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: SEPTEMBER 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
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(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 November 10, 1995: 15,883,000 shares.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1995 1994
------------- ------------
(UNAUDITED) (RESTATED)
<S> <C> <C>
Current assets
Cash and cash equivalents................................................................. $ 9,107 $ 7,663
Accounts receivable, net of allowance for doubtful accounts of
$4,912 and $6,035 ....................................................................... 10,649 17,682
Inventory ................................................................................ 3,209 2,994
Prepaid expenses and other current assets ............................................... 3,496 3,411
Net assets of prepaid calling card and international telephone
center business ....................................................................... -- 2,595
Net assets of discontinued operations .................................................... 2,300 6,809
--------- ---------
Total current assets .................................................................. 28,761 41,154
Property and equipment, net ................................................................ 82,183 87,757
Location contracts, net .................................................................... 32,324 35,040
Goodwill, net .............................................................................. 8,437 9,303
Intangible assets, net ..................................................................... 3,249 3,994
Other assets, net .......................................................................... 9,354 11,890
Deferred income taxes ...................................................................... 3,407 1,453
Investment in unconsolidated affiliate ..................................................... 3,940 --
--------- ---------
Total assets .......................................................................... $ 171,655 $ 190,591
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current maturities of long-term debt.................................... $ 455 $ 14,851
Current portion of obligations under capital leases ...................................... 1,142 2,173
Accounts payable and accrued expenses .................................................... 24,544 22,799
Accrued interest payable ................................................................. 2,645 1,061
Income and other taxes payable ........................................................... 2,277 2,691
--------- ---------
Total current liabilities ............................................................. 31,063 43,575
Notes payable and long-term debt ........................................................... 103,047 95,993
Obligations under capital leases ........................................................... 1,971 2,308
--------- ---------
Total liabilities ..................................................................... 136,081 141,876
--------- ---------
Commitments and contingencies .............................................................. -- --
Preferred Stock:
Mandatory redeemable preferred stock, $.01 par value,
5,000,000 shares ........................................................................ 14,546 --
Preferred stock dividends payable ........................................................ 210 --
--------- ---------
Total preferred stock ................................................................. 14,756 --
--------- ---------
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;
15,883 and 15,789 shares issued and outstanding ........................................ 159 158
Capital in excess of par value ........................................................... 57,598 58,143
Accumulated deficit ...................................................................... (36,939) (9,586)
--------- ---------
Total shareholders' equity ............................................................ 20,818 48,715
--------- ---------
Total liabilities and shareholders' equity ........................................... $ 171,655 $ 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
SEPTEMBER 30,
----------------------------
1995 1994
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<S> <C> <C>
Revenues
Coin calls ............................................................ $ 19,923 $ 21,419
Non-coin calls ........................................................ 13,560 19,988
Gain on sale of asset ................................................. -- 501
Service and other ..................................................... -- 489
-------- --------
Total revenues ..................................................... 33,483 42,397
Costs and expenses
Telephone charges ..................................................... 12,037 16,675
Commissions ........................................................... 9,066 8,751
Field service and collection .......................................... 6,530 5,552
Selling, general and administrative ................................... 3,066 3,526
Depreciation and amortization ......................................... 5,796 5,566
Interest .............................................................. 3,067 1,841
Provision for impairment of assets .................................... 4,350 --
Loss from operations of prepaid calling card and
international telephone centers ..................................... -- 816
Loss on disposal of prepaid calling card and
international telephone centers ..................................... 566 --
Litigation settlement expense ......................................... -- --
Other ................................................................. 101 --
-------- --------
Total costs and expenses ........................................... 44,579 42,727
Loss from continuing operations before income taxes ..................... (11,096) (330)
Benefit from income taxes ............................................... 1,500 117
-------- --------
Loss from continuing operations ......................................... (9,596) (213)
-------- --------
Discontinued operations
Loss from operations, net of tax benefit of $367 ...................... -- (668)
Loss on disposition ................................................... (12,100) --
-------- --------
Loss from discontinued operations ..................................... (12,100) (668)
Extraordinary loss from extinguishment of debt, net ................... (121) --
-------- --------
Net loss ............................................................ $(21,817) $ (881)
======== ========
Earnings (loss) per common share
Loss from continuing operations ........................................ $ (.60) $ (.02)
Loss from discontinued operations ...................................... (.76) (.04)
Extraordinary loss from extinguishment of debt, net .................... (.01) --
-------- --------
Net loss ............................................................ $ (1.37) $ (.06)
======== ========
Weighted average common and common equivalent shares
outstanding ............................................................ 15,883 15,798
======== ========
</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 NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenues
Coin calls ............................................................ $ 58,855 $ 58,417
Non-coin calls ........................................................ 46,897 56,192
Gain on sale of assets ................................................ -- 501
Service and other ...................................................... 122 1,200
--------- ---------
Total revenues ..................................................... 105,874 116,310
Costs and expenses
Telephone charges ..................................................... 37,554 47,207
Commissions ........................................................... 26,264 23,743
Field service and collection .......................................... 17,319 16,603
Selling, general and administrative ................................... 8,455 10,647
Depreciation and amortization ......................................... 16,888 15,623
Interest .............................................................. 7,119 4,791
Provision for impairment of inmate assets ............................. 4,350
Loss from operations of prepaid calling card and
international telephone centers ..................................... -- 884
Loss on disposal of prepaid calling card and
international telephone centers ..................................... 566 --
Litigation settlement expense ......................................... 925 --
Other ................................................................. 237 --
--------- ---------
Total costs and expenses ........................................... 119,677 119,498
Loss from continuing operations before income taxes ..................... (13,803) (3,188)
Benefit from income taxes ............................................... 1,737 1,128
--------- ---------
Loss from continuing operations ......................................... (12,066) (2,060)
--------- ---------
Discontinued operations
Loss from operations, net of tax benefit of $1,561 .................... -- (2,802)
Loss on disposition ................................................... (12,066) --
--------- ---------
Loss from discontinued operations ....................................... (12,066) (2,802)
Extraordinary loss from extinguishment of debt, net ..................... (3,015) --
--------- ---------
Net loss ........................................................... $ 27,147 $ (4,862)
========= =========
Earnings (loss) per common share
Loss from continuing operations ........................................ $ (.76) $ (.13)
Loss from discontinued operations ...................................... (.76) (.18)
Extraordinary loss from extinguishment of debt, net .................... (.19) --
--------- ---------
Net loss ........................................................... $ (1.71) $ (.31)
========= =========
Weighted average common and common equivalent shares
outstanding ............................................................ 15,861 15,733
========= =========
</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)
NINE MONTHS ENDED,
SEPTEMBER 30,
-------------------------------
1995 1994
-------- ----------
(RESTATED)
<S> <C> <C>
Cash flow from operating activities:
Net loss ............................................................................. $(27,147) $ (4,862)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................................... 16,888 15,623
Deferred income taxes ............................................................ (1,954) (2,774)
Extraordinary loss from extinguishment of debt ................................... 4,752 --
Loss (gain) on sale of assets .................................................... 15,516 (2,532)
Change in assets and liabilities:
Decrease (increase) in accounts receivable .................................. 5,967 (4,081)
Increase in inventory ....................................................... (215) (985)
(Increase) decrease in prepaid expenses and
other current assets ..................................................... (85) 1,279
Decrease (increase) in other assets ......................................... 2,158 (2,315)
Increase in investment in unconsolidated affiliate .......................... (3,940) --
Increase (decrease) in accounts payable and
accrued expenses ......................................................... (4,651) (4,696)
(Decrease) increase in accrued interest ..................................... 1,584 405
(Decrease) increase in taxes payable ........................................ (414) 1,003
Net effect of discontinued operations ....................................... -- 1,835
-------- --------
Net cash provided by (used in) operating activities .................................... 8,459 (2,100)
Cash flow from investing activities:
Payments for acquisitions and certain contracts .................................... (1,282) (16,320)
Property and equipment additions ................................................... (5,920) (13,112)
Proceeds from sale of assets ....................................................... 1,000 4,450
Investments in joint ventures ...................................................... -- (1,950)
-------- --------
Net cash used in investing activities .................................................. (6,202) (26,932)
Cash flow from financing activities:
Net borrowings under note payable to bank .......................................... (8,944) 31,441
Debt and preferred stock issuance costs ............................................ (5,527) (1,318)
Principal payments under capital lease obligations ................................. (1,366) (456)
Proceeds of preferred stock issuance ............................................... 15,100 --
Exercise of stock options and warrants ............................................. 201 1,221
Officer loans ...................................................................... (277) --
-------- --------
Net cash (used in) provided by financing activities .................................... (813) 30,888
Net (decrease) increase in cash and cash equivalents ................................... 1,444 1,856
Cash and cash equivalents at beginning of period ....................................... 7,663 4,529
-------- --------
Cash and cash equivalents at end of period ............................................. $ 9,107 $ 6,385
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND SEPTEMBER 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 nine months
ended September 30, 1994 included adjustments of $5.5 million, 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 nine months ended
September 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 ended December 31, 1994 as set forth in the Company's
Form 10-K/A No. 2 for such year.
NOTE 2 - CHANGES IN BUSINESS
On October 9, 1995, the Company sold a portion of its inmate telephone
operations for approximately $2.4 million subject to certain regulatory consents
and other conditions. The net loss on sale of approximately $350,000 has been
recorded at September 30, 1995 and is included in the provision for asset
impairment in the accompanying statement of operations.
During the third quarter of 1995, the Company decided to retain the remaining
portion of its inmate telephone operations. This decision is a result of the
Company's belief that the remaining operations can contribute to the cash flow
and operating results of the Company. The accompanying consolidated statements
of operations and of cash flows for the three months and nine months ended
September 30, 1995 have been reclassified to present the inmate telephone
operations as part of continuing operations.
The Company's 1994 results included approximately $4.0 million for the
anticipated loss on disposal and $0.1 million for the anticipated losses from
January 1, 1995 through disposition of the inmate telephone operations. The
inmate division's actual operating losses for the period it was accounted for,
as a discontinued operation, were $0.1 million. The $4.0 million accrual for the
loss on disposal has been reversed in discontinued operations and recorded as an
impairment of assets in continuing operations in the accompanying consolidated
statements of operations for the three months ended September 30, 1995.
For the three months and nine months ended September 30, 1995, the inmate
telephone operations had revenues of approximately $5.8 million and $21.3
million, respectively, and operating losses before income taxes (including the
$4.0 million asset impairment) of $4.8 million. At September 30, 1995, total
assets and liabilities of the inmate telephone operations were approximately
$38.7 million and $33.6 million, respectively.
NOTE 3 - PREPAID CALLING CARD AND INTERNATIONAL TELEPHONE CENTERS
On September 28, 1995, the Company sold its international telephone center
operations for $2 million. The Company received $0.5 million in cash and a $1.5
million promissory note. The note is payable in six installments of $250,000,
due every four months beginning in January 1996. The note bears interest at 8%
per annum. For financial accounting
6
<PAGE>
purposes, the gain of $2 million will be recognized as the cash is received.
Accordingly, $0.5 million has been included in Loss on disposal of prepaid
calling card and international telephone centers in the accompanying
consolidated statements of operations.
Under the terms of the Company's sale agreement with Global Link Teleco
Corporation ("Global Link"), Global Link, on behalf of the Company, was
responsible for the collection of receivables which arose prior to the sale of
the Company's prepaid calling card business. As a result of Global Link's
unsuccessful attempt to collect approximately $1.1 million of such receivables,
the Company has included the write off of these amounts in the Loss on disposal
of prepaid calling card and international telephone centers for the three months
ended September 30, 1995.
NOTE 4 - 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 5 - LONG-TERM DEBT:
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 of
approximately $105.1 million, in the aggregate.
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.
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 on 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.
At September 30, 1995, the Company was not in compliance with certain financial
covenants contained in the Loan Agreement. The Company's lender has agreed to
waive the covenant compliance for the three-months ended September 30, 1995 and
is presently negotiating with the Company to modify future covenant levels. The
lender is also amending the Loan Agreement to limit availability of borrowings
based upon achieved levels of cash flow. At September 30, 1995, the Company had
no amounts borrowed and $10 million available under this facility.
As a result of the March 1995 and July 1995 amendments to its revolving line of
credit, the Company recorded extraordinary losses of $4.7 million for the
writeoff of deferred financing costs, before the income tax benefit of
approximately $1.7 million.
7
<PAGE>
NOTE 6 - PREFERRED STOCK:
The Preferred Stock cumulates dividends at an annual rate of 7%, which are
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 (see Note 5).
NOTE 7 - 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.
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 reduced 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 September 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 receivables and $0.9 million of other receivables less the $3.4 million
deferred gain on the February 1995 transaction and $0.2 million representing the
Company's share of Global Link's 1995 year to date operating results (see Note
3).
NOTE 8 - INCOME TAXES:
At September 30, 1995, the Company recorded valuation allowances of
approximately $8.8 million and $9.6 million against deferred tax assets
generated during the three months and nine months ended September 30, 1995,
respectively. A valuation allowance was provided to reduce the deferred tax
assets to a level which, more likely than not, will be realized.
NOTE 9 - DISCONTINUED OPERATIONS:
In 1994, in connection with the planned divestiture of the cellular telephone
operations, the Company recorded a provision for the estimated impairment of
asset values and losses through the anticipated divestiture date of
approximately $4.8 million net of income taxes. The provision was net of an
estimated gain on disposition of approximately $1.1 million and included 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 $0.6 million and $2.6 million
for the estimated operating losses of the cellular telephone operations for the
three months and nine months ended September 30, 1995, respectively.
On November 13, 1995, the Company sold its cellular telephone operations to
Shared Technologies Cellular ("STC") for approximately $6.0 million. The Company
received $0.3 million in cash, a $2.0 million promissory note
8
<PAGE>
bearing interest at 8.0%, with principal and interest payable semiannually
through 2000, shares of STC common stock (subject to increase in lieu of the
issuance of shares of STC common stock), and a $2.5 million potential revenue
earn out and STC will pay approximately $1.2 million of the Company's
liabilities. For financial accounting purposes the $2.5 million potential earn
out will be recognized as received. This transaction has resulted in a loss of
approximately $14.6 million which has been recorded as a loss on disposal in the
accompanying statements of operations for the three months ended September 30,
1995. The loss on disposal includes a valuation allowance of approximately $ 5.5
million to reduce the deferred tax assets generated by this transaction to a
level which, more likely than not, will be realized. The change in estimated
loss on disposal resulted from, among other things, changes in market
conditions, disputes over liabilities for cellular cloning charges, decreased
revenue attributable to PIN numbers introduced by the cellular carriers to
prevent cloning and a delay in creating a new phone technology to deal with PIN
numbers and other matters.
For the three months and nine months ended September 30, 1995, the cellular
telephone operations had revenues of approximately $1.5 million and $6.2
million, respectively, and net operating losses of $1.0 million and $3.3
million, respectively.
NOTE 10 - 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 for the nine months
ended September 30, 1995. The Proposed Settlement is subject to approval by the
District Court.
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 in Note 5.
During April 1995, the Company settled a dispute with one of its vendors which
resulted in a reduction of the amounts owed. Accounts payable and telephone
charges were reduced during the first quarter of 1995 by approximately $1.3
million as a credit against amounts owed to reflect this settlement.
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
SEPTEMBER 30,
----------------------------------
1995 1994
------------ ----------
<S> <C> <C>
Loss from continuing operations ..................................................... $ (9,596) $ (213)
Loss from discontinued operations ................................................... 12,100 (668)
Extraordinary loss from extinguishment of debt, net ................................. (121) --
----------- ---------
Net loss .......................................................................... $ (21,817) $ (881)
=========== =========
Number of shares:
Weighted average shares used in the per share computation ........................... 15,883 15,798
=========== =========
Earnings (loss) per common and common equivalent share:
Loss from continuing operations ..................................................... $ (.60) $ (.02)
Loss from discontinued operations ................................................... (.76) (.04)
Extraordinary loss from extinguishment of debt, net ................................. (.01) --
----------- ---------
Net loss .......................................................................... $ (1.37) $ (.06)
=========== =========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1995 1994
--------- ---------
<S> <C> <C>
Loss from continuing operations ...................................................... $(12,066) $ (2,060)
Loss from discontinued operations .................................................... (12,066) (2,802)
Extraordinary loss from extinguishment of debt, net .................................. (3,015) --
-------- --------
Net loss ........................................................................... $(27,147) $ (4,862)
======== ========
Number of shares:
Weighted average shares used in the per share computation ............................ 15,861 15,733
======== ========
Earnings (loss) per common and common equivalent share:
Loss from continuing operations ...................................................... $ (.76) $ (.13)
Loss from discontinued operations .................................................... (.76) (.18)
Extraordinary loss from extinguishment of debt, net .................................. (.19) --
-------- --------
Net loss ........................................................................... $ (1.71) $ (.31)
======== ========
</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
September 30, 1995 to the quarter ended September 30, 1994 and the nine months
ended September 30, 1995 to the nine months ended September 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.
During the third quarter of 1995, the Company decided to retain the
remaining portion of its inmate telephone operations. This decision is a result
of the Company's belief that the remaining operations can contribute to the cash
flow and operating results of the Company. The accompanying consolidated
statements of operations and cash flows for the three months and nine months
ended September 30, 1995 have been reclassified to present the inmate telephone
operations as part of continuing operations.
The financial results discussed below relate to continuing operations
which primarily consist of the public pay telephone business and inmate
telephone operations.
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 59.5%
and 50.5% of total revenues from continuing operations for the quarters ended
September 30, 1995 and 1994 and 55.6% and 50.2% for the nine months ended
September 30, 1995 and 1994, respectively. Coin revenue decreased 7.0% to $19.9
million during the quarter ended September 30, 1995 and increased 0.7% to $58.9
million for the nine months ended September 30, 1995 compared to the same
periods in 1994. For the third quarters of 1995 and 1994, the Company operated
approximately the same average number of public pay telephones. For the nine
months ended September 30, 1995, the Company's average installed public pay
telephone base was approximately 39,000 as compared to an average of
approximately 37,000 for the same period in 1994. The Company believes that the
coin revenue on a per telephone basis has decreased during the nine months ended
September 30, 1995 primarily as a result of (i) the telephones added during 1995
having a lower average coin revenue per telephone than the Company's installed
base during 1994; and (ii) increased usage of alternative methods of calling
such as prepaid calling cards, wireless technologies and the operation of more
public pay telephones in closer proximity to the Company's telephones.
Non-coin revenue represented approximately 40.5% and 47.1% of total
revenues from continuing operations for the quarters ended September 30, 1995
and 1994 and 44.3% and 48.3% for the nine months ended September 30, 1995 and
1994, respectively. Non-coin revenue is derived from calling card calls, credit
card calls, collect calls and third party billed calls placed from the Company's
public pay telephones and inmate telephones. For the quarter ended September 30,
1995, revenues from non-coin calls decreased 32.2% to approximately $13.6
million, compared to the quarter ended September 30, 1994. Non-coin revenue
decreased 16.5% to approximately $46.9 million for the nine months ended
September 30, 1995 as compared to the same period in 1994. These decreases were
primarily attributable to the increase in the number of public pay telephones
calls placed through third party operator service providers as opposed to the
Company's private label operator service and the decrease in the number of
inmate telephone lines operated by the Company.
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
11
<PAGE>
private label operator service program. The Company records as revenue the total
amount the end user pays for the call (net of taxes) 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.
For the nine months ended September 30, 1995, the Company operated
approximately 3,000 inmate telephones as compared to approximately 4,000 for the
same period of 1994. In addition, included in non-coin revenue for the nine
months ended September 30, 1995 is approximately $0.5 million for the collection
of previous under payments of compensation.
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 and correctional facilities
for revenues generated by the Company's 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.
The switch by the Company to a third party operator service resulted in
a decreased revenue base due to the method of recording revenue for calls made
through that service compared to calls placed through the Company's private
label operator service program (see above). As a result, operating expenses as a
percentage of revenues for the three months and the nine months ended September
30, 1995, increased in 1995 compared to the same periods in 1994. Total
operating expenses were approximately 91.7% and 81.4% of total revenues from
continuing operations for the quarters ended September 30, 1995 and 1994,
respectively. For the nine months ended September 30, 1995, total operating
expenses were 84.6% of total revenues as compared to 84.4% for the same period
in 1994.
Telephone charges decreased as a percentage of total revenues from
continuing operations to 35.9% for the quarter ended September 30, 1995,
compared to 39.3% 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. The Company paid the costs incurred to transmit, bill,
collect and validate the call when the call was completed through its private
label operator services. In contrast, the Company incurred no such cost when a
third party operator service provider completed the call. In addition, the
Company experienced a decrease in line charges paid by the Company in the state
of Florida due to regulatory changes which began in the third quarter of
1995. Telephone charges for the three months ended September 30, 1995 includes
approximately $1.0 million of additional bad debt reserves related to both the
inmate and pay telephone operations. For the nine months ended September 30,
1995 and 1994, telephone charges were 35.5% and 40.6% of revenues, respectively.
Telephone charges for the nine months ended September 30, 1995 included 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 nine months
ended September 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 27.1% and 20.6% for the quarters ended September 30, 1995 and
1994, respectively. For year to date 1995, commissions were
12
<PAGE>
24.8% of revenues from continuing operations versus 20.4% for the same period in
1994. The increase in commissions as a percentage of revenues was primarily
attributable to (i) the change in the Company's method of recording revenue as a
result of the Company switch to a third party operator service provider; (ii)
higher commission rates paid in connection with the Atlanta Hartsfield
International Airport account; and (iii) the loss of certain low, fixed
commission inmate contracts. In addition, due to increasing competition in both
the public pay telephone and inmate telephone markets, the Company's commission
rates for new and renewal contracts have increased.
Field service and collection expenses as a percentage of total revenues
from continuing operations were 19.5% and 13.1% for the third quarter of 1995
and 1994, respectively. For the nine months ended September 30, 1995, field
service and collection expenses were 16.4% compared with 14.3% for the same
period in 1994. The increase in these expenses was primarily due to
approximately $0.7 million of inventory obsolescence reserves recorded in the
third quarter of 1995. The remaining increase is related to additional expenses
incurred by the Company for its equipment refurbishment program which began in
1995. Selling, general and administrative expenses decreased 13.0% to $3.1
million in the third quarter 1995 versus the third quarter 1994. The decrease in
selling, general and administrative expenses was primarily attributed to the
cost reduction plan and reengineering efforts commenced by the Company in 1994.
For the nine months ended September 30, 1995, selling, general and
administrative expenses decreased 20.6% to $8.5 million compared to the same
period in 1994. Included in the selling, general and administrative for the nine
months ended September 30, 1994 is approximately $1.5 million of non-recurring
adjustments for, among other things, amounts incurred for lease termination,
employee severance and various other costs associated with a failed merger
transaction.
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 $5.8 million for the quarter ended
September 30, 1995, compared to $5.6 million for the same period in 1994. For
the nine months ended September 30, 1995 and 1994, depreciation and amortization
were $16.9 million and $15.6 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 third quarter of 1995, interest expense increased 66.6% to $3.1
million as compared to the same quarter in 1994. This increase is primarily
attributable to (i) the higher interest rate on the Company's $100 million of
Senior Notes as compared to the rates in effect on the Company's revolving line
of credit in existence in the third quarter of 1994; and (ii) the inclusion of
interest expense in continuing operations which was previously allocated to the
Company's cellular operations which were included in discontinued operations.
PROVISION FOR IMPAIRMENT OF INMATE ASSETS
As discussed above, the Company has made a decision to retain the
remaining portion of its inmate telephone operations. The Company's 1994 results
included approximately $4.0 million for the anticipated loss on disposal and
$0.1 million for the anticipated losses from January 1, 1995 through
disposition. The inmate division actual operating losses for the period it was
accounted for as discontinued operations were $0.1 million. The $4.0 million
accrual for loss on disposal has been reversed in discontinued operations and
recorded as an impairment of assets during the three months ended September 30,
1995.
13
<PAGE>
LOSS ON DISPOSAL OF PREPAID CALLING CARD AND INTERNATIONAL TELEPHONE CENTERS
Loss on disposal of prepaid calling card and international telephone
centers includes the write off of approximately $1.1 million of accounts
receivable related to the Company's prepaid calling card business offset by
$0.5 million gain received in connection with the Company's sale of its
international telephone center operations. See Note 3 to the accompanying
consolidated financial statements.
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 10 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.
BENEFITS FROM INCOME TAXES
During the third quarter of 1995, the Company recorded a benefit from
income taxes of $1.5 million related to the $4.0 million provision for
impairment of assets. The Company recorded a valuation allowance of
approximately $2.7 million for tax assets generated from operating losses during
the third quarter of 1995. For the nine months ended September 30, 1995, the tax
benefit from continuing operations was approximately $1.7 million as compared to
$1.1 million for the same period in the prior year, as discussed above. This
increase is primarily attributable to the tax benefit related to the provision
for impairment of inmate assets recorded in the three months ended September 30,
1995. This benefit was previously reflected in discontinued operations which
were originally recorded in December 1994.
NET LOSS FROM CONTINUING OPERATIONS
The Company had net losses from continuing operations of approximately
$9.6 million and $12.1 million for the three months and nine months ended
September 30, 1995, respectively, compared to a net loss from continuing
operations of approximately $0.2 million and $2.1 million for the same periods
in 1994.
EXTRAORDINARY LOSS
As a result of the March and July 1995 amendments to the Company's
revolving line of credit agreement, the Company recorded extraordinary losses
from the write-off of deferred financing costs associated with the early
extinguishment of debt of approximately $4.7 million, before the related income
tax benefit of $1.7 million, which is included in the financial results of the
Company for the nine months ended September 30, 1995.
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 was approximately ($2.2) million for
the quarter ended September 30, 1995, compared to $7.1 million the same period
in 1994. EBITDA for the nine months ended September 30, 1995 and 1994 were
approximately $10.2 million and $17.2, respectively. This decrease is
14
<PAGE>
attributable to (i) a $4.4 million provision for the impairment of assets of the
inmate telephone business recorded in the third quarter of 1995; (ii) the write
off of approximately $1.1 million of accounts receivables related to the prepaid
calling card business; (iii) adjustments recorded for bad debt and inventory
obsolescence as discussed above; and (iv) the increase in commission expense
offset by decreases in telephone charges as noted above.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of 1995, the Company financed its operations
from operating cash flow and net proceeds received from the issuance of $100
million Senior Notes and $15 million of Preferred Stock. For the quarter ended
September 30, 1995, the Company's operating cash flow was $8.4 million
compared to $(2.1) million for the same period in 1994.
The Company's working capital deficit was approximately ($2.3)
million, with a current ratio of .93 to 1, at September 30, 1995. This is
compared to working capital deficit of ($2.4) million and a current ratio of .94
to 1 at December 31, 1994. The change in the Company's working capital is
primarily a result of the write down of the net assets of discontinued
operations which are included in current assets as of December 31, 1994 and
accrual for certain other liabilities related to the disposition of the cellular
telephone operations. This decrease is partially offset by approximately $12.2
million of debt repayments which were reclassified from current liabilities to
long term debt as a result of the July 1995 refinancing transaction.
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 (the "New 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 prior credit facility and various other obligations of
the Company.
At September 30, 1995, the Company was not in compliance with certain
financial covenants contained in the New Credit Facility. The Company's lender
has agreed to waive the Company's non-compliance for the three months ended
September 30, 1995 and is presently negotiating to modify future covenants
levels. The lender is also amending the New Credit Facility limiting borrowing
availability based upon achieved levels of cash flow. As of September 30, 1995,
the Company had no amounts borrowed and $10 million available for use under the
New Credit Facility.
DISCONTINUED OPERATIONS
During December 1994, the Company's Board of Directors approved the
divestiture of its cellular telephone rental operations. The Company recorded a
provision for the estimated losses of the cellular telephone business from
January 1, 1994 through the anticipated divestiture date in the December 31,
1994 financial statements.
On November 13, 1995, the Company sold its cellular telephone operations
to Shared Technologies Cellular, Inc. ("STC") for approximately $6.0 million.
The Company received $0.3 million in cash, a $2.0 million promissory note
bearing interest at 8.0%, with principal and interest payable semiannually
through 2000, shares of STC common stock, a $2.5 million potential revenue earn
out and STC will pay $1.2 million of the Company's liabilities. For financial
accounting purposes, the $2.5 million potential earn out will be recognized as
received. This transaction has resulted in a loss of approximately $14.6 million
which has been recorded as a loss on disposal in the accompanying statements of
operations for the three months ended September 30, 1995. The change in
estimated loss on disposal resulted from, among other things, changes in market
conditions, disputes over liabilities for cellular cloning charges, decreased
revenue attributable to PIN numbers introduced by the cellular carriers to
prevent cloning and a delay in creating a new phone technology to deal with PIN
numbers and other matters. See Note 9 to the accompanying consolidated financial
statements.
15
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Quickcall Corporation ("Quickcall") filed a lawsuit against the
Company on September 19, 1995 in the US District Court for the
Southern District of Texas. The complaint alleges patent
infringement through the manufacture, sale and/or use of cellular
telephone equipment and systems which allegedly infringe on the
plaintiff's patents. Quickcall has asked for unspecified damages
in the form of a royalty payment, the tripling of such damages
as it alleges this is an exceptional case, an injunction
preventing further infringement and attorneys' fees. An extension
of time to reply has been obtained by the Company, which believes
it is improperly named in this suit. Although the Company does not
believe it has any material exposure in this litigation, based on
the preliminary nature of the litigation, the Company is unable
to predict the outcome.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on August 25, 1995, the
shareholders of the Company voted to elect Jeffrey Hanft, Jody Frank, Robert
E. Lund and Robert D. Rubin as Directors of the Company.
The number of the votes cast for or withheld, and the number of broker
non-votes, with respect to each of the nominees were as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHOLD AUTHORITY BROKER NON-VOTES
- ------- --- ------------------ ----------------
<S> <C> <C> <C>
Jeffrey Hanft 14,111,427 2,719,026 --
Jody Frank 14,110,327 2,720,126 --
Robert E. Lund 14,116,377 2,714,076 --
Robert D. Rubin 14,114,827 2,715,626 --
</TABLE>
The holders of the Company's Series C Cumulative Convertible Preferred Stock
("Preferred Stock") are entitled to elect two members of the Company's six
member Board of Directors. Mr. Charles J. Delaney had been elected a director on
July 19, 1995 to fill a vacancy and Mr. Jeffrey Keenan was elected as of August
25, 1995 to fill a vacancy. Both men continue as directors. The Preferred Stock
is entitled to vote on all matters submitted to the shareholders for a vote
together with the holders of the Company's 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.
ITEM 5. OTHER INFORMATION
On November 13, 1995, the Company and its subsidiary, PTC Cellular, Inc.
("PTCC") entered into an Asset Purchase Agreement (the "Agreement") with Shared
Technologies Cellular, Inc. ("STC"), for the purchase of substantially all of
the assets of PTCC's cellular telephone rental business by STC. For a
description of the terms of the transaction see Management's Discussion and
Analysis which is incorporated herein by reference.
The board of directors has authorized commencement of a search by Russell
Reynolds Associates, Inc., an executive search firm, for a chief executive
officer to enhance the management team.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.1 First Amendment to Second Amended and Restated Warrant
Agreement dated October 30, 1995 between Peoples Telephone
Company, Inc. and Creditanstalt American Corporation.
</TABLE>
(B) REPORTS ON FORM 8-K:
(1) Form 8-K, dated July 10, 1995, relating to Item 5 - Other Events
and Item 7 - Exhibits.
(2) Form 8-K, dated July 19, 1995, relating to Item 5 - Other Events
and Item 7 - Exhibits.
(3) Form 8-K/A No. 2, dated July 26, 1995 relating to Item 7 - Financial
Statements and Exhibits filing unaudited financial statements of
Atlantic Telco Joint Venture("Atlantic Telco") for the three
months ended March 31, 1994 and 1993 and combined pro forma
financial statements of Atlantic Telco and the Company.
17
<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: November 14, 1995 /s/ BONNIE S. BIUMI
-----------------------------------
Bonnie S. Biumi
Chief Financial Officer
18
FIRST AMENDMENT TO SECOND AMENDED AND
RESTATED WARRANT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED WARRANT AGREEMENT (the
"Amendment") is made and entered into as of the 30th day of October, 1995
between PEOPLES TELEPHONE COMPANY, INC., a New York corporation (the "Issuer"),
and CREDITANSTALT AMERICAN CORPORATION, a Delaware corporation
("Creditanstalt").
W I T N E S S E T H :
WHEREAS, Creditanstalt and the Issuer made and entered into that certain
Second Amended and Restated Warrant Agreement dated as of February 17, 1994 (the
"Warrant Agreement") pursuant to which the Issuer has agreed to issue to
Creditanstalt or an "Affiliate" (as defined in the Warrant Agreement) certain
"Warrants" (as defined in the Warrant Agreement);
WHEREAS, the Warrant Agreement provides for Series D Warrants to
purchase an aggregate of 250,000 shares of Common Stock or Preferred Stock at an
exercise price of $9.00 per share; and
WHEREAS, the Warrant Agreement provides that the Issuer will bear the
expenses of registration for three demand registrations requested by Warrant
Holders; and
WHEREAS, the Issuer has requested that Creditanstalt agree to reduce
from three (3) to two (2) the number of demand registrations for which the
Issuer is obligated to bear all expenses (other than underwriting discounts and
commissions); and
WHEREAS, in exchange for such amendment, Creditanstalt has requested
that the exercise price of 200,000 Series D Warrants be reduced from $9.00 to
$5.25 per Warrant; and
NOW, THEREFORE, in consideration of the premises, the terms and
conditions contained herein, and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
i. DEFINITIONS. All capitalized terms used herein
and not expressly defined herein shall have the same
respective meanings given to such terms in the Warrant
Agreement.
ii. AMENDMENT OF DEFINITION OF "EXERCISE PRICE". The
term "Exercise Price", as set forth in Section 1 of the
Warrant Agreement, is hereby deleted in its entirety and
the following definition is substituted in lieu thereof:
"EXERCISE PRICE" shall mean the exercise price of the
Warrant which shall be: (a) $3.17 per warrant with respect to the
Series A Warrants; (b) $8.00 per Warrant with respect to the
Series B Warrants; (c) $9.33 per Warrant with respect to the
Series C Warrants; (d) $9.00 per Warrant with respect to the
Series D Warrants; and (e) $5.25 per Warrant with respect to the
Series E Warrants."
iii. AMENDMENT OF DEFINITION OF "SERIES D WARRANTS".
The term "Series D Warrants, as set forth in Section 1 of
the Warrant Agreement, is hereby deleted in its entirety
and the following definition is substituted in lieu
thereof:
<PAGE>
"SERIES D WARRANTS" shall mean the stock purchase warrants
issued pursuant to this Amended and Restated Warrant Agreement
entitling the record holders thereof to purchase from the Issuer
at the Warrant Office an aggregate of 50,000 shares of Common
Stock or Preferred Stock (in the percentages and to the extent
provided in Section 6(d) hereof and subject in each case to
adjustment as provided in Section 12) at the Exercise Price at any
time after the Closing Date and before 5:00 P.M., New York time,
on the Expiration Date; individually, a "Series D Warrant"."
iv. NEW DEFINITION OF "SERIES E WARRANTS". Section 1
of the Warrant Agreement is hereby amended by adding
following the definition of "Series D Warrants" a new
definition of "Series E Warrants" as follows:
"SERIES E WARRANTS" shall mean the stock purchase warrants
issued pursuant to this Amended and Restated Warrant Agreement
entitling the record holders thereof to purchase from the Issuer
at the Warrant Office an aggregate of 200,000 shares of Common
Stock or Preferred Stock (in the percentages and to the extent
provided in Section 6(d) hereof and subject in each case to
adjustment as provided in Section 12) at the Exercise Price at any
time after the Closing Date and before 5:00 P.M., New York time,
on the Expiration Date; individually, a "Series E Warrant"."
v. AMENDMENT OF DEFINITION OF "WARRANTS". The term
"Warrants", as set forth in Section 1 of the Warrant
Agreement, is hereby deleting in its entirety and the
following definition is substituted in lieu thereof:
"WARRANTS" shall mean the Series A Warrants, Series B
Warrants, Series C Warrants, Series D Warrants, and Series E
Warrants, collectively; individually, a "Warrant".
vi. AMENDMENT OF SECTION 15(b). Section 15(b) of the
Warrant Agreement is hereby amended by deleting the number
"three (3)" from the fourth line of Section 15(b) and
substituting in lieu thereof the number "two (2)".
vii. AMENDMENT OF SECTION 16. Section 16 of the
Warrant Agreement is hereby amended as follows: delete from
line seven of Section 16 the number "three (3)" and
substitute in lieu thereof the number "two (2)"; delete
from line ten of Section 16 the phrase "'three (3)'" and
substitute in lieu thereof the phrase "'two (2)'"; and
delete from line eleven of Section 16 the phrase "'four
(4)'" and substitute in lieu thereof the phrase "'three
(3)'".
viii. AMENDMENT OF EXHIBIT A. Exhibit A of the Warrant
Agreement is hereby amended by deleting in its entirety the
bracketed language in the first line of the legend on the
first page of the Warrant Certificate and substituting in
lieu thereof the following: "[Series A//Series B//Series
C//Series D//Series E]" and by deleting in its entirety the
bracketed language in line ten of the Warrant Certificate
and substituting in lieu thereof the following:
"[$3.17//$8.00//$9.33//$9.00//$5.25]".
ix. ISSUANCE AND REGISTRATION OF WARRANTS. The Issuer
hereby agrees to issue and deliver to Creditanstalt or, at
the option of Creditanstalt, an Affiliate thereof, new
Warrant Certificates evidencing the outstanding Series D
Warrants and Series E Warrants as hereby amended. Upon
receipt of such new Warrant Certificates, Creditanstalt
shall deliver to the Issuer for cancellation the old
Warrant Certificates for Series D Warrants. On the date
hereof, the Issuer shall register the new Warrant
Certificates in the Warrant Register in the name of
Creditanstalt or an Affiliate thereof as the case may be.
20
<PAGE>
x. RESTATEMENT OF REPRESENTATIONS AND WARRANTIES.
(i) Issuer hereby reaffirms
each and every representation and
warranty heretofore made under or
in connection with the execution
and delivery of the Warrant
Agreement (including, without
limitation, those representations
and warranties set forth in
Section 2 of the Warrant
Agreement), as such
representations and warranties are
amended in Section 10(b) and (c)
of this Amendment, as fully as
though such representations and
warranties have been made on the
date hereof and with specific
reference to this Amendment.
(ii) Solely with respect to Section
2(d) of the Warrant Agreement,
Issuer has authorized capital
stock consisting of 25,000,000
shares of Common Stock, par value
$.01 per share, of which as of
October 15, 1995, not less than
16,202,977 shares were issued and
outstanding, and 5,000,000 shares
of Preferred Stock, $.01 par
value, 100,000 shares of which are
designated as Series A Preferred
Stock, none of which are issued
and outstanding, 600,000 shares of
which are designated as Series B
Preferred Stock, none of which are
issued and outstanding, and
160,000 shares of Series C
Preferred Stock, $.01 par value,
of which as of the date hereof, at
least 150,000 shares of which were
issued and outstanding.
(iii) Solely with respect to
Section 2(e) of the Warrant
Agreement, no holder of securities
of the Issuer has any right to the
registration of such securities
under the Securities Act except
(i) as set forth on SCHEDULE J to
the Warrant Agreement and (ii) as
provided for in that certain
Registration Rights Agreement,
dated as of July 19, 1995 among
the Issuer, UBS Partners, Inc.,
and Appian Capital Partners,
L.L.C.
xi. EFFECT OF AMENDMENT. Except as expressly set
forth hereinabove, the Warrant Agreement shall remain in
full force and effect as originally written, and shall
constitute the legal, valid, binding and enforceable
obligation of Issuer to Creditanstalt, and Issuer hereby
restates, ratifies and reaffirms each and every term and
condition set forth in the Warrant Agreement, as amended
hereby, effective as of the date hereof.
xii. COUNTERPARTS. This Amendment may be executed in
any number of counterparts, each of which, when so executed
and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute one
and the same instrument.
xiii. SUCCESSORS AND ASSIGNS. This Amendment shall be
binding upon and inure to the benefit of the successors and
permitted assigns of the parties hereto.
xiv. SECTION REFERENCES. Section titles and references
used in this Amendment shall be without substance and
meaning or content of any kind whatsoever and are not a
part of the agreement among the parties hereto evidenced
hereby.
xv. FURTHER ASSURANCES. Issuer agrees to take such
further action as Creditanstalt shall reasonably request in
connection herewith evidencing the Amendment herein
contained to the Warrant Agreement.
21
<PAGE>
xvi. GOVERNING LAW. This Amendment shall be governed
by, and construed in accordance with, the laws of the State
of New York, without regard to principles of conflicts of
laws.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers,
effective as of the date and year first above written.
"Issuer"
PEOPLES TELEPHONE COMPANY, INC.
By:_______________________________________________
Robert D. Rubin
President
Attest:___________________________________________
Francis J. Harkins
Secretary
[CORPORATE SEAL]
"Creditanstalt"
CREDITANSTALT AMERICAN CORPORATION
By:_______________________________________________
Robert M. Biringer
Senior Vice President
By:_______________________________________________
Joseph P. Longosz
Vice President
22
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000819694
<NAME> PEOPLES TELEPHONE COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 9,107,000
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<COMMON> 159,000
14,756,000
0
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<DISCONTINUED> (12,100,000)
<EXTRAORDINARY> (121,000)
<CHANGES> 0
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<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
