforts commenced by
the Company in June 1994.
12
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation is based on the cost of the telephones, booths, pedestals,
and other enclosures, related installation costs and line interconnection
charges and is calculated on a straight-line method using a ten-year useful
life. Amortization is primarily based on acquisition costs including location
contracts, goodwill and non-competition provisions and is calculated on a
straight-line method using estimated useful lives ranging from five to 20 years.
Depreciation and amortization increased to $4.8 million for the quarter ended
June 30, 1995, compared to $4.4 million for the same period in 1994. For the six
months ended June 30, 1995 and 1994, depreciation and amortization were $9.5
million and $8.5 million, respectively. The increase in depreciation and
amortization is primarily attributable to increases in the number of installed
public pay telephones that resulted from acquisitions during 1994.
INTEREST EXPENSE
In the second quarter of 1995, interest expense increased 38.8% to
$1.8 million as compared to the same quarter in 1994. This increase was
primarily attributable to increased bank borrowings under the Company's
revolving line of credit of $100 million at June 30, 1995 compared to $97.2
million at June 30, 1994. In addition, the Company experienced higher interest
rates under its revolving line of credit during the second quarter of 1995 as a
result of the March 22, 1995 amendment to the Company's credit agreement and
overall increases in market interest rates.
OTHER
Other expenses were approximately $1.1 million for the year to date
which includes approximately $0.9 million recorded for the proposed settlement
of the shareholders' lawsuit (see Note 8 to the accompanying consolidated
financial statements) as well as approximately $0.2 of losses for the Company's
equity interest in an unconsolidated affiliate. No such expenses were incurred
in 1994.
PROVISION FOR INCOME TAXES
The Company recorded a valuation allowance of approximately $0.8 million
for tax assets generated during the second quarter of 1995. For the six months
ended June 30, 1995, the tax benefit from continuing operations was
approximately $0.2 million as compared to $1.1 million for the same period in
the prior year. This decrease is due primarily to the valuation allowance
established by the Company during the second quarter of 1995.
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
The Company had a net loss from continuing operations of approximately
$2.1 million and $2.4 million for the three months and six months ended June 30,
1995, respectively, compared to a net loss from continuing operations of
approximately $1.4 million and $2.4 million for the same periods in 1994.
EXTRAORDINARY ITEM
The Company had an extraordinary loss from the write-off of deferred
financing costs associated with the early extinguishment of debt of
approximately $4.6 million, before the related income tax benefit of $1.7
million, which is included in the financial results of the Company for the six
months ended June 30, 1995.
13
<PAGE>
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA is not presented as an alternative to operating results or cash
flow from operations as determined by Generally Accepted Accounting Principles
(GAAP), but rather to provide additional information related to the ability of
the Company to meet current trade obligations and debt service requirements.
EBITDA should not be considered in isolation from, or construed as having
greater importance than, GAAP operating income or cash flows from operations as
a measure of an entity's performance.
EBITDA from continuing operations increased by approximately $0.9
million to $4.5 million for the quarter ended June 30, 1995, compared to the
same period in 1994. EBITDA for the six months ended June 30, 1995 was
approximately $10.2 million as compared to $7.3 million for the same period in
1994. This increase was primarily attributable to the growth in the Company's
installed base of public pay telephones and the decrease in telephone charges as
a percentage of revenue as a result of the settlement with a service provider
mentioned above, which was partially offset by the increase in commission
expense noted above.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 1995, the Company financed its operations
primarily from operating cash flow. For the quarter ended June 30, 1995, the
Company's operating cash flow was $5.7 million compared to $(5.1) million for
the same period in 1994.
The Company's working capital was approximately $28.5 million, with a
current ratio of 1.99 to 1, at June 30, 1995. This is compared to working
capital of $16.4 million and a current ratio of 1.38 to 1 at December 31, 1994.
The increase in the Company's working capital and current ratio was primarily
attributable to approximately $12 million of debt repayments which, as of June
30, 1995 were reclassified as long-term obligations due to the Company's
refinancing transaction as discussed below.
In an effort to extend its debt maturities to reflect the long-term
nature of its assets and to provide increased operational and financial
flexibility to take advantage of growth opportunities in its core public pay
telephone business, the Company completed a private placement of $100 million in
Senior Notes due 2002 (the "Senior Notes") and $15 million of Cumulative
Convertible Preferred Stock (the "Preferred Stock") in July 1995. In addition to
the above transactions the Company entered into a new $40 million revolving
credit facility. Proceeds from the sale of the Senior Notes together with the
proceeds from the sale of the Preferred Stock were used to repay the existing
credit facility and various other obligations of the Company. Upon completion of
the refinancing, the Company had $40 million undrawn and available under the new
credit facility.
DISCONTINUED OPERATIONS
During December 1994, in an effort to return its focus to its core
public pay telephone business, the Company's Board of Directors approved the
divestiture of its inmate telephone and cellular telephone rental operations.
The Company is in the process of divesting the remaining business
segments and has recorded provisions for the estimated impairment of asset
values and losses from January 1, 1994 through the estimated divestiture date
for its inmate telephone and cellular telephone rental operations in the
December 31, 1994 financial statements. (See Note 6 to the accompanying
consolidated financial statements).
14
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is made to Item 3 - Legal Proceedings of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, as amended.
During July 1995, the Company and the directors and officers of the Company
named as defendants in a class action lawsuit brought by two shareholders in
the United States District Court, Southern District of Florida, reached an
agreement in principle for the settlement of the lawsuit (the "Proposed
Settlement"). Pursuant to the Proposed Settlement, the Company will pay
approximately $925,00 and the balance of the Proposed Settlement will be paid by
the carrier providing directors' and officers' liability insurance to the
Company. The Proposed Settlement is subject to approval by the District Court.
Item 2. CHANGES IN SECURITIES
Information regarding the issuance of the Senior Notes and the
Preferred Stock and the execution of the Loan Agreement is
incorporated herein by reference to Exhibit 99 to this Report on Form
10-Q.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT DESCRIPTION
------- -----------
4.1 Amended and Restated Certificate of Incorporation adopted on November
30, 1987 (incorporated herein by reference to the Company's
Registration Statement on Form 10, File No. 0-16479 (the "Form 10").
4.2 Amendments to Certificate of Incorporation adopted on March 8, 1990
and March 15, 1990, respectively (incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1989) (File No. 0-16479).
4.3 Amendment to Certificate of Incorporation adopted on June 29, 1990
(incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990 (File No. 0-16479)).
4.4 Amendment to Certificate of Incorporation filed on July 18, 1995
(incorporated by reference to the Company's Current Report on Form
8-K dated July 19, 1995 (File No. 0-16479)).
4.5 Restated Bylaws adopted on November 30, 1987 (incorporated herein by
reference to the Form 10).
4.6 Fourth Amended and Restated Loan and Security Agreement dated as of
July 19, 1995 by and among the Company, the lenders named therein and
Creditanstalt-Bankverein (incorporated by reference to the Company's
Current Report on Form 8-K dated July 19, 1995 (File No. 0-16479)).
4.7 Letter Agreement, dated July 3, 1995, between the Company and
Creditanstalt American Corporation, with respect to the amendment of
the Second Amended and Restated Warrant Agreement dated February 17,
1994 (incorporated by reference to the Company's Current Report on
Form 8-K dated July 19, 1995 (File No. 0-16479)).
15
<PAGE>
4.8 Indenture, dated as of July 15, 1995, between the Company and First
Union National Bank of North Carolina (incorporated by reference to
the Company's Current Report on Form 8-K dated July 19, 1995 (File
No. 0-16479)).
4.9 Registration Rights Agreement, dated July 19, 1995, between the
Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated (incorporated by reference to the Company's
Current Report on Form 8-K dated July 19, 1995 (File No. 0-16479)).
4.10 Letter Agreement, dated July 18, 1995, among the Company, UBS Capital
Corporation, UBS Partners, Inc. and Appian Capital Partners, L.L.C.,
amending the Securities Purchase Agreement, dated as of July 3, 1995
among the Company, UBS Capital Corporation and Appian Capital
Partners, L.L.C. (incorporated by reference to the Company's Current
Report on Form 8-K dated July 19, 1995 (File No. 0-16479)).
4.11 Form of Stock Purchase Warrant issued on July 19, 1995 to Appian
Capital Partners, L.L.C. (incorporated by reference to the Company's
Current Report on Form 8-K dated July 19, 1995 (File No. 0-16479)).
4.12 Form of Contingent Stock Purchase Warrant issued on July 19, 1995 to
UBS Partners, Inc. (incorporated by reference to the Company's
Current Report on Form 8-K dated July 19, 1995 (File No. 0-16479)).
4.13 Registration Rights Agreement dated as of July 19, 1995 between the
Company and UBS Partners, Inc. (incorporated by reference to the
Company's Current Report on Form 8-K dated July 19, 1995 (File No.
0-16479)).
4.14 Securities Purchase Agreement between UBS Capital Corporation, Appian
Capital Partners, L.L.C. and the Company, and Exhibits A through F
(incorporated by reference to the Company's Current Report on Form
8-K dated July 3, 1995 (File No. 0-16479)).
4.15 Form of Second Amended and Restated Warrant Agreement dated as of
February 17, 1994 between the Company and Creditanstalt American
Corporation (incorporated by reference to the Company's Form 10-K for
the fiscal year ended December 31, 1993 (File No. 0-16479)).
10 Exchange Agreement, dated as of May 3, 1995, by and between the
Company and Creditanstalt Corporate Finance, Inc. (incorporated by
reference to the Company's Current Report on Form 8-K dated July 19,
1995 (File No. 0-16479)).
27 Financial Data Schedule
99 Information regarding the issuance of certain securities of the
Company.
(b) Reports on Form 8-K:
(1) Current Report on Form 8-K dated May 10, 1995, relating to Item 5 -
Other Events.
(2) Current Report on Form 8-K dated June 19, 1995 relating to Item 5 -
Other Events.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEOPLES TELEPHONE COMPANY, INC.
-------------------------------
REGISTRANT
Date: August 14, 1995 /S/ BONNIE S. BIUMI
-------------------------------
Bonnie S. Biumi
Chief Financial Officer
EXHIBIT 99
In order to extend its debt maturities and to provide increased
operational and financial flexibility to take advantage of growth opportunities
in its core public pay telephone business, the Company refinanced its
indebtedness (approximately $95.5 million) under the Third Amended and Restated
Loan Agreement by and among the Company, Creditanstalt-Bankverein
("Creditanstalt") and other financial institutions, dated February 17, 1994 (the
"Prior Credit Agreement") and repaid certain notes payable ($105.1 million in
the aggregate) with proceeds from the sale of the Senior Notes (as defined
below) and the Preferred Stock (as defined below") (collectively, the
"Refinancing").
The Refinancing, which was consummated on July 19, 1995, included the
following elements:
SENIOR NOTES
The Company sold $100,000,000 aggregate principal amount of its 12 1/4%
Senior Notes due 2002 (the "Senior Notes") in a private placement pursuant to
Rule 144A under the Securities Act of 1933, as amended ("the Securities Act").
The indenture governing the Senior Notes (the "Indenture") contains certain
covenants, including, but not limited to, covenants with respect to the
following matters: limitations on additional indebtedness, limitations on
restricted payments, including the payment of dividends on the Company's Common
Stock, par value $.01 per share ("Common Stock"), limitations on the incurrence
of liens, limitations on transactions with affiliates, the application of the
proceeds of certain asset sales, restrictions on the issuance of preferred stock
of certain subsidiaries, limitations on the creation of restrictions on the
ability of certain subsidiaries to make certain distributions and payments to
the Company and other subsidiaries, and limitations on the merger, consolidation
or transfer of all or substantially all of the assets of the Company and certain
subsidiaries with or to another person. Holders of Senior Notes will also have
the right to require the Company to repurchase Senior Notes in the event of
certain changes in control. The Senior Notes are senior unsecured obligations of
the Company and rank PARI PASSU in right of payment with other senior
indebtedness of the Company.
PREFERRED STOCK
The Company issued 150,000 shares of its Series C Cumulative Convertible
Preferred Stock (the "Preferred Stock") to UBS Partners, Inc. ("UBS"), a
wholly-owned subsidiary of Union Bank of Switzerland, for gross proceeds of
$15.0 million. The Preferred Stock cumulates dividends at an annual rate of 7%,
subject to increase up to 11% under certain circumstances, including
accelerations of indebtedness of the Company and material breaches of
representations, warranties and covenants, which are payable in cash or, at the
Company's option during the first three years after issuance, will continue to
cumulate. The Preferred Stock is immediately convertible, at the option of the
holders, into approximately 2,857,143 shares of Common Stock (or approximately
15.1% of the outstanding Common Stock as of June 30, 1995 determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) at a conversion price of $5.25 per share, subject to
reduction pursuant to antidilution adjustments in connection with, among other
things, certain issuances of shares of, or rights to acquire, Common Stock at
less than the Conversion Price of the Preferred Stock. The Preferred Stock is
subject to (i) mandatory redemption by the Company 10 years after issuance or,
subject to the prior payment in full of the Company's indebtedness under the New
Credit Agreement (as defined below) and the Senior Notes, in the event of
certain bankruptcy or related events relating to the Company, (ii) redemption at
the Company's option, and (iii) upon the occurrence of a change of control (as
defined in the Indenture), redemption, at the option of the holders thereof, in
all cases at its liquidation preference ($15.0 million in the aggregate) plus
accrued and unpaid dividends.
The holders of the Preferred Stock are entitled to elect two members
of the six member Board of Directors of the Company. The two directors initially
will be Charles J. Delaney, President of UBS Capital Corporation ("UBS
Capital"), also a wholly-owned subsidiary of Union Bank of Switzerland, and
Jeffrey Keenan, a managing director
<PAGE>
of UBS Capital and a vice president and a director of UBS. Mr. Delaney was
elected on July 19, 1995 to fill the vacancy created by the resignation of
Ronald Gelber and UBS has advised the Company that it will elect Mr. Keenan at
or about the time of the Company's 1995 Annual Meeting of Shareholders. The
Preferred Stock is also entitled to vote on all other matters submitted to the
stockholders for a vote together with the holders of the Common Stock voting as
a single class with each share of Preferred Stock entitled to one vote for
each share of Common Stock issuable upon conversion.
In connection with the Preferred Stock, the Company has agreed to
certain affirmative and negative covenants with respect to the conduct of its
business, among other matters. For so long as 25% of the shares of Preferred
Stock or the Common Stock into which such Preferred Stock is convertible remain
outstanding and have not been sold publicly, the Company has agreed with UBS and
Appian Capital Partners, L.L.C. ("Appian") to observe certain negative
covenants, including that the Company will not:
(a) (i) amend its Certificate of Incorporation or bylaws in a way which would
adversely affect the rights of holders of the Preferred Stock or underlying
Common Stock or subordinate the rights of the holders of the Preferred Stock to
the rights of other holders of capital stock of the Company; (ii) to the extent
not prohibited by the Company's Amended and Restated Certificate of
Incorporation, except in an underwritten public offering, or issuances of Common
Stock pursuant to options, warrants and other rights outstanding on the date of
the Securities Purchase Agreement relating to the Preferred Stock or employee
stock options, and issuances of Common Stock in certain permitted acquisitions,
sell capital stock of the Company unless holders of the Preferred Stock, the
underlying Common Stock or the Warrants (as hereinafter defined) are given the
right to purchase such capital stock to maintain such holders' percentage
interest in the Company's Common Stock; or (iii) effect a fundamental change,
including (a) the sale or transfer of more than 40% of the consolidated assets
of the Company and its subsidiaries and (b) mergers and consolidations other
than those in which the Preferred Stock is unaffected and the holders of the
majority of the voting power to elect the Board of Directors continue to own
such majority voting power unless such fundamental change provides that upon the
consummation thereof, the Company shall have purchased all such shares of the
Preferred Stock tendered to the Company for purchase at a price per share equal
to its liquidation preference of $100 per share plus accrued and unpaid
dividends thereon pursuant to an offer to purchase given to the holders of the
Preferred Stock not less than 15 days prior to the date such fundamental change
is to be consummated; or
(b) Without the approval of 75% of the members of the Board of
Directors: (i) engage in transactions with stockholders, directors, officers,
employees or defined affiliates which transactions would require disclosure
under Rule 404 of Regulation S-K under the Securities Act; (ii) issue (a) debt
securities which are convertible into the Company's Common Stock or with equity
features such as warrants unless such equity features meet certain tests or (b)
capital stock or other equity securities senior to or on a parity with the
Preferred Stock or having a voting power equivalent to or greater than one vote
per share of Common Stock; (iii) merge or consolidate or, except for certain
permitted acquisitions or dispositions, allow a subsidiary to merge or
consolidate; (iv) sell, lease or otherwise dispose of assets of the Company or
its subsidiaries involving consideration greater than $5 million; (v) liquidate,
dissolve or effect a recapitalization or reorganization; (vi) acquire an
interest in or assets of any other company involving aggregate consideration
greater than $5 million; (vii) own, manage or operate any business other than
the domestic pay telephone business; or (vii) hire, elect or replace the
Company's Chief Executive Officer, President, Chief Financial Officer or Chief
Operating Officer or change the terms of employment or compensation thereof.
Notwithstanding the foregoing, the Company may sell certain discontinued
operations and enter into and borrow under the New Credit Agreement.
So long as any shares of the Preferred Stock remain outstanding, without
the prior consent of the holders of a majority of the then outstanding shares of
Preferred Stock, the Company is prohibited from redeeming, purchasing or
otherwise acquiring junior securities (including Common Stock), paying or
declaring any dividend or making any distribution on any other capital stock of
the Company (other than dividends payable solely in the securities in respect of
which such dividends are paid).
<PAGE>
In addition, UBS has been issued a contingent warrant, exercisable only
if the Company redeems the Preferred Stock pursuant to its optional redemption
rights. Such warrant is exercisable initially for the same number of shares and
at the same price as provided in the conversion terms of the Preferred Stock
being redeemed, all determined as of the redemption date of such Preferred
Stock. Such contingent warrant has anti-dilution provisions comparable to the
Preferred Stock. UBS also has the right to have its Preferred Stock and
underlying Common Stock repurchased by the Company (at the original purchase
price thereof, plus accrued and unpaid dividends thereon), if the Company
violates certain regulations regarding an investee of a Small Business
Investment Company.
UBS has agreed, subject to certain limitations and restrictions, that
for up to 10 years from the date of the closing of the Preferred Stock, it will
not, without the consent of the Company's Board of Directors, acquire beneficial
ownership (determined in accordance with Rule 13d-3 under the Exchange Act) of
more than 25% of the Company's voting securities, offer or solicit any other
person to acquire the Company or conduct a proxy solicitation with respect to
the Company.
Appian, which provided financial consulting services in connection
with the Preferred Stock, was issued warrants to purchase up to 275,000 shares
of Common Stock at an initial exercise price of $5.25 per share (the "Warrants")
and was paid a fee of $400,000.
The Company has also agreed to register for resale under the Securities
Act the Common Stock issuable upon conversion of the Preferred Stock or upon
exercise of the Warrants.
THE NEW CREDIT AGREEMENT
The Company entered into an amendment and restatement of the Prior
Credit Agreement (as amended and restated, the "New Credit Agreement"), with
Creditanstalt, providing for a revolving credit facility for the benefit of the
Company in the aggregate amount of $40.0 million. The New Credit Agreement has a
term of four years. Creditanstalt has informed the Company that it intends to
syndicate a portion of the loan. The following is a summary of the terms of the
New Credit Agreement.
BORROWING BASE. The Company may use borrowings under the New Credit
Agreement for internal growth and to fund future acquisitions, although
Creditanstalt has the right to approve any acquisition for consideration in
excess of $3.0 million. Borrowings under the New Credit Agreement may not exceed
the sum of (i) 75.0% of the Company's eligible accounts receivable plus (ii) an
amount equal to $1,200 multiplied by the number of eligible installed pay
telephones, in the aggregate up to the total limit of $40.0 million.
INTEREST. Interest on the principal balance outstanding under the New
Credit Agreement accrues at the option of the Company at the rate of (i) 1.5%
above the greater of (a) Creditanstalt's prime lending rate at its principal
office in New York, New York and (b) the federal funds rate plus 0.5% or (ii)
3.0% above the rate quoted by Creditanstalt as the average London interbank
offered rate for one, two, three and six-month Eurodollar deposits. In the event
of a default under the New Credit Agreement, at Creditanstalt's option, the
interest rate on the borrowings under the New Credit Agreement can increase to
2.0% per annum above the then applicable rate.
SECURITY. As security for the indebtedness under the New Credit
Agreement, the Company has granted to Creditanstalt a first priority security
interest in substantially all existing and future assets of the Company, whether
tangible or intangible, including, without limitation, accounts receivable,
inventory and equipment.
CERTAIN COVENANTS. In addition to customary covenants, the New Credit
Agreement contains various restrictive financial and other covenants including,
without limitation, (i) prohibitions on the incurrence of additional
indebtedness, (ii) restrictions on the creation of additional liens, (iii)
certain limitations on dividends and distributions
<PAGE>
by the Company, (iv) restrictions on mergers and sales of assets, investments
and transactions with affiliates and (v) certain financial maintenance tests.
Such financial maintenance tests, include, among others, (i) a minimum of
earnings before interest, taxes, depreciation and amortization ("EBITDA") test
of $5.0 million for the quarter ending June 30, 1995, $10.0 million for the two
quarter period ending September 30, 1995 and $15.0 million for the three quarter
period ending December 31, 1995, and, thereafter, a minimum annual EBITDA test
(tested quarterly for the prior four quarters) beginning at $19.0 million for
the quarter ended March 31, 1996 and increasing over time to $26.0 million after
December 31, 1997, (ii) a minimum ratio of annual EBITDA to interest expense
(tested quarterly) beginning at 1.5 to 1 and increasing over time to 2.5 to 1
after December 31, 1997, (iii) a minimum net worth test beginning at $47.0
million and increasing over time to $67.0 million after December 31, 1998, (iv)
a maximum ratio of debt to net worth of 3.25 to 1 for the first two years and
decreasing to 3.0 to 1 for the remaining two years, and (v) maximum ratio of
bank debt to EBITDA of 2.0 to 1 (tested quarterly using EBITDA from the prior
four quarters). For purposes of the foregoing covenants, EBITDA includes EBITDA
from the Company's inmate telephone and cellular telephone rental operations and
net worth includes the Preferred Stock.
EVENTS OF DEFAULT. The events of default under the New Credit Agreement
are customary for facilities of such nature and include payment and non-payment
defaults and certain events of bankruptcy or insolvency of the Company.
FEES. In connection with the execution of the Loan Agreement, the
Company agreed to pay a loan origination fee of up to $200,000. The New Credit
Agreement also provides for a monthly fee based on the unused portion of the New
Credit Agreement and an annual agency fee.
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<NAME> PEOPLES TELEPHONE COMPANY, INC.
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