UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 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)
Registrant's telephone number: (305) 593-9667
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. |X|
As of March 22, 1996, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $34,899,855. As of
March 22, 1996, there were 16,172,684 shares of the registrant's Common Stock
outstanding.
Documents incorporated by reference:
Information contained in the registrant's 1996 definitive proxy
material to be filed with the Securities and Exchange Commission has been
incorporated by reference in Part III of this Annual Report on Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GLOSSARY
Billed Party Preference is a plan that would automatically route "0+"
dialed non-coin calls from pay telephones to the "billed party's" preferred
carrier, thereby bypassing the opportunity for the pre-subscribed carrier of the
public pay telephone provider to handle and receive revenues from the call.
Dial-Around Compensation is compensation paid to competitive public pay
telephone providers for the use of their public pay telephones to access
operator service providers or interexchange carriers other than the primary
operator service providers selected by the owner of the public pay telephone.
The FCC ruled on May 8, 1992 that competitive public pay telephone providers
would receive $6.00 per telephone per month as compensation for interstate
"dial-around" calls. This flat rate system was made effective in June 1992. The
per telephone/per month system has been replaced by a flat rate per call payment
system of $0.25 a call for calls delivered to AT&T Corp. ("AT&T") and Sprint
Corporation ("Sprint"), pursuant to the FCC's grant of waivers for these two
companies during 1995. The remaining interexchange carriers continue to pay
their respective pro-rata shares of the flat $6.00 per telephone per month
payment. These industry-wide dial-around payment mechanisms are subject to
modification on a company specific basis under individual contractual
arrangements with the carrier(s), such as the Company's current operator service
agreement with AT&T, as well as under prospective FCC rulings and the Telecom
Act (as defined hereafter).
FCC is the Federal Communications Commission, which regulates the
interstate common carriage of telecommunications.
Interexchange carrier or "IXC" is a telecommunications provider of
transmission services between exchanges, typically referred to as long-distance
or toll telephone service.
InterLATA calls are calls between local access and transport areas
("LATAs").
IntraLATA calls are calls originated and terminated in the same LATA.
LEC is a local exchange carrier, which is a company providing local
telephone services.
Non-coin calls are calling card, credit card, collect and third-party
billed calls.
Operator service provider is a company providing automated and/or live
operator service related to long distance calls.
Property Owners or location owners are the owners of: (i) the
locations, such as convenience stores, service stations, grocery stores,
hospitals, hotels, shopping centers, truck stops and airports, at which public
pay telephones are installed; and (ii) correctional facilities at which
telephones are located.
Public Switched Network is the traditional domestic telephone network,
including local, intraLATA and interLATA facilities used to carry, switch and
connect telephone calls between the calling and called parties.
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RBOCs are the seven (7) Regional Bell Operating Companies, which were
formed as a result of the AT&T divestiture.
Telecommunications Act of 1996 (the "Telecom Act") means the
comprehensive legislative amendments to the Communications Act of 1934, adopted
by Congress and signed into law by President Clinton on February 8, 1996.
GENERAL
Peoples Telephone Company, Inc. (the "Company" or "Peoples") believes
that it is the largest independent operator of public pay telephones in the
United States on the basis of number of public pay telephones in service. Since
installing its first public pay telephone in 1985, the Company's core public pay
telephone business has grown rapidly to an installed base, as of December 31,
1995, of approximately 38,200 public pay telephones in 41 states and the
District of Columbia.
The Company owns, operates, services and maintains a system of
independent public pay telephones and inmate telephones. Its public pay
telephone business generates revenues from coin calls and non-coin calls such as
calling card, credit card, collect and third-party billed calls made from its
telephones. The Company has historically grown through acquisitions of public
pay telephones from independent operators. Since 1990, the Company has acquired
over 33,000 public pay telephones from 27 independent public pay telephone
operators. The Company, in the past, has utilized its size and experience in
integrating acquisitions to continue expanding its public pay telephone business
and it may do so again. However, during 1995, the Company did not acquire
additional public pay telephones from external sources and has no current plans
to make such acquisitions during 1996, although it may consider attractive
opportunities as they arise. Currently, the Company is focusing on its existing
pay telephone operation with the intention of increasing its cash flow,
improving operating efficiency, increasing internal growth and returning to
profitability. The Company grows internally by entering into contracts for the
installation of public pay telephones in locations where the Company believes
there will be significant demand for public pay telephone service, such as
convenience stores, grocery stores, service stations, shopping centers, hotels,
restaurants, airports and truck stops. The Company's nationwide presence in the
public pay telephone market makes it an attractive supplier of public pay
telephone services for companies whose operations are regional or national. The
Company is seeking to achieve balanced internal growth by increasing the number
of public pay telephones with both large, national, corporate accounts and
smaller, quality, regional and local accounts. The Company believes that
substantially all of its public pay telephones, including its acquired public
pay telephones, are in high traffic locations.
Management believes that the Company's leading market share among
independents, nationwide presence and superior level of customer service are
primary competitive strengths of the Company. As a high volume consumer of
long-distance telephone service, the Company has been able to negotiate
favorable terms and conditions from operator and long-distance telephone service
providers such as AT&T and MCI Communications, Inc. ("MCI"). In addition, due to
its large size, the Company realizes economies of scale from its field service,
collection and other selling and administrative expenses compared to smaller
companies in the industry.
In late 1994, the Company adopted a new strategic plan to focus on its
core public pay telephone business and to sell certain non-strategic businesses.
The sale of these non-strategic businesses took place in 1995. See
"Business-Prepaid Calling Cards/International Telephone Centers" and
"Business-Discontinued Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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In July 1995, 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 refinanced its existing debt through
the sale of $100.0 million of 12 1/4% Senior Notes Due 2002. Further, the
Company sold $15.0 million of Series C Cumulative Convertible Preferred Stock to
UBS Partners, Inc. ("UBS"), an affiliate of Union Bank of Switzerland. Pursuant
to the terms of the preferred stock, two representatives of UBS joined the
Company's Board of Directors replacing two former directors. Further, the
Company simultaneously entered into a new revolving credit facility with
Creditanstalt-Bankverein, its senior lender. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources".
In November 1995, the Company's Board of Directors elected a new chief
executive officer. In December 1995, the Company's president, who was also a
director, resigned from both of those positions and was subsequently replaced as
president by the Company's new chief executive officer, who is also a director.
See Note 19 of "Notes to Consolidated Financial Statements" for
business segment information.
PUBLIC PAY TELEPHONE INDUSTRY OVERVIEW
According to a report by the North American Telecommunications
Association entitled 1993/1994 Telecommunications Market Review & Forecast (the
"NATA Report"), calls made from public pay telephones are estimated to represent
approximately seven billion dollars in annual revenues to the United States
telecommunications industry. Public pay telephones may be owned or operated by
LECs or by independent public pay telephone operators. The NATA Report estimates
that of the approximately 2.3 million public pay telephones operated in the
United States in 1992, approximately 2 million were owned by LECs and
approximately 300,000 by independent public pay telephone companies. The NATA
Report forecasts projected compounded annual growth of approximately 10% in the
domestic installed base of independent public pay telephones through 1997.
The telecommunications marketplace through 1995 has been principally
shaped by the 1984 ruling of the United States District Court for the District
of Columbia in the well-documented Bell System antitrust divestiture case,
United States v. American Telephone & Telegraph Company ( the "AT&T
Divestiture"). The AT&T Divestiture created various business opportunities in
the telecommunications industry. In 1985, the FCC and, thereafter, 45 state
public service commissions followed this initiative by authorizing the
connection of competitive or independently-owned public pay telephones to the
public switched network. Prior to that time, the Bell System and other monopoly
LECs owned all public pay telephones in the United States.
As part of the AT&T Divestiture, the United States was divided into
geographic areas known as Local Access Transport Areas or "LATAs." The larger
LECs (for example, the ones owned by the Regional Bell Operating Companies) and
GTE Corporation ("GTE") provide telephone service that both originates and
terminates within the same LATA ("intraLATA traffic") pursuant to tariffs filed
with and approved by state regulatory authorities. These LECs have generally
been prohibited from offering or deriving revenues or income from interexchange
services between LATAs. In addition, most state regulatory authorities require
LECs to provide local access line service to independent public pay telephone
companies. See "Business--Regulation." Until recently, the Company could only
obtain local exchange services from the LECs, but this has begun to
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change, with various local and intraLATA competitors now being authorized to
provide local exchange service. The Company is beginning to test such local
service options. These options could result in lower costs and improved service
from a variety of future local network providers.
Long-distance companies such as AT&T and MCI have provided service
between LATAs ("interLATA traffic") and, in some circumstances, may also provide
long-distance service within LATAs. An interLATA long-distance telephone call
generally begins with an originating LEC transmitting the call from the
originating public pay telephone to a point of connection with a long-distance
carrier. The long-distance carrier, through its owned or leased switching and
transmission facilities, transmits the call across its long-distance network to
the LEC serving the local area in which the recipient of the call is located.
This terminating LEC then delivers the call to the recipient.
Prior to 1987, coin calls were the sole source of revenue for
independent public pay telephone operators. Long-distance calling card and
collect calls from these public pay telephones were handled exclusively by AT&T.
All revenue, except the coins deposited in public pay telephones, went to AT&T
rather than the owner of the public pay telephone. Beginning in 1987, a
competitive operator service system developed which allowed operator service
providers, including other long distance companies, to handle this traffic and
to offer independent public pay telephone companies commissions for directing
operator assisted or calling card calls to them.
On February 8, 1996, President Clinton signed into law the Telecom Act.
Representing the first major revision of the national communications laws in
over 60 years, the new law gives the FCC broad powers to preside over the
development of competitive telecommunication markets, including both local
exchange and public pay telephone services. The significant public pay telephone
provisions of the new law are designed to "level the playing field" for public
pay telephone service and to address fundamental regulatory and financial
inequities that have long plagued the public communications industry. Specific
public pay telephone provisions of the Telecom Act require the FCC to adopt
rules within nine months of enactment that will: (i) create a standard
regulatory scheme for all public pay telephone providers, including the RBOC
public pay telephone operations; (ii) require removal by the RBOCs of their
public pay telephone operations from their regulated books of account; (iii)
prescribe certain safeguards to eliminate future discrimination or subsidization
of RBOC public pay telephones; (iv) require "universal compensation" to all
public pay telephone providers at a fair level for all calls using public pay
telephones (except for 911 emergency and deaf relay (TRS/TDD calls)); (v)
provide the right for all pay telephone service providers, subject to existing
and future contractual rights with the Location Owner, to select the provider
for both intraLata and interLata network services; (vi) evaluate whether and how
"public interest" public pay telephones (which are public pay telephones that
would not normally be placed in a location under purely competitive conditions
but may be required for public policy reasons) should be maintained; and (vii)
preempt state requirements that are inconsistent with these provisions. The
implementation of this new law by the FCC will have far-reaching implications
for the regulatory, operational and economic terms and conditions under which
the Company may operate in the future, the effects of which are not determinable
with any certainty at this time. See "Business-Competition" and
"Business-Regulation."
BUSINESS STRATEGY
The Company's ongoing business objective is to focus on its core public
pay telephone business and grow operating cash flow by continuing to expand its
base of public pay telephones and lower operational expenses. The Company
attempts to implement this objective by focusing on the following strategies:
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Internal Growth. The Company is seeking to achieve balanced internal
growth by increasing the number of public pay telephones that the Company owns,
operates or services at both large, national, corporate accounts and smaller,
quality, regional and local accounts. The Company believes that its nationwide
presence makes it an especially attractive supplier of public pay telephone
services for national and regional corporate accounts, where the Company serves
as a single provider, offering these accounts a consistent service level and
reducing the time and paperwork involved when dealing with multiple providers.
The primary focus of the Company's marketing efforts has been, and continues to
be, national and regional corporate accounts, which currently include 7-Eleven
(2,742 telephones), Emro Marketing Company, a subsidiary of Marathon Oil (2,408
telephones), McDonald's (1,200 telephones), The Vons Companies (773 telephones),
Albertsons (617 telephones), Safeway Stores (400 telephones) and Dominick's
Finer Foods (355 telephones).
Superior Level of Customer Service. The Company attempts to provide the
highest quality service in the industry and establish strong relationships with
its customers. To provide a superior level of customer service, the Company uses
"smart" microprocessor-equipped telephones, a sophisticated management
information system and a highly trained service and support staff. The Company's
advanced telephone technology allows for exact records of telephone activity,
revenues which can be easily verified by its customers and rapid response
(typically within 48 hours) to equipment malfunctions. As the country's largest
independent public pay telephone provider, the Company is in a competitive
position to service national and regional corporate accounts, in contrast to
smaller competitors or LECs which currently operate only in their specific
geographic regions.
Fair Pricing Strategy. The Company pursues a pricing strategy of fair
and reasonable pricing for all calls made from its public pay telephones. In
connection with this strategy, in 1995 the Company contracted with AT&T to
utilize AT&T as a key national carrier from the Company's public pay telephones.
The Company believes that the imposition of industry-wide standards, including
rate ceilings, will not only provide for a more favorable perception of the
industry by consumers, but will also lead to favorable changes in the regulatory
environment which will likely enable the Company to better compete with the LECs
although there can be no assurances. The Company supports the imposition of
industry-wide standards both directly and through industry associations in which
the Company's officers are involved.
Increase Economies of Scale and Maximize Operating Efficiency. The
Company's size generates economies of scale which provide the Company with
operating efficiencies. As a high volume consumer of long-distance service
(approximately 12 million minutes per month), the Company has been able to
negotiate favorable terms from operator and long-distance service providers such
as AT&T and MCI. The Company's "smart" pay telephones, management information
systems and highly trained service and support staff have permitted the
achievement of savings in the cost of telephone repair and maintenance. In
addition, because of its size, the Company has been able to realize economies of
scale in field service, collection and other selling and administrative
functions. Through the implementation of the strategy of continuing to grow its
public pay telephone business by focusing on internal growth, the Company
intends to further increase its economies of scale and maximize operating
efficiencies.
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PUBLIC PAY TELEPHONES
As of December 31, 1995, the Company's public pay telephone system
consisted of approximately 38,200 public pay telephones located in 41 states and
the District of Columbia. In 1993, 1994 and 1995, public pay telephones
represented approximately $81.3 million, $115.0 million and $112.2 million of
the Company's revenues, respectively. The following chart sets forth the
locations of the Company's public pay telephones by state as of December 31,
1995:
PUBLIC
PAY
STATE TELEPHONES
Florida 8,213
New York 6,019
California 4,213
Texas 2,107
Maryland 1,990
Virginia 1,820
Pennsylvania 1,486
Tennessee 1,470
Georgia 1,441
Louisiana 1,325
Ohio 1,139
North Carolina 1,135
South Carolina 847
Other States 5,010
------
Total 38,215
======
Coin calls are made by depositing coinage into the pay telephone and
placing the call. The Company's core public pay telephone business primarily
generates revenues from coin and non-coin calls. Non-coin calls include calling
card, credit card, collect and third-party billed calls made from its
telephones.
Coin Calls
Substantially all of the Company's public pay telephones accept coins
as payment for local or long-distance calls and can also be used to place local
or long-distance non-coin calls. The Company's public pay telephones generate
coin revenues primarily from local calls. In all of the territories in which the
Company's public pay telephones are located, the Company charges the same rates
for local coin calls as the LEC. In most territories that charge is $.25,
although a growing number of jurisdictions have increased or are considering an
increase in that charge to $.35. Whereas local coin calls have traditionally
been provided for an unlimited call duration, a number of jurisdictions have
also begun to allow call timing (i.e. deposit of an additional $.25 after three
minutes). The Company pays local line and usage charges to the LECs for each of
the Company's installed public pay telephones. These line and usage charges
cover basic service to the telephone as well as the transport and completion of
local coin calls.
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Non-coin Calls
The Company receives revenues from non-coin calls made from its public
pay telephones. Non-coin calls include credit card calls, calling card calls,
collect calls and third-party billed calls. The services needed to complete a
non-coin call include providing an automated or live operator to answer the
call, verifying billing information, validating calling cards and credit cards,
routing and transmitting the call to its destination, monitoring the call's
duration, determining the charge for the call and billing and collecting the
applicable charge. In all jurisdictions permitting public pay telephone
services, the Company has the right to select the operator service provider of
interLATA and interstate traffic for its public pay telephones. In a number of
jurisdictions, the Company has been required to use the LEC for local and
intraLATA services. However, the Telecom Act appears to eliminate these
requirements prospectively and the Company may be allowed to choose its provider
for all calls. The Company also sub-contracts operator service from other
companies on a "private-label" basis: customers are connected to the
sub-contractors' operators, who identify themselves as "PTC Services." In the
alternative, the Company may select a third-party operator service provider.
Currently, the Company primarily uses the operator services of AT&T, and several
smaller operator service providers. The Company considers a variety of factors
prior to deciding which operator service company to select. These factors
include financial and other contractual arrangements between the Company and the
operator service providers, the location of the telephones, the types of calls
made from the location, the profitability of each type of call under each
calling alternative, the requirements of the Property Owners and applicable
regulatory restrictions.
Except in jurisdictions where the Company is prohibited contractually
or otherwise from selecting the operator service provider, or where the Company
acts as its own operator service provider, AT&T and other operator service
providers handle 0+/0- calls and pay the Company a commission for each call
completed by the selected operator service provider. The Company may also
install an automated operator system that allows the telephones to collect and
store billing information and forward calls to the called party. At locations
where the automated operator system is installed, the caller has the option to
complete the call through the automated system, the Company's selected operator
service provider or an operator service provider accessed by the caller. The FCC
has the authority to regulate the amount public pay telephone operators may
charge for interstate calls. However, currently no formal rate regulations
exist. The FCC is currently considering adoption of a rate ceiling, which may be
implemented in 1996, although there can be no assurance as to the timing or
substance of any FCC ruling in this regard. See "Business--Regulation."
The Company also receives additional interstate revenue from long
distance carriers pursuant to FCC regulations as "dial-around compensation" for
non-coin calls made from its public pay telephones. A "dialaround" call is made
by using an access code to reach an interexchange carrier other than the one
designated by the public pay telephone owner. Dial-around compensation to
independent public pay telephone operators for interstate calls was originally
fixed by the FCC at $6.00 per telephone interstate, per month. Similarly, state
regulatory authorities in Florida, Georgia and South Carolina have implemented
intrastate dial-around compensation programs for independent public pay
telephones in those states. Other states are also currently considering
intrastate dialaround compensation programs for independent public pay
telephones. AT&T and Sprint were authorized in 1995 to pay their federal
portions of dial-around compensation through a $.25 per call flat rate payment
in lieu of the flat monthly rate payment amounts assigned by the FCC. See
"Business- Regulation". The FCC also has proceedings underway, or to be
initiated, addressing per call compensation for all carriers and inclusion of
1-800 subscriber calls (ie: 1-800 FLOWERS/1-800 LLBEAN) in the compensation
system. It is anticipated that these later issues will be finally resolved
within the context of the FCC's proceedings to implement the Telecom Act
although the Company cannot determine with any certainty what such resolution
may entail.
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Operating Expenses
The Company pays monthly access charges to the LECs for interconnection
to the Public Switched Network for local calls. These charges are computed,
depending on the LEC, on either a flat monthly rate or a fixed monthly charge
plus a per message or usage rate based on the time of the call. Additionally,
the Company pays the LECs a fee, based on usage, for intraLATA non-coin paid
long-distance calls. The Company also typically shares commissions paid by the
long-distance carriers with the Property Owners. Once accessed to the Public
Switched Network, the Company is also responsible for the associated billing,
collection, bad-debt and validation costs when it is acting as the operator
service provider. As previously noted, the Company currently is using AT&T as
its primary national provider of operator services, where none of these costs
applies directly to the Company.
Internal Growth
Placement of Public Pay Telephones. The Company seeks to install its
public pay telephones in locations where it believes there will be significant
demand for public telephone service, such as convenience stores, grocery stores,
service stations, shopping centers, hotels, restaurants, airports and truck
stops. In evaluating locations, the Company generally conducts a site survey to
examine geographical factors, population density, traffic patterns, historical
information (to the extent available) and other factors in determining whether
to install a public pay telephone. The Company has focused its efforts to date
on securing telephone locations from large, national, corporate accounts which
can provide a large number of quality locations and smaller, quality, regional
and local accounts.
The Company installs its public pay telephone equipment pursuant to
agreements ("Property Agreements") with the Property Owners. The Company's
typical Property Agreement has a five-year term and provides the Company with
the option to renew for an additional five years. Each agreement provides for a
revenue sharing arrangement between the Company and the Property Owner based on
the revenue generated from the public pay telephone. The percentage of revenue
paid to a Property Owner is generally fixed for the period of the contract. The
Company estimates that the average cost of installing a new public pay
telephone, including site selection, hardware and labor, is approximately
$1,650.
The Company is obligated to repair, maintain and service the public pay
telephone equipment installed pursuant to the Property Agreements. Through its
computer system, the Company generally is able to determine possible
malfunctions before they are reported and usually repairs such malfunctions
within 48 hours. Generally, the failure of the Company to remedy a default
within 30 days after notice gives the Property Owner the right to terminate the
Property Agreement. The Company can generally terminate a Property Agreement on
30 days' prior notice to the Property Owner if the public pay telephone does not
generate sufficient total revenue for two consecutive months.
Marketing. Although the Company's past growth in its core public pay
telephone business has been primarily driven by acquisitions, the Company is
currently focusing on internal growth by increasing the number of public pay
telephones that the Company owns, operates or services at both large, national,
corporate accounts and smaller, quality, regional and local accounts. The
Company believes that its nationwide presence makes it an especially attractive
supplier of public pay telephone services for national and regional corporate
accounts where the Company serves as a single provider, offering these accounts
a consistent level of service and reducing the time and paperwork of dealing
with multiple providers. The primary focus of the Company's marketing efforts
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has been, and continues to be, national and regional corporate accounts, which
currently include 7-Eleven (2,742 telephones), Emro Marketing Company, a
subsidiary of Marathon Oil (2,408 telephones), McDonald's (1,200 telephones),
The Vons Companies (773 telephones), Albertsons (617 telephones), Safeway Stores
(400 telephones) and Dominick's Finer Foods (355 telephones). As one of the
country's largest independent public pay telephone providers, the Company
believes it is in a strong position to service national and regional accounts,
in contrast to smaller competitors or LECs, which currently operate only in
their specific geographic regions. In contrast to the limited resources of the
smaller independent public pay telephone operators, the Company's "smart" pay
telephones, sophisticated management information systems, and highly trained
national service and support staff allow the Company to maintain a high level of
service and react quickly to repair damaged equipment. The Company's size and
cost structure allow it to offer attractive commissions to Property Owners that
are competitive with other independent operators or the LECs although the
industry has become substantially more competitive with regard to commissions.
Based upon the new Telecom Act, the Company believes that there will be
additional changes in this competitive public payphone environment, which may
create both opportunities and risks for the Company, the ultimate outcome of
which cannot be predicted with any assurance.
Acquisitions
Until 1995, the Company's core public pay telephone business grew
primarily through acquisitions of other public pay telephone companies. The
following chart illustrates the growth of the Company's installed public pay
telephones:
[GRAPHIC OMITTED]
Total Number of Phones at Year End
1991 16,680
1992 21,652
1993 35,687
1994 40,017
1995 38,215
In the past, the Company has generally been able to acquire public pay
telephones at attractive prices because smaller operators frequently lack the
economies of scale that the Company enjoys. When such telephones historically
have been operated at a loss, the Company has been able to buy them relatively
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inexpensively. Recently, however, the rising cost of acquisitions has made them
less economical. The Company's current strategy is to grow its core business
internally through increased sales efforts designed to both re-sign current
quality accounts and add substantial new ones. Although the Company is not
focused at this time on acquisitions, the Company may from time to time pursue
an acquisition under circumstances considered beneficial to the Company.
The following table lists the Company's acquisitions of public pay
telephones in excess of $500,000 since January 1, 1990.
<TABLE>
<CAPTION>
DATE COMPANY NO. OF TELEPHONES
- ---- ------- -----------------
<S> <C> <C>
February 1990 First Continental Communications, Inc. 725
June 1990 Advanced Telecom Systems, Inc. 396
August 1990 U.S. Commercial Telephone Corp. 1,808
August 1990 Emro Marketing Company 403
May 1991 Tele-America Communications Corporation 2,525
December 1991 RAM Telephone and Communications, Inc. 1,640
February 1992 Coin-Call Corporation 1,312
February 1992 Emro Marketing Company 449
June 1992 American Payphones, Inc. 1,489
September 1992 Millicom Services Company 238
October 1992 Alpha Pay Phones, Ltd. III 655
March 1993 U.S. Tele-Com, Inc. 2,015
November 1993 Ascom Communications, Inc. 11,600
March 1994 Emro Marketing Company 1,045
June 1994 Atlantic Telco Joint Venture 3,300
July 1994 Telecorp Funding, Inc. 600
October 1994 Telecoin Communications, Ltd. 2,155
</TABLE>
Competition
The Company believes the principal competitive factors in the public
pay telephone business are: (i) commission payments to the Property Owners; (ii)
the ability to serve accounts with locations in several LATAs or states; (iii)
the quality of service provided to the Property Owners and the users of the
telephones; and (iv) responsiveness to customer service needs.
In the public pay telephone business, the Company principally competes
with the LECs, and a number of independent providers of public pay telephone
services, major operator service providers and interexchange carriers. Some of
these independent companies have increased in size by following an acquisition
strategy and many of these companies compete for the most favorable public pay
telephone contracts and sites. Most LECs and interexchange carriers with which
the Company competes have substantially greater financial, marketing and other
resources than the Company. In addition, many LECs, faced with competition from
independent public pay telephone companies, have increased their compensation
arrangements with Property Owners by offering more favorable commission
schedules. As a result of the passage of the Telecom Act, under certain
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circumstances, the LECs will be allowed to begin providing services outside of
their monopoly franchise territories in a more deregulated mode and other
companies may also compete against the LECs for this local business. The
potential for competition from other new entrants in the payphone industry
exists as well. These possibilities present both business opportunities and
risks for the Company including, but not necessarily limited to, potential lower
interconnection costs due to the advent of competition in the local service
business and/or improved revenues as a result of the adoption of compensation
for all calls. The risks include increased competition from the LECs and any new
entrants and the chance that the FCC-established compensation system will not be
adequate.
Telephone Systems Management and Service
The Company has internally developed a computer software system which
interfaces with microprocessors in the Company's public pay telephones. The
Company's computer system polls the public pay telephones each night to
determine the amount of coin revenue in each telephone and to diagnose possible
operational problems at the telephones. Polling enables the Company to reduce
the number of visits required to each public pay telephone in order to maintain
its operation and to collect coins.
Based on the results of each night's polling, the Company determines
which telephones require collection or service. Each of the Company's collectors
generally remove from 20 to 25 sealed coin boxes each day, depending upon the
number of public pay telephones within the collector's specified collection
route. Once the route is completed, the collector returns to one of the
Company's coin collection rooms located at its executive office or one of its
regional offices, where the seal on the coin box is removed and the coins are
electronically counted. The actual amount in each coin box is automatically
recorded and compared to the expected amounts determined by polling the public
pay telephone on the previous night.
The Company maintains a staff of approximately 300 field service
telephone technicians located throughout the states in which the Company's
public pay telephones are installed. The Company has imposed a high standard of
service and maintenance in order to ensure that the public pay telephones are
operating properly and generating maximum revenue. Through its computer system,
the Company generally is able to determine malfunctions before they are reported
and is able, in most cases, to repair such malfunctions within 48 hours. The
most typical payphone malfunctions or problems are caused by vandalism and
theft. On average, less than 4% of the Company's public pay telephones are out
of service or are not operating properly at any one time. For accounting
purposes, telephone repair costs are expensed by the Company as incurred. The
Company is also continuously monitoring and reviewing the latest technology in
the industry to prevent tampering, vandalism, fraud and theft at public pay
telephones. The Company's management systems allow the Company to decentralize
its operations by giving the field operations access to more information, thus
allowing for quicker response time and reducing the time a phone is out of
service.
The Company has undertaken a refurbishment program to improve the
condition of its public pay telephones. In connection with this program the
Company has created its own repair center located at its headquarters. This
repair center has assisted in lowering the Company's repair costs and providing
a steadier supply of repaired equipment back to the field. As part of its
refurbishment program, the Company has refurbished approximately 5,000 public
pay telephones.
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Telephone Equipment Suppliers
The Company purchases its public pay telephones from independent
manufacturers. The Company's public pay telephones use microprocessors that
provide voice synthesized calling instructions and the capability to detect and
count coins deposited during each call. These "smart" public pay telephones also
provide information to the caller at certain intervals regarding the time
remaining on each call and the need for an additional deposit. As of December
31, 1995, approximately 31,000, or 81%, of the public pay telephones that the
Company operates were manufactured by Intellicall, Inc. ("Intellicall"). The
Company also operates public pay telephones manufactured by Elcotel, Inc.
("Elcotel"). The Company believes that it can purchase public pay telephones
from Elcotel or other public pay telephone manufacturers on terms similar to
those in effect with Intellicall. The Company has a non-exclusive arrangement
with Intellicall whereby the software and engineering schematics to repair the
Intellicall telephones are held in escrow, to protect the Company against the
bankruptcy of, the cessation of business operations by, or the failure to
provide system support maintenance by, Intellicall. Therefore, the Company
believes that the loss of Intellicall as a manufacturer of the Company's public
pay telephones would not have a material adverse effect on its business.
Billing and Collection
The Company uses Zero Plus Dialing, Inc. ("ZPDI"), a third party
billing and collection clearinghouse, to process and collect non-coin telephone
revenues for calls generated at certain public pay telephones and all
correctional phones, and handled by the Company's contracted operator service
providers and interexchange carriers. The Company forwards the call records to
ZPDI, which then sends the records to the appropriate LEC for billing and
collection. The LEC includes the rated calls on LEC customers' monthly telephone
bills. The LEC forwards the proceeds from the billed and collected call records
to ZPDI, less the billing and collection fees charged by the LEC and a reserve
for uncollectibles. ZPDI remits the proceeds to the Company, less the ZPDI
processing fee. The entire billing and collection cycle generally takes between
60 and 120 days after the call record is submitted to ZPDI.
INMATE TELEPHONES
General
In December 1994, the Company's Board of Directors approved the
divestiture of its inmate telephone operation because of increasing commissions
and declining margins in the inmate telephone business. Accordingly, the
Company's inmate telephone business was designated and accounted for as a
discontinued operation at December 31, 1994. In September 1995, the Company
decided to retain the remaining inmate operations. This decision was a result of
the Company's belief that the remaining operations can contribute to the cash
flow and operating results of the Company for a variety of reasons, including
the 1995 sale of the Company's less attractive inmate telephone operations and
the current geographic grouping of facilities served by the Company. As a
result, the inmate operations have been reclassified and included in continuing
operations.
In October 1995, the Company sold approximately 511 inmate telephone
lines to AmeriTel Pay Phones, Inc. ("AmeriTel") for approximately $2.2 million
subject to certain conditions. The sale of the bulk of the facilities covered by
the Company's agreement with AmeriTel has been consummated. However, certain
facilities in outlying locations have not been transferred pending the
satisfaction of certain contractual conditions precedent. These facilities, for
which the total purchase price aggregates to approximately $1.0 million, are
currently being managed by AmeriTel.
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The Company is operating the remaining inmate telephone operations and
is implementing a targeted growth strategy for the division. As of December 31,
1995, the Company operated approximately 2,200 telephone lines in over 130
correctional facilities in 14 states. In 1993, 1994 and 1995, inmate telephones
represented approximately $35.2 million, $42.4 million and $26.0 of the
Company's revenues, respectively.
The following chart sets forth the state by state breakdown of
locations served by the Company's inmate division, based on the number of
in-service lines, as of December 31, 1995:
NO. OF
STATE LINES
Texas 826
Ohio 230
Georgia 221
Colorado 214
Nevada 149
Missouri 115
Other States 448
-----
Total 2,203
=====
Historically, revenues for the average inmate telephone have been
substantially higher than for a public pay telephone due to higher usage rates
and the fact that inmates may only make collect calls, which have the highest
revenue per call after person-to-person calls. Furthermore, maintenance and
related labor costs for inmate telephones are lower than for public pay
telephones due to the use of automated operator services and the lack of coin
collecting and coin mechanism repairs.
Operations
Within correctional facilities, the Company currently utilizes
automated operator calling systems from a number of providers. All of these
systems limit inmates to collect calls. In facilities with more than 50 inmates,
the Company generally installs its proprietary prison pay telephone system. This
calling system is a configuration of proprietary software based on an integrated
microcomputer platform and basic telecommunications hardware consisting of
dialers and storage modules.
The system is programmed to record the details of each call (i.e., the
number dialed, the "bill to" number and the length of call). The call detail is
polled (extracted) from each system on a daily basis into the system's
centralized billing center. The Company then rates the calls according to the
Company's state and federal tariffs and according to any contractually agreed
upon rates, and then bills the calls in the manner described in "Public Pay
Telephones-Billing and Collection." The Company's proprietary prison pay
telephone system provides extensive anti-fraud, call monitoring and surveillance
capabilities for the correctional facilities where its inmate systems are
installed. These include reports of frequently called numbers, calls of longer
than normal duration and calls by more than one inmate to the same number. Upon
request, the Company will provide the facility with the specific call detail.
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Service
The systems in each facility are provided and installed at no cost to
the governmental agency. The Company shares a percentage of the revenues it
receives with the governmental agency. The Company generally provides all
service-related activities. Service issues are reported to the Company's
Technical Support Center through a 24-hour, toll-free (800) number. Service is
typically restored on a major outage within 48 hours. Most problems are
corrected remotely and, generally, an on-site visit is not required.
Competition
In the inmate telephone business, the Company competes with
approximately 20 independent providers of inmate telephone systems, the LECs and
interexchange carriers. The Company believes that the principal competitive
factors in the inmate telephone market are rates of commissions paid to the
correctional facilities, system features and functionality, service and the
ability to customize inmate call processing systems to the specifications and
needs of the correctional facility. The Company competes for business primarily
on local, county and state levels. The cost of market entry and the complexity
of the bid process increases proportionally with respect to the size of the
correctional facility. While the local and county markets are somewhat
fragmented with many service providers, state correctional facilities are
generally bid on a single statewide contract basis. Depending on the type of
facility and the particular state, the Company must direct its marketing efforts
to municipal purchasing officers, enforcement or jail administrators or to the
independent contractors that operate the facility. The Company currently
provides no inmate services to federal facilities. During 1995, competitive
pressures in the inmate telephone business resulted in an erosion in margins on
new contracts and appeared to limit the prospects for long-term growth and
profitability. The Company believes that a growth strategy focused on servicing
local and county facilities may provide some insulation from further erosion of
margins involved in larger state and federal bids. In addition, a recent FCC
ruling removing RBOC inmate operations from the regulated rate base, coupled
with the provisions of the Telecom Act, may restore greater viability to the
inmate telephone business although there can be no assurances of this.
OTHER OPERATIONS
Long-distance Reseller
The Company has developed a program to "resell" certain operator
(0+/0-) services and transmission (1+) services to other independent pay
telephone providers. The company is able to arbitrage these services to smaller
payphone companies based upon the favorable higher volume terms and conditions
under which the Company is able to obtain the services from the underlying local
and interexchange carriers. Network and operator services which the Company is
authorized to resell, include those of AT&T, MCI and Ameritech.
PREPAID CALLING CARD/INTERNATIONAL TELEPHONE CENTERS
In December 1994, in an effort to return its focus to its core public
pay telephone business, the Company's Board of Directors approved the sale of
the Company's prepaid calling card and international telephone center
operations.
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Prepaid Calling Card Business
In March 1994, the Company sold certain assets in connection with the
Company's New York public telephone centers to Global Link Teleco Corporation,
then known as Phone Zone Teleco Corporation, ("Global Link") for a total
purchase price of $2.5 million as well as a 10% equity interest in the acquiror.
These assets were sold after the Company decided it would concentrate on
providing telecommunication services to the retail telephone centers owned by
Global Link while Global Link concentrated on managing and opening additional
retail centers.
As part of its decision to divest itself of non-strategic assets, in
February 1995, the Company sold substantially all the assets of its prepaid
calling card business to Global Link for $6.3 million consisting of $1.0 million
in cash, a $5.3 million in promissory note due February 1998, bearing interest
at 8.5%, payable quarterly and shares of common stock of Global Link. As a
result of the February 1995 transaction, the Company's interest in the
outstanding common stock of Global Link was 19.99%.
On March 1, 1996, Global Link consummated a merger transaction (the
"Merger") with Global Telecommunications Solutions, Inc. ("GTS"). In connection
with the Merger, the Company exchanged its outstanding notes and other
receivables including accrued interest and its 19.9% equity ownership in Global
Link for shares of GTS common stock, $0.6 million in cash and $1.5 million of
notes receivable with various due dates through September 1997. Mr. Jody Frank,
a director of the Company, is a shareholder of GTS.
International Telephone Centers
In September 1995, the Company sold its approximately 24% interest in
Artel Business & Telecommunications, Inc. ("Artel"), an international
telecommunications joint venture in Russia which was established to provide
international telephone access and intercity service to selected cities in
Russia through public telephone calling centers in Moscow. The sale was to
Alternative Telecommunication Services International Limited, the Company's
partner in Artel. The Company received $0.5 million in cash and a promissory
note for $1.5 million bearing interest at 8% to be paid in six installments over
two years.
DISCONTINUED OPERATIONS
Cellular Telephone Operations
In December 1994, as part of its effort to return its focus to its core
public pay telephone business, the Company adopted a formal plan to divest
itself of its cellular telephone operations conducted through PTC Cellular, Inc.
("PTCC"), the Company's 90% owned subsidiary. PTCC operated cellular telephones
installed in rental cars as well hand-held portable cellular telephones.
In November 1995, substantially all of the assets of PTCC were sold to
Shared Technologies Cellular, Inc. ("STC") effective as of November 1, 1995. The
assets were sold for a promissory note in the amount of $2.0 million payable
semiannually with a term of 5 years and an interest rate of 8%, a potential $2.5
million royalty earn-out, shares of STC common stock and $0.3 million in cash.
STC also assumed the payment of $1.2 million of PTCC's liabilities. In addition,
the Company's hand-held portable cellular telephone assets were sold to STC in
July 1995 for approximately $0.2 million in cash.
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REGULATION
The Company's operations are significantly influenced by the regulation
of public pay telephone, inmate telephone, long-distance reseller and other
telecommunications services. Authority for regulation of these services has
traditionally been vested concurrently in the FCC and the various state public
utility commissions. Regulatory jurisdiction has generally been determined by
the interstate or intrastate character of the subject service, and the degree of
regulatory oversight varies among jurisdictions. While most matters affecting
the Company's operations fall within the administrative purview of these
regulatory agencies, state and federal legislatures and the federal district
court administering the AT&T Divestiture consent decree have also been involved
in establishing certain rules governing aspects of the Company's operations.
Passage of the new Telecom Act (see "Public Public Pay Telephone
Industry Overview") vests broad new authority in the FCC with regard to the
regulation of public pay telephone services. As an outgrowth of the Telecom Act,
the Company believes there will be an expansion of the FCC's role in shaping
overall regulatory requirements for the public pay telephone industry while
there will be a decrease in the respective roles of state regulators and the
AT&T Divestiture court as it pertains to public pay telephone service although
there can be no assurances given the limited experience of the industry under
the Telecom Act. Specifically, pursuant to Section 276, the rules adopted by the
FCC under the new payphone provisions of the Telecom Act will preempt any
inconsistent payphone regulation by a state authority. Moreover, based upon the
general interpretation given throughout the telecommunications industry, once
the FCC adopts regulations to implement Section 276, there will be no effective
ongoing role of the AT&T Divestiture court for any purpose relevant to the
Company's operations. Although this expected restructuring of the traditional
jurisdictional and regulatory authorities for public pay telephone service
comports with the best current information available to the Company, final
analysis must await the adoption of rules by the FCC within nine months of the
passage of the Telecom Act, as provided under the Telecom Act, and the
conclusion of any potential litigation contesting the FCC's action. Pending
adoption of the FCC's Telecom Act implementation rules, the Company believes
that the prior federal and state regulatory structures will remain applicable,
and the Company will continue to operate in accordance therewith.
State Regulation
State regulatory commissions have historically been responsible for
regulating the rates, terms and conditions of intrastate public pay telephone
and inmate telephone services. This has involved the setting of rate ceilings on
service provided to end users of the payphone; establishing rates paid by
competitive public pay telephone providers to the LEC's for lines and
local/intraLATA services; imposing mandatory service and operational
requirements and, in several cases, establishing an intrastate "dial-around"
compensation or "set use fee" mechanism for payphone providers. As discussed
above, these existing state regulatory rules are subject to significant
revision, and the Company believes preemption of some aspects of state
regulation may occur on a prospective basis pursuant to the terms of the Telcom
Act and the regulations to be adopted thereunder by the FCC.
To date, the degree to which states regulate the types of services
offered by the Company varies widely, from certain states which do not require
any certification or authorization to operate within the state, to other states
that have prohibited non-LEC public pay telephone services entirely. In most
states which permit such services, approval to operate in the state involves the
submission of a certification application and an agreement by the Company to
comply with the rules, regulations and reporting requirements of the state. The
Company has obtained the requisite regulatory approvals to provide public pay
telephone, and where applicable, inmate telephone services, in all states in
which the Company currently provides such services.
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Although there can be no assurances, the Company believes that other
provisions of the Telecom Act may allow preemption of state regulations
otherwise prohibiting public pay telephone competition within a state, which
would create the opportunity to provide service in all state jurisdictions
including the four that have limited entry to date: Alaska, Connecticut, Hawaii
and Oklahoma. In addition, Hawaii and Oklahoma now have proceedings underway
that may result in the lifting of competitive payphone entry restrictions at the
state level even prior to any challenges of state bans under the Telecom Act. A
petition, based on the Telecom Act, to preempt Connecticut's ban on provision of
payphone servicing by independent providers has been filed at the FCC.
A number of states such as Illinois, Iowa, Michigan, Wisconsin and
Wyoming have increased their rate for local coin calls to $.35 and an increasing
number of states are considering taking that action. The Company cannot predict
when or if such increases will be enacted by those states.
The Company is also affected by state regulation of operator services,
either directly with respect to operator services provided by the Company or
indirectly through the impact upon the operator services providers utilized by
the Company. Typically, state regulatory bodies have adopted intrastate
provisions that are similar or identical to the regulations adopted by the FCC
pursuant to the Telephone Operator Consumer Services Improvement Act of 1990
("TOCSIA"). These regulations address "branding", "posting" and "unblocking"
requirements for public public pay telephones, to which a significant number of
states have also added rate regulation in the form of rate "ceilings", reporting
requirements, and restrictions on the handling of certain call categories (i.e.,
"0-"/"0+" intraLATA). The Company, or its designated carrier(s), have obtained
the required intrastate operator service authorizations, including, where
applicable, certificates of public convenience and necessity and approval or
acceptance of tariffs in all jurisdictions in which the Company provides
service. As with the future regulation of public pay telephone and inmate
services, the scope and application of state regulatory requirements to operator
services provided in a public pay telephone context remain uncertain, pending
implementation of the new Telecom Act by the FCC.
The Company is certificated as an operator service
provider/interexchange carrier, or has the right to provide operator and
interexchange services under its PTC Services brand in the following states:
California, Colorado, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland,
Michigan, Missouri, Nebraska, New Jersey, New York, Pennsylvania, Rhode Island,
South Carolina, Texas, Utah, Virginia and Washington.
Federal Regulation
Regulation of the public pay telephone and inmate telephone businesses
at the federal level has traditionally not been as detailed or comprehensive as
the state regulatory regimes described in the preceding section. The FCC, since
first authorizing the registration and interconnection of "instrument
implemented" public pay telephones in 1984, has primarily addressed issues of
basic interconnection to the Public Switched Network for the provision of
interstate telecommunications services from payphones, implementation of the
provisions of TOCSIA involving "branding", "posting", "rate quoting", and
"unblocking" access code dialing to all operator services providers from public
pay telephones, establishment of "dial-around" compensation for interstate
carrier access code calls from public pay telephones and the handling of general
consumer complaints with regard to public pay telephone services.
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The Company believes that the passage of the Telecom Act marks a
significant change in the form and scope of prospective federal regulation for
public pay telephone service and hence for providers of the service, including
the Company. The Telecom Act defines "payphone service" to mean "the provision
of public or semipublic pay telephones, the provision of inmate telephone
service in correctional institutions, and any ancillary service." Under Section
276 of the Telecom Act, the FCC is charged with implementing rules in nine
months that will: (i) establish a comprehensive compensation system to ensure
that public pay telephone providers are fairly compensated on all intrastate and
interstate calls made from their public pay telephones (excluding only 911 calls
and telecommunications relay service calls for hearing disabled individuals);
(ii) discontinue traditional interstate and intrastate payphone subsidies for
LEC payphones from the regulated rate base operation of the LECs; (iii)
prescribe a set of safeguards for RBOC payphone service to eliminate future
discrimination or subsidies in favor of RBOC payphone services; (iv) provide for
the RBOC's ability to select and contract with interLATA carriers for RBOC
payphones, subject to contractual rights negotiated and vested with the location
provider and to a potential FCC finding that this interLATA selection authority
for the RBOCs is not in the public interest; and, (v) provide for all payphone
service providers, subject to contractual rights negotiated and vested with the
Location Owner, to have authority to select the intraLATA service provider of
choice. In addition to these core provisions, the Telecom Act also provides
that: (i) the FCC will determine whether "public interest" payphones should be
maintained and, if so, how they should be supported "fairly and equitably"; (ii)
prior contracts between location providers and payphone service providers, or
interLATA or intraLATA carriers, are "grandfathered"; and, (iii) any state
requirements inconsistent with FCC regulations adopted under Section 276 will be
"preempted" by the FCC's rules.
The Company has supported the introduction and passage of this payphone
section of the Telecom Act, and anticipates that the framework established by
this legislation will address many of the fundamental regulatory/competitive
problems that have plagued the public communications industry from its
inception. While the Company believes that the Telecom Act could lead to
enhanced financial performance by the Company, there can be no certainty of such
an impact occurring, and the magnitude or timing of such impact, if any, remains
subject to significant conjecture pending adoption of the FCC rules mandated by
the Telecom Act.
In addition, while the Company believes the enactment and
implementation of the payphone provisions of the Telecom Act will result in an
overall improvement to the competitive environment in which the Company
operates, the Company also recognizes the potential for increased competitive
pressures from the RBOCs or other LECs which may be more aggressive in the
largely deregulated mode provided for under the Telecom Act. The specific
provisions of the FCC's rules addressing the selection of a long distance
carrier for the RBOC payphones, the adequacy of the transfer valuation assigned
to the RBOC payphone operations upon their removal from regulated rate base
accounts and whether the precise "non-structural" safeguards applicable to the
RBOCs and LECs are effective in eliminating cross subsidies and discrimination,
will all significantly impact the level and scope of competition faced by the
Company in the public pay telephone market in the future.
Along with the FCC proceedings to implement the provisions of the
Telecom Act, there remain pending several other FCC matters that potentially
affect the Company and its operations.
On April 9, 1992, the FCC proposed a new access plan for operator
assisted interstate calls dialed on a "0+" basis. Currently "0+" calls are sent
directly from the payphone through the LEC network to the operator service
provider selected by the host location. Under the proposed access plan, known as
"Billed Party Preference" ("BPP"), "0+" calls would be sent instead to the
operator service provider chosen by the party paying for the call. The BPP
environment allows a telephone user making a 0+ call to bill a call to the
user's pre-established carrier at the user's home or office, thereby bypassing
the opportunity for the pre-subscribed carrier at the public pay telephone
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to handle and receive revenues from the call and for the Company to earn a
commission on the call.
The FCC has tentatively concluded that a nationwide BPP system for
interstate operator assisted calls is in the public interest. However,
substantial opposition to the BPP proposal has developed and the FCC has taken
no action to date. If this system were to be enacted, the Company could
experience a reduction in revenues it now receives on these calls and would,
accordingly, be unable to pay commissions to location owners for the traffic.
The FCC has requested and received public comment on the basic BPP proposal and
on the issue of what compensation mechanisms for payphone providers would be
necessary in a BPP environment. The proposal remains under consideration by the
FCC, and the outcome is uncertain and could be influenced by implementation of
the Telecom Act. Specifically, the Telecom Act may require that the Company
receive compensation for any completed call routed through BPP.
In addition, the American Public Communications Council ("APCC"), of
which the Company is a member, along with other telecommunications companies and
trade associations, has filed with the FCC for implementation of a "rate
ceiling" on interstate "0+" calls from public pay telephones as an alternative
to the BPP proposal. Because the Company utilizes AT&T as its primary interstate
carrier from the Company's public pay telephone base nationwide, implementation
of a "rate ceiling" regulatory regime by the FCC does not appear to represent a
serious financial risk to the Company. However, as with the underlying BPP
proposal, the "rate ceiling" alternative is pending before the FCC, and the
outcome remains uncertain, and could be influenced by implementation of the
Telecom Act.
The FCC also has proceedings underway, or to be initiated, addressing
the expansion of "per call" compensation to all interexchange carriers, an
increase in the amount of compensation overall and inclusion of 1-800 subscriber
calls (i.e., 1-800 FLOWERS/1-800 LLBEAN) in the compensation system. It is
anticipated that these later issues will be finally resolved within the context
of the FCC's proceedings to implement the Telecom Act, although the Company
cannot determine the timing of these events with any certainty or what such
resolution may entail.
EMPLOYEES
As of December 31, 1995, the Company had approximately 444 employees,
approximately 103 of whom were executive, administrative, accounting, sales or
clerical personnel and approximately 341 of whom were installers, maintenance
and repair personnel and coin collectors.
ITEM 2. PROPERTIES
The Company's headquarters facility, consisting of a 68,000 square-foot
building located at 2300 N.W. 89th Place, Miami, Florida, was purchased for $3.5
million. The facility was subject to a mortgage held by NationsBank in the
amount of $2.5 million and bearing interest at the rate of 7.38% per annum,
amortizing over 15 years and due in March 1998. The mortgage balance was paid by
the Company in 1995.
The Company maintains 21 service facilities which are linked to the
Company's headquarters by computer. The Company considers its current facilities
adequate for its business purposes.
ITEM 3. LEGAL PROCEEDINGS
In 1993, the Company filed a law suit in the United States District
Court for the Southern District of
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Florida against BellSouth Telecommunications, Inc., a unit of BellSouth Corp.
that does business as Southern Bell Telephone and Telegraph ("BellSouth"),
alleging, among other things, violations of the federal and state antitrust laws
based upon alleged monopolization and misrepresentations in connection with
BellSouth's operation of its public pay telephone business in Florida. The suit
seeks unspecified damages and other relief. In September 1995, the Court entered
partial summary judgment against the Company on its federal and state antitrust
claims but allowed the Company's common law fraud and misrepresentation claims
to remain pending. In March 1996, the Court granted the parties' request for a
brief stay of the action to facilitate settlement negotiations. Based upon the
current status of the case, the Company is unable to predict the outcome of
these negotiations or the litigation.
In 1994, a class action complaint was filed in the United States
District Court, for the Southern District of Florida, by Albert Hirschensohn,
et.al., naming the Company, Jeffrey Hanft, Chairman, and Richard Militello,
Chief Operating Officer, as defendants. The complaint was later amended to
include Robert D. Rubin, the then President. The amended complaint alleged
violations of certain federal securities laws through the issuance of "false and
misleading" statements in connection with the proposed merger (subsequently
terminated) with IDB Communications Group, Inc. and the Company's 1994 results.
The amended complaint sought the recovery of unspecified compensatory damages on
behalf of the class. In July 1995, the parties agreed to settle this action in
its entirety through the establishment of a settlement fund (of which the
Company's portion was $925,000). In January 1996, the settlement was approved by
the Court and the case was dismissed.
In December 1995, Cellular World, Inc. filed a complaint in Dade County
Circuit Court against the Company and its subsidiary, PTC Cellular, Inc.,
alleging wrongful interference with Cellular World's advantageous business
relationship with Alamo Rent-A-Car and infringement upon Cellular World's
proprietary cellular car phone rental system equipment. Cellular World is
seeking damages alleged to exceed $10 million. The Company believes the
complaint is without merit and intends to vigorously contest and defend the
action. Based upon the preliminary status of the litigation, the Company is
unable to predict the final outcome of the litigation.
The Company is also subject to various ordinary and routine legal
proceedings arising out of the conduct of its business. The Company does not
believe that the ultimate disposition of these proceedings will have a material
adverse effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1995,
the Company did not submit any matter to a vote of security holders.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The Common Stock of the Company is traded on the National Market System
of NASDAQ under the symbol PTEL. The following table sets forth the high and low
closing sales prices per share of Common Stock as reported on the National
Market System of NASDAQ for the periods indicated. Quotations represent prices
between dealers and do not reflect mark-ups, mark-downs or commissions.
High Low
Year ended December 31, 1995:
First Quarter....................... $5.38 $4.00
Second Quarter...................... 5.13 3.88
Third Quarter....................... 5.06 3.50
Fourth Quarter...................... 4.00 2.13
High Low
Year ended December 31, 1994:
First Quarter....................... $11.25 $8.25
Second Quarter...................... 15.25 4.75
Third Quarter....................... 6.38 3.52
Fourth Quarter...................... 5.50 3.63
As of March 22, 1996, the Company had 589 shareholders of record.
Dividend Policy
The Company has never declared or paid cash dividends on its Common
Stock. The Company presently intends to retain all earnings for the operation
and development of its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. In addition, the
Company's credit agreement precludes the Company from purchasing, redeeming or
retiring any of its capital stock without the prior written consent of its
lenders or from paying dividends in excess of 25% of the Company's net income.
The payment of dividends by the Company also is limited by provisions of the
$100.0 million 12 1/4% Senior Notes due 2002 and by the Series C Cumulative
Convertible Preferred Stock. Any future determination as to the payment of cash
dividends will depend on a number of factors including future earnings, capital
requirements, the financial condition and prospects of the Company and any
restrictions under credit agreements existing from time to time, as well as such
other factors as the Board of Directors may deem relevant. There can be no
assurance that the Company will pay any dividends in the future.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the
consolidated financial statements of the Company and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Annual Report. Continuing operations consist primarily of the
public pay and inmate telephone businesses. Certain amounts for the prior years
have been reclassified to conform with the current year presentation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
-------------- ----------- --------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ 138,391 $ 159,442 $117,005 $73,400 $55,876
Costs and expenses:
Telephone charges..................... 48,716 67,656 39,409 22,888 18,346
Commissions........................... 34,740 32,693 24,012 15,121 10,416
Field service and collection.......... 23,382 21,334 13,760 10,013 6,386
Depreciation and amortization......... 22,451 22,522 15,031 10,037 7,867
Selling, general and administrative .. 11,859 14,580 8,998 7,310 7,233
Interest ............................. 9,965 6,668 3,065 2,640 2,506
Loss from impairment of inmate assets. 4,740 - - - -
Loss from operations of prepaid calling card and
international telephone centers..... - 1,816 1,730 - -
Loss on disposal of prepaid calling card and
international telephone centers..... 566 3,690 - - -
Litigation settlement expense......... 925 - - - -
Other ............................... 5,252 - - - -
------------------------------------------------------------
Total costs and expenses................ 162,596 170,959 106,005 68,009 52,754
(Loss) income from continuing operations
before income taxes and extraordinary item (24,205) (11,517) 11,000 5,391 3,122
Benefit from (provision for) income taxes 1,738 4,405 (4,144) (1,943) (1,240)
---------------------------------------------------------
Net (loss) income from continuing operations
before extraordinary item........... (22,467) (7,112) 6,856 3,448 1,882
Loss from discontinued operations....... (12,066) (11,281) (1,514) (192) -
Extraordinary item, net................. (3,327) - - - -
---------------------------------------------------------
Net (loss) income....................... $ (37,860) $ (18,393) $ 5,342 $ 3,256 $ 1,882
========== =========== ======== ======= =======
(Loss) income per common and common equivalent
share from continuing operations $ (1.43) $ (.45) $ .47 $ .30 $ .25
========== =========== ======== ======= =======
Net (loss) income per common and common
equivalent share........................... $ (2.38) $ (1.17) $ .37 $ .28 $ .25
========== =========== ======== ======= =======
Net (loss) income per common share assuming
full dilution.............................. $ (2.38) $ (1.17) $ .37 $ .28 $ .22
========== =========== ======== ======= =======
Weighted average number of outstanding shares
of common stock:
Primary.................................... 16,091 15,713 14,479 11,633 10,046
Fully diluted.............................. 16,091 15,713 14,517 11,686 10,757
EBITDA(2)...................................... $ 8,211 $ 17,673 $ 29,096 $18,068 $13,495
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995 (1) 1994(1) 1993(1) 1992(1) 1991(1)
---------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $ (4,100) $ (2,421) $ 673 $ 690 $ (1,030)
Total assets............................ 160,071 190,591 173,342 79,257 45,036
Total long-term debt and preferred stock (3) 116,463 98,301 75,262 32,376 22,529
Shareholders' equity.................... 14,288 48,715 65,333 27,604 12,339
</TABLE>
- ---------------
(1) The selected financial data presented, as of and for each of the years in
the five-year period ended December 31, 1995, have been derived from the
consolidated financial statements of the Company. The consolidated
financial statements for the year ended December 31, 1995 were audited by
Ernst & Young LLP, independent certified public accountants. The
consolidated financial statements for the four year period ended December
31, 1994, were audited by Price Waterhouse LLP.
(2) EBITDA represents net earnings before interest, income 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.
(3) Total long-term debt and preferred stock includes the long-term portion of
the Company's notes payable, capital lease obligations and the Series C
Cumulative Convertible Preferred Stock and preferred stock dividends
payable.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis compares the year ended December 31, 1995
to the year ended December 31, 1994 and the year ended December 31, 1994 to the
year ended December 31, 1993, and should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
Annual Report.
Overview
In December 1994, in an effort to return the Company's focus to its core public
pay telephone business, the Company's Board of Directors approved the
divestiture of its inmate telephone, prepaid calling card business and
international telephone centers and cellular telephone operations.
During 1995, the Company sold its prepaid calling card business and
international telephone center operations for $6.3 million and $2.0 million,
respectively. For financial accounting purposes, the operating results of the
prepaid calling card business and international telephone centers have been
segregated and reported as a separate component of continuing operations (see
Note 16 to the accompanying consolidated financial statements).
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. 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 financial statements have been reclassified to present
the inmate telephone operations as part of continuing operations.
On November 13, 1995, the Company sold its cellular telephone operations for
approximately $6.0 million (see Note 17 to the accompanying consolidated
financial statements). The results of operations and loss on disposal are
included in the consolidated financial statements as discontinued operations.
25
<PAGE>
The financial results discussed below relate to continuing operations which
consist primarily of the public pay and inmate telephone businesses.
<TABLE>
<CAPTION>
PERCENT PERIOD-TO-PERIOD
INCREASE (DECREASE)
PERCENTAGE OF TOTAL REVENUES 1995 1994
Year Ended December 31, Compared Compared
1995 1994 1993 to 1994 to 1993
---------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Coin calls............................ 56.6% 49.8% 48.4% (1.3)% 40.3%
Non-coin calls........................ 43.3 48.9 51.1 (23.2) 30.5
Service and other..................... 0.1 1.0 0.5 (92.5) 164.8
Gain on sale of assets................ - 0.3 - (100.0) 100.0
--------- -------- ---------
Total revenues................. 100.0 100.0 100.0 (13.2) 36.3
Costs and expenses
Telephone charges..................... 35.2 42.4 33.7 (28.0) 71.7
Commissions.......................... 25.1 20.5 20.5 6.3 36.2
Field service and collection......... 16.9 13.4 11.8 9.6 55.0
Depreciation and amortization........ 16.2 14.1 12.9 (0.3) 49.8
Selling, general and administrative.. 8.6 9.2 7.7 (18.7) 62.0
Interest ............................ 7.2 4.2 2.6 49.4 117.6
Loss from impairment of inmate assets 3.4 - - 100.0 -
Loss from operations of prepaid calling
card and international telephone centers - 1.1 1.4 (100.0) 5.0
Loss on disposal of prepaid calling card
and international telephone centers 0.4 2.3 - (84.7) 100.0
Litigation settlement expense........ 0.7 - - 100.0 -
Other ............................... 3.8 - - 100.0 -
--------- -------- ---------
Total costs and expenses........... 117.5 107.2 90.6 (4.9) 61.3
--------- -------- ---------
(Loss) income from continuing operations
before income taxes and
extraordinary item................ (17.5) (7.2) 9.4 110.2 (204.7)
Benefit from (provision for) income taxes 1.3 2.7 (3.5) (60.5) (206.3)
--------- -------- ---------
Net (loss) income from continuing
operations before extraordinary
item.............................. (16.2)% (4.5)% 5.9% 215.9 (203.7)
======== ========== =========
EBITDA.................................. 5.9% 11.1% 24.9% (53.5) (39.3)
</TABLE>
Revenues
The Company primarily derives its revenues from coin and non-coin
calls. Coin revenue represented approximately 56.6%, 49.8% and 48.4% of total
revenues from continuing operations for the years ended December 31, 1995, 1994
and 1993, respectively. Coin revenue is generated exclusively from calls made by
depositing coins in the Company's public pay telephones. Coin revenue decreased
1.3% to $78.4 million in 1995 compared to 1994. The Company operated an average
of approximately 39,000 public pay telephones in 1995 compared to an average of
approximately 38,000 in 1994. The Company believes that the decrease in coin
revenue per telephone is due primarily to: (i) the telephones added in 1995
having a lower average coin revenue per telephone than the Company's installed
base in 1994; (ii) increased usage of alternative methods of calling such as
prepaid calling cards and wireless technologies and (iii) the operation of more
public pay telephones in closer proximity to the Company's telephones. Coin
revenue increased 40.3% to $79.4 million in 1994 compared to 1993. This revenue
growth was primarily attributable to growth in the Company's installed base of
public pay telephones. The Company's installed public pay telephone base
increased to an average of approximately 38,000 phones in 1994, up from an
average of approximately 35,700 phones in 1993. The increase in the Company's
1994 revenues was also attributable to the inclusion of approximately 11,600
public pay telephones from the acquisition of assets from Ascom Communications,
Inc. for a full year in 1994 versus approximately two months in 1993.
26
<PAGE>
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. 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
believes nets it the highest gross margin from the call.
Non-coin revenue represented approximately 43.3%, 48.9% and 51.1% of
total revenues from continuing operations in 1995, 1994, and 1993, respectively.
Non-coin revenue is derived from calling card calls, credit card calls, collect
calls and third-party billed calls. In 1995, revenues from non-coin calls
decreased by 23.2% to $59.9 million, compared to 1994. This decrease was
primarily attributable to an increase in the number of public pay telephone
calls placed through third-party operator service providers as opposed to the
Company's private label operator service.
Non-coin revenue increased by 30.5% to $78.0 million in 1994 compared
to 1993. This increase was primarily attributable to the increase in the
Company's installed base of public pay telephones in 1994 as described above and
an increase in the percentage of total non-coin calls completed through the
Company's private label operator services in 1994 which decreased the percentage
of non-coin calls completed by the Company's selected third-party operator
service provider.
Also included in non-coin revenue are all calls placed through the
Company's inmate telephones. Inmate revenues decreased approximately 38.7% to
$26.0 million in 1995, compared to 1994. During 1995, the Company operated
approximately 3,000 inmate telephone lines compared to approximately 4,000 in
1994. Inmate revenues grew in 1994 as compared to 1993 by approximately $7.2
million primarily as a result of the completion of several inmate acquisitions
in 1993.
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 paid 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 receipt
and certain other taxes, corporate travel and entertainment and various other
expenses. Total operating expenses were approximately 85.8%, 85.5% and 73.7% of
total revenues from continuing operations for the years ended December 31, 1995,
1994 and 1993, respectively.
27
<PAGE>
Telephone charges decreased 28.0% to $48.7 million in 1995 compared to
1994. This decrease is primarily a result of the decrease in the number of calls
placed through the Company's private label operator service program. 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 costs when a third-party operator service provider
completed the call. In addition, the Company experienced a decrease in line
charges paid in the state of Florida due to regulatory changes which began in
the third quarter of 1995. Telephone charges for 1995 included approximately
$1.2 million of additional bad debt reserves related to both the inmate and
public pay telephone operations. Telephone charges in 1995 included a reduction
of interexchange carrier expense 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 in 1994 included one-time income
adjustments of approximately $0.6 million for a signing bonus and volume
discounts credited to the Company by certain of its service providers.
Telephone charges increased 71.7% to $67.7 million in 1994 compared to
1993. This increase was primarily attributable to the increase in the installed
public pay telephone base and in the number of calls completed through the
Company's private label operator service program during 1994 compared to 1993.
In 1993, the Company recorded a refund of telephone charges related to the
overcharging of carrier costs and the underpayment of operator service revenues
by certain vendors. Despite its ongoing negotiations with such vendors, as of
December 31, 1994, due to the length of time elapsed since the original claims
and the uncertainty as to the realizability of these refund claims, the Company
fully reserved these amounts by a charge of approximately $1.6 million.
Telephone charges in 1993 were reduced by approximately $1.7 million for certain
excise and state sales and use tax refund claims. In addition, 1993 telephone
charges included a one-time reduction of, among other things, validation,
royalty and license fees of approximately $1.2 million related to the settlement
of a vendor dispute.
Commissions as a percentage of total revenues from continuing
operations were approximately 25.1%, 20.5% and 20.5% for the years ended
December 31, 1995, 1994 and 1993, respectively. The increase in commissions as a
percentage of revenues in 1995 was primarily attributable to: (i) the reduction
in revenue as a result of the Company's 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 was 16.9% in 1995, 13.4% in 1994 and 11.8% in 1993.
The 1995 increase was primarily attributable to: (i) the reduction in revenue as
a result of the Company's switch to a third-party operator service provider;
(ii) approximately $1.7 million recorded for inventory obsolescence reserves and
(iii) expenses incurred by the Company for a refurbishing program undertaken to
improve the condition of the Company's public pay telephones. The Company
currently expects that field service and collection expenses, excluding reserves
for inventory obsolescence, will remain relatively constant over the next twelve
months, as a percentage of revenues. The increase from 1993 to 1994 was
primarily attributable to additional operations personnel, vehicle and rent
expenses associated with assimilating acquired public pay telephones into the
Company's existing network. Selling, general and administrative expenses
decreased to $11.9 million, or 8.6% of total revenues from continuing
operations, versus $14.6 million in 1994 and $9.0 million in 1993. The decrease
in selling, general and administrative expenses in 1995 was primarily
attributable to the cost reduction plan and reengineering efforts commenced by
the Company in 1994. In 1994, selling, general and administrative expenses
included approximately $1.6 million in non-recurring charges which included,
among other things, amounts incurred for settling disputes and claims, severance
costs, lease termination charges, and failed merger costs incurred in connection
with the IDB transaction.
28
<PAGE>
Depreciation
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 seven-year and
ten-year useful lives for inmate and public pay telephone equipment,
respectively. 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
twenty years. Depreciation and amortization increased to $22.5 million in 1995
and 1994 from $15.0 million in 1993. The increase in depreciation and
amortization is primarily attributable to increases in the number of installed
public pay telephones that resulted from acquisitions in late 1993 and 1994,
offset by the sale of a portion of the inmate telephone business and reduction
of amortization as a result of the provision for impairment of inmate assets.
Interest
In 1995, interest expense increased 49.4% to $10.0 million. This
increase is primarily attributable to the higher interest rate on the Company's
$100.0 million of Senior Notes as compared to the rates in effect on the
Company's revolving line of credit in existence in 1994 and the inclusion of
interest expense in continuing operations previously allocated to the Company's
cellular operations which were included in discontinued operations.
In 1994, interest expense increased 117.6% to $6.7 million. The
increase was primarily attributable to increased bank borrowings under the
Company's revolving line of credit from $67.5 million at December 31, 1993 to
$100.2 million at December 31, 1994. The additional borrowings in 1994 under the
Company's line of credit include approximately $16.6 million used for public pay
telephone acquisitions and $16.1 million used for working capital purposes,
which included a portion related to the funding of the discontinued operations.
In addition, the Company experienced higher interest rates on its line of credit
during 1994, which is consistent with overall increases in market interest rates
for that period.
Provision for Impairment of Inmate Assets
During the third quarter of 1995, the Company 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 operating losses from January 1, 1995
through disposition. The inmate division's actual operating losses for the
period it was accounted for as discontinued operations were $0.1 million. In
1995, the $4.0 million accrual for loss on disposal was reversed in discontinued
operations and recorded in continuing operations as an impairment of assets.
Also included in the 1995 results of operations is approximately $0.4 million
for the loss on disposal of a portion of the inmate telephone business and a
$0.4 million write-off of intangible assets associated with contracts not
renewed by the Company.
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 received in connection with the Company's sale of its international
telephone center operations (see Note 16 to the accompanying consolidated
financial statements).
29
<PAGE>
Litigation Settlement Expense
During 1995, the Company settled a lawsuit brought by two shareholders
against the Company and certain of its officers (see Note 15 to the accompanying
consolidated financial statements).
Other
Other expenses are comprised of approximately $0.6 million of losses
for the Company's equity interest in an unconsolidated affiliate, approximately
$1.4 million for the settlement of an employment contract with a former officer
and approximately $3.2 million of reserves for potentially uncollectible loans
receivable from certain officers (see Note 18 to the accompanying consolidated
financial statements). No such expenses were incurred in 1994 or 1993.
Provision for Income Taxes
During 1995, the Company recorded approximately $1.7 million in income
tax benefits. Approximately $1.5 million of these tax benefits relate to the
provision for impairment of inmate assets which, in 1995, was reversed in
discontinued operations and recorded in continuing operations. This benefit
was previously reflected in discontinued operations and recorded in
December 1994. During 1995, the Company recorded valuation allowances of
approximately $12.0 million against deferred tax assets that may not be
realized.
The Company's benefit from (provision for) income taxes increased $8.5
million in 1994 primarily due to a loss from continuing operations before income
taxes and extraordinary item of approximately $11.5 million, compared to income
from continued operations before taxes of approximately $11.0 million in 1993.
Net (Loss) Income from Continuing Operations before Extraordinary Item
The Company had a net loss from continuing operations before
extraordinary item of approximately $22.5 million in 1995 compared to a net loss
from continuing operations before extraordinary item of approximately $7.1
million in 1994 and net income from continuing operations before extraordinary
item of approximately $6.9 million in 1993.
Extraordinary Loss
As a result of debt modifications during 1995, the Company recorded
extraordinary losses from the write-off of deferred financing costs associated
with the early extinguishment of debt of approximately $5.0 million, before the
related income tax benefit of approximately $1.7 million.
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.
30
<PAGE>
EBITDA from continuing operations decreased by $9.5 million in 1995 to
$8.2 million compared to 1994. This decrease is attributable to: (i) a $4.7
million provision for the impairment of assets of the inmate telephone business;
(ii) approximately $3.2 million of reserves related to officer loans
receivables; (iii) approximately $1.4 million related to the settlement of an
officer employment agreement; (iv) the write-off of approximately $1.1 million
of accounts receivable related to the prepaid calling card business; (v)
approximately $0.9 million for the settlement of the shareholders' lawsuit; (vi)
adjustments recorded for bad debt and inventory obsolescence as discussed above
and (vii) the increase in commission expenses offset by decreases in telephone
charges noted above.
EBITDA from continuing operations decreased by $11.4 million to $17.7
million in 1994 compared to 1993. The calculation of EBITDA does not reflect
adjustments for interest, depreciation and amortization included within the Loss
from operations of prepaid calling card and international telephone centers and
the Loss on disposal of prepaid calling card and international telephone centers
as presented in the accompanying financial statements. The decrease was
primarily attributed to approximately $3.8 million of non-recurring charges
which include the $1.4 million of non-recurring charges in telephone charges
and the $1.7 million of non-recurring charges in selling, general and
administrative expenses discussed above. EBITDA also included approximately $1.8
million of losses related to the operations of the prepaid calling card and
international telephone center business and a provision of approximately $3.7
million for the estimated impairment of asset value and losses from January 1,
1995 through the divestiture date. In addition, 1993 continuing operations
included approximately $2.9 million of non-recurring income.
Liquidity and Capital Resources
During the year ended December 31, 1995, the Company financed its
operations from operating cash flow and net proceeds received in July 1995 from
the issuance of $100.0 million of Senior Notes due 2002 (the "Senior Notes") and
$15.0 million of Cumulative Convertible Preferred Stock (the "Preferred Stock").
The Company's operating cash flow was $10.8 million compared to $(0.2) million
in 1994 and $20.1 million in 1993.
The Company's working capital deficit was approximately $4.1 million,
with a current ratio of .86 to 1, at December 31, 1995. This is compared to a
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 were
included in current assets as of December 31, 1994 and the accrual of 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 Senior Notes
and Preferred Stock in July 1995. In addition to the above transactions, the
Company entered into a new $40.0 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 December 31, 1995, the Company was not in compliance with certain
financial covenants contained in the New Credit Facility. The Company has
obtained a waiver for the non-compliance from its lender. The Company and the
Bank have agreed to amend certain terms of the New Credit Facility which will,
31
<PAGE>
among other things, decrease the credit facility to $10.0 million and reduce the
requirements of certain restrictive financial covenants. The amended credit
facility will bear interest at prime rate plus 2% and will require the repayment
of all outstanding principal balances in September 1997. As of December 31,
1995, the Company had no amounts borrowed under the credit facility.
Based upon current expectations, the Company believes that cash flow
from operations, together with amounts which may be borrowed under the amended
credit facility, will be adequate for it to meet its working capital
requirements, pursue its business strategy and service its obligations with
respect to the Senior Notes, although there can be no assurance that it will be
able to do so.
Discontinued Operations
During December 1994, the Company's Board of Directors approved the
divestiture of its cellular telephone rental operations. In the December 31,
1994 consolidated financial statements, the Company recorded a provision for the
estimated losses of the cellular telephone business from January 1, 1994 through
the anticipated divestiture date.
On November 13, 1995, the Company sold its cellular telephone
operations to Shared Technologies Cellular, Inc. ("STC") for approximately $6.0
million. The assets were sold for $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 payment of approximately $1.2 million of PTCC's liabilities
by STC. 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 year ended December 31, 1995. The
difference between the actual loss and the 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 17 to the accompanying consolidated financial statements).
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE NUMBERS
Reports of Independent Certified Public Accountants............... 34-36
Consolidated Balance Sheets for
December 31, 1995 and 1994...................................... 37
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993................................ 38
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1994 and 1993.................... 39
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993................................ 40-41
Notes to Consolidated Financial Statements........................ 42-64
SCHEDULES:
II - Valuation and Qualifying Accounts and Reserves.............. 65
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Peoples Telephone Company, Inc.
We have audited the consolidated balance sheet of Peoples Telephone Company,
Inc. and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended. Our audit also included the financial statement schedule for the year
ended December 31, 1995 listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Peoples
Telephone Company, Inc. and subsidiaries at December 31, 1995, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule for the year ended December
31, 1995, when considered in relation to the basic financial statement takes as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Miami, Florida
March 8, 1996
34
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders'
of Peoples Telephone Company, Inc.
In our opinion, the consolidated financial statements as of December 31, 1994
and for the years ended December 31, 1994 and 1993 listed in the accompanying
index present fairly, in all material respects, the financial position of
Peoples Telephone Company, Inc. and its subsidiaries (the Company) at December
31, 1994 and the results of their operations and their cash flows for the years
ended December 31, 1994 and 1993, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Peoples Telephone Company, Inc. and its
subsidiaries for any period subsequent to December 31, 1994.
The accompanying financial statements as of December 31, 1994 and for the years
ended December 31, 1994 and 1993 have been prepared assuming the Company will
continue as a going concern. The Company's failure to make an April 1995 payment
due on a promissory note and the restatement of the Company's first quarter 1994
financial statements on Form 10-Q has caused a default under the Company's
revolving line of credit and under the Company's mortgage note agreement. The
Company obtained from the lenders a waiver of default related to its first
quarter 1994 restatement and subject to certain conditions being met by the
Company by June 30, 1995, obtained a waiver of default arising from its failure
to make the April 1995 payment on a promissory note. With respect to its
mortgage note agreement, the Company obtained a waiver subject to the condition
that on or before the earlier of one day after the closing of the Senior Note
offering or August 31, 1995 the mortgage note and all other obligations owed the
mortgage lender be paid in full. In the event the conditions are not satisfied
by their prescribed dates, the waivers would be withdrawn, an event of default
under the revolving line of credit and the mortgage note agreement would exist
and the lenders would have the right to call the loans. Also, should the Company
satisfy the aforementioned conditions by the prescribed dates, the Company's
remaining balance of its revolving line of credit is due in full on May 31,
1996. The Company is in the process of offering under an exemption from the
registration requirements of the Securities Act of 1933, $100 million of Senior
Notes due 2002; the proceeds of which, if such offering is successful, together
with a proposed $40 million credit agreement, will be used to repay the
outstanding balance of the other line of credit, the promissory notes and the
mortgage note. As a result, a substantial doubt arises about the Company's
ability to continue as a going concern. The accompanying financial statements as
of December 31, 1994 and for the years ended December 31, 1994 and 1993 do not
include any adjustments that might result from the outcome of this uncertainty.
35
<PAGE>
To the Board of Directors and Shareholders
of Peoples Telephone Company, Inc.
Page 2
A complaint has been filed against the Company and certain officers on May 25,
1994 and amended May 26, 1995, which alleges violation of certain federal
securities laws through the issuance of false and misleading statements
regarding a failed merger. The complaint seeks class action certification as
well as compensatory damages. In addition the aforementioned promissory note
holder has asserted certain other claims against the Company. At the present
time, the litigation matters are in the preliminary stage and management, on the
advice of legal counsel, is presently unable to predict the ultimate outcome of
the litigation. Accordingly, no provision for any liability that may result upon
adjudication has been made in the accompanying financial statements as of
December 31, 1994 and for the years ended December 31, 1994 and 1993.
PRICE WATERHOUSE LLP
Miami, Florida
March 28, 1995, except as to the second paragraph of Note 18 (except for the
statement related to Mr. Hanft's resignation), and the matters discussed in the
second and third paragraphs of this report, which are as of May 31, 1995.
36
<PAGE>
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
ASSETS 1995 1994
--------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents ............................. $ 12,366 $ 7,663
Accounts receivable, net of allowance for doubtful
accounts of $5,108 in 1995 and $6,035 in 1994 ....... 7,100 17,682
Inventory ............................................. 1,990 2,994
Prepaid expenses and other current assets ............ 3,764 3,411
Net assets of prepaid calling card and international
telephone center business .......................... -- 2,595
Net assets of discontinued operations ................. -- 6,809
--------- ---------
Total current assets ............................... 25,220 41,154
Property and equipment, net ............................. 78,201 87,757
Location contracts, net ................................. 29,270 35,040
Goodwill, net ........................................... 8,904 9,303
Intangible assets, net .................................. 2,620 3,994
Deferred income taxes ................................... 3,407 1,453
Investment in unconsolidated affiliate .................. 3,736 1,500
Other assets, net ....................................... 8,713 10,390
--------- ---------
Total assets ....................................... $ 160,071 $ 190,591
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current maturities of long-term debt $ 506 $ 14,718
Current portion of obligations under capital leases ... 1,156 2,306
Accounts payable and accrued expenses ................. 19,603 22,799
Accrued interest payable .............................. 5,603 1,061
Income and other taxes payable ........................ 2,452 2,691
--------- ---------
Total current liabilities .......................... 29,320 43,575
Notes payable and long-term debt ........................ 101,259 95,934
Obligations under capital leases ........................ 1,318 2,367
--------- ---------
Total liabilities .................................. 131,897 141,876
--------- ---------
Commitments and contingencies (Notes 14 and 15) ........... -- --
Preferred Stock
Cumulative convertible preferred stock Series C,
$.01 par value; 160 shares
authorized; 150 shares issued and
outstanding ......................................... 13,413 --
Preferred stock dividends payable ..................... 473 --
--------- ---------
Total preferred stock ............................. 13,886 --
Shareholders' equity
Preferred stock; $.01 par value; 4,140 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;
16,108 in 1995 and 15,789 in 1994 shares issued and
outstanding .......................................... 161 158
Capital in excess of par value ........................ 61,573 58,143
Accumulated deficit ................................... (47,446) (9,586)
--------- ---------
Total shareholders' equity ......................... 14,288 48,715
--------- ---------
Total liabilities and shareholders' equity ......... $ 160,071 $ 190,591
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
FOR THE YEAR ENDED
DECEMBER 31,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Coin calls ...................................... $ 78,353 $ 79,392 $ 56,607
Non-coin calls .................................. 59,916 77,994 59,788
Service and other ............................... 122 1,615 610
Gain on sale of asset ........................... -- 441 --
--------- --------- ---------
Total revenues ............................... 138,391 159,442 117,005
--------- --------- ---------
Costs and expenses
Telephone charges ............................... 48,716 67,656 39,409
Commissions ..................................... 34,740 32,693 24,012
Field service and collection .................... 23,382 21,334 13,760
Depreciation and amortization ................... 22,451 22,522 15,031
Selling, general and administrative ............. 11,859 14,580 8,998
Interest ........................................ 9,965 6,668 3,065
Loss from impairment of inmate assets ........... 4,740 -- --
Loss from operations of prepaid calling
card and international telephone centers ...... -- 1,816 1,730
Loss on disposal of prepaid calling card
and international telephone centers ........... 566 3,690 --
Litigation settlement expense ................... 925 -- --
Other ........................................... 5,252 -- --
--------- --------- ---------
Total costs and expenses ..................... 162,596 170,959 106,005
--------- --------- ---------
(Loss) income from continuing operations
before income taxes and extraordinary item. ..... (24,205) (11,517) 11,000
Benefit from (provision for) income taxes ......... 1,738 4,405 (4,144)
--------- --------- ---------
Net (loss) income from continuing operations
before extraordinary item ....................... (22,467) (7,112) 6,856
--------- --------- ---------
Discontinued operations
Loss from operations, net of tax
benefit (provision) of $2,293 in 1994 and
$(1,113) in 1993 ............................ -- (3,961) (1,514)
Loss on disposition, including a tax
provision of $(1,521) in 1995 and $(1,885)
in 1994 ..................................... (12,066) (7,320) --
--------- --------- ---------
Loss from discontinued operations ............ (12,066) (11,281) (1,514)
Extraordinary loss from extinguishment of debt, net
of income tax benefit of $(1,737) ............... (3,327) -- --
--------- --------- ---------
Net (loss) income ............................. $ (37,860) $ (18,393) $ 5,342
========= ========= =========
Primary and fully diluted earnings per share
(Loss) income from continuing operations ........ $ (1.43) $ (.45) $ .47
(Loss) from discontinued operations ............. (.75) (.72) (.10)
Extraordinary loss, net ......................... (.20) -- --
--------- --------- ---------
Net (loss) income .............................. $ (2.38) $ (1.17) $ .37
========= ========= =========
Weighted average common and common
equivalent shares outstanding .................. 16,091 15,713 14,479
========= ========= =========
Weighted average common shares outstanding
assuming full dilution ......................... 16,091 15,713 14,517
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1993 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
(in thousands, except per share data)
SERIES B CAPITAL IN EXCESS
PREFERRED STOCK COMMON STOCK OF PAR VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1993 .....................................$ - $ 111 $ 24,028
=========== =========== ===========
Exercise of 540 warrants at $3.17-$4.67 per share............... - 5 1,721
Exercise of 1,754 options at $2.00-$8.00 per share............. - 18 6,245
Issuance of 621 shares of common stock for acquisitions........ - 6 7,084
Issuance of 1,500 shares of common stock in public offering... - 15 13,985
Issuance costs associated with public offering of common stock - - (1,160)
Tax adjustment related to exercising options ................... - - 4,468
Net income for the year......................................... - - -
----------- ----------- -----------
Balance at December 31, 1993....................................$ - $ 155 $ 56,371
=========== =========== ===========
Exercise of 150 warrants at $3.17 per share..................... - 2 473
Exercise of 177 options at $2.67-$7.83 per share................ - 2 829
Cancellation of 54 shares relating to prior acquisitions........ - (1) (499)
Tax adjustment related to exercising options.................... - - 255
Adjustment for issuance of warrants to a bank................... - - 2,520
Officer and director notes receivable........................... - - (1,806)
Net loss for the year........................................... - - -
----------- ----------- -----------
Balance at December 31, 1994....................................$ - $ 158 $ 58,143
=========== =========== ===========
Exercise of 93 options at $2.00-$3.59 per share................. - 1 306
Issuance of 224 shares for prior acquisitions................... - 2 1,302
Series C Preferred stock dividends accrued...................... - - (473)
Preferred stock issuance cost and warrant accretion............. - - (69)
Issuance of 275 preferred stock warrants........................ - - 558
Write-off of Officer and Director notes receivable.............. - - 1,806
Net loss for the year........................................... - - -
----------- ----------- -----------
Balance at December 31, 1995....................................$ - $ 161 $ 61,573
=========== =========== ===========
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
RETAINED EARNINGS
(ACCUMULATED DEFICIT) TOTAL
-------- ----------
<C> <C>
Balance at January 1, 1993 ..................................... $ 3,465 $ 27,604
======== ==========
Exercise of 540 warrants at $3.17-$4.67 per share............... - 1,726
Exercise of 1,754 options at $2.00-$8.00 per share............. - 6,263
Issuance of 621 shares of common stock for acquisitions........ - 7,090
Issuance of 1,500 shares of common stock in public offering... - 14,000
Issuance costs associated with public offering of common stock - (1,160)
Tax adjustment related to exercising options ................... - 4,468
Net income for the year......................................... 5,342 5,342
-------- ----------
Balance at December 31, 1993.................................... $ 8,807 $ 65,333
======== ==========
Exercise of 150 warrants at $3.17 per share..................... - 475
Exercise of 177 options at $2.67-$7.83 per share................ - 831
Cancellation of 54 shares relating to prior acquisitions........ - (500)
Tax adjustment related to exercising options.................... - 255
Adjustment for issuance of warrants to a bank................... - 2,520
Officer and director notes receivable........................... - (1,806)
Net loss for the year........................................... (18,393) (18,393)
-------- ----------
Balance at December 31, 1994.................................... $ (9,586) $ 48,715
======== ==========
Exercise of 93 options at $2.00-$3.59 per share................. - 307
Issuance of 224 shares for prior acquisitions................... - 1,304
Series C Preferred stock dividends accrued...................... - (473)
Preferred stock issuance cost and warrant accretion............. - (69)
Issuance of 275 preferred stock warrants........................ - 558
Write-off of Officer and Director notes receivable.............. - 1,806
Net loss for the year........................................... (37,860) (37,860)
-------- ----------
Balance at December 31, 1995.................................... $(47,446) $ 14,288
======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
<TABLE>
<CAPTION>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ........................................... $ (37,860) $ (18,393) $ 5,342
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 22,451 22,522 15,031
Deferred income taxes .................................... (1,954) (4,405) 3,192
Extraordinary loss on debt extinguishment ................ 5,064 -- --
Equity in losses of unconsolidated affiliate ............. 621 -- --
Loss on disposition of assets, net ....................... 15,906 8,585 --
Write-off of officer receivables ......................... 3,555 -- --
Changes in assets and liabilities, excluding the effect of
acquisitions:
Decrease (increase) in accounts receivable, net......... 7,335 (736) (10,515)
Decrease (increase) in inventory ....................... 1,004 (1,039) (213)
Decrease (increase) in prepaid expenses and
other current assets ................................. 1,156 (93) (3,240)
Decrease (increase) in other assets .................... 2,694 (4,871) (3,502)
(Decrease) increase in accounts payable and accrued
expenses ............................................. (6,859) (2,579) 12,691
Decrease in other payables ............................. -- -- (482)
Increase in accrued interest payable ................... 4,542 528 333
(Increase) decrease in income and other taxes payable .. (239) 1,909 67
(Decrease) increase in minority interest ............... -- (275) 275
Net effect of discontinued operations and assets held
for sale ............................................. (6,579) (2,030) 1,078
--------- --------- ---------
Net cash provided by (used in) operating activities .... 10,837 (877) 20,057
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions ............................ (5,189) (10,992) (24,119)
Proceeds from property and equipment sales .................. 3,595 3,049 --
Payments for acquisitions and certain contracts ............. (1,505) (16,162) (46,653)
Increase in investment in unconsolidated affiliate .......... 127 -- --
Contributions to joint ventures ............................. -- (211) (2,701)
--------- --------- ---------
Net cash used in investing activities ....................... (2,972) (24,316) (73,473)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under long-term debt ............................. 101,600 31,252 49,360
Principal payments on long-term debt ........................ (110,487) (116) (11,761)
Principal payments under capital lease obligations .......... (3,384) (2,309) (2,761)
Debt issuance costs ......................................... (5,100) -- (643)
Exercise of stock options and warrants ...................... 307 1,306 7,990
Officer and director notes receivable ....................... -- (1,806) --
Proceeds from stock offering ................................ 15,000 -- 14,000
Proceeds from the issuance of preferred stock warrants ...... 100 -- --
Issuance costs associated with stock offering ............... (1,198) -- (1,160)
--------- --------- ---------
Net cash (used in) provided by financing activities ......... (3,162) 28,327 55,025
--------- --------- ---------
Net increase in cash and cash equivalents ..................... 4,703 3,134 1,609
Cash and cash equivalents at beginning of year ................ 7,663 4,529 2,920
--------- --------- ---------
Cash and cash equivalents at end of year ...................... $ 12,366 $ 7,663 $ 4,529
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ------------ ------------
Cash paid during the year for:
<S> <C> <C> <C>
Interest................................ $ 7,357 $ 4,784 $ 2,711
=========== ============ ============
Income taxes............................ $ 242 $ 201 $ 490
=========== ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1994 and 1993, the Company purchased certain net assets of several
corporations for a combination of cash, the Company's common stock and the
issuance of notes payable. There were no acquisitions in 1995. However, the
Company issued shares of its Common Stock in 1995 related to previous
acquisitions. A summary of these transactions is as follows (in thousands):
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1995 1994 1993
-------- -------- --------
Fair value of net assets acquired ...... $ -- $ 22,882 $ 60,631
Fair value of common stock issued and
issuable ............................. 1,304 (1,718) (7,090)
Principal amount of note payables issued
and other liabilities ................ -- (6,687) (7,868)
-------- -------- --------
Net amount paid ........................ $ 1,304 $ 14,477 $ 45,673
======== ======== ========
During the years ended December 31, 1995, 1994 and 1993, the Company acquired
fixed assets of approximately $1,185,000, $2,456,000 and $1,211,000,
respectively, by incurring capital lease obligations for the same amounts.
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
Description of business
Peoples Telephone Company, Inc. (the "Company") owns, operates, services and
maintains public pay and inmate telephone systems connected to the network of
regulated telephone companies at various third party property owner locations
and correctional facilities throughout the United States. In connection with the
pay telephone systems, the Company also derives revenue from routing calls to
operator service companies.
Changes in business
In December 1994, in an effort to return the Company's focus to its core public
pay telephone business, the Company's Board of Directors approved the
divestiture of its inmate telephone, prepaid calling card and international
telephone centers and cellular telephone operations.
During 1995, the Company sold its prepaid calling card business and
international telephone center operations for $6.3 million and $2.0 million,
respectively (see Note 16).
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 years ended December 31, 1995,
1994 and 1993 have been reclassified to present the inmate telephone operations
as part of continuing operations.
On October 9, 1995, the Company sold a portion of its inmate telephone
operations for approximately $2.2 million subject to certain regulatory consents
and other conditions. The net loss on sale of approximately $0.4 million is
included in the Loss from impairment of inmate assets in the accompanying
consolidated statement of operations in 1995.
The Company's 1994 results included approximately $4.0 million for the
anticipated loss on disposal and $0.1 million for the anticipated operating
losses from January 1, 1995 through disposition of the inmate telephone
operations. The inmate division's actual operating losses in 1995 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 statement of operations for the year ended
December 31, 1995.
Also included in the loss for impairment of inmate assets is the write-off of
approximately $0.4 million of intangible assets associated with location
contracts not renewed by the Company.
On November 13, 1995, the Company sold its cellular telephone operations for
approximately $6.0 million (see Note 17).
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The divestiture of the Company's
prepaid calling card and international telephone centers and their results of
operations have been segregated and are reported as a separate component of
income from continuing operations (see Note 16).
42
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The divestiture of the Company's cellular telephone operations has been
accounted for as discontinued operations. Accordingly, operating results and
cash flows for the business have been segregated and reported as discontinued
operations in the accompanying consolidated statements of operations and cash
flows (see Note 17).
Acquisitions and joint ventures
During March 1994, the Company acquired certain assets of Emro Marketing Company
for a purchase price of $1.7 million in cash. The assets acquired included
approximately 1,045 pay telephones.
During June 1994, the Company acquired certain assets of the Atlantic Telco
Joint Venture for approximately $11.5 million in cash. The Atlantic Telco Joint
Venture owned and operated approximately 3,300 pay telephones and related
location contracts. These phones are located primarily in Maryland and Virginia.
During July 1994, the Company acquired certain assets of Telecorp Funding, Inc.
for approximately $1.9 million in cash and the Company's common stock. The
assets acquired included approximately 600 public pay phones and related
location contracts located primarily in New York City. The Company issued shares
of its common stock subject to the asset purchase agreement in 1995.
During October 1994, the Company acquired Telecoin Communications, Ltd. for
approximately $7.3 million in cash, assumption of liabilities and issuance of
the Company's common stock. The assets acquired included approximately 2,155 pay
telephones and their related location contracts. These phones are located
primarily in Ohio and Pennsylvania. The Company issued shares of its common
stock subject to the asset purchase agreement in 1995.
During 1993, the Company acquired certain net assets of several corporations
with operations similar to the Company for a total of $60.6 million in cash,
common stock and notes payable. The most significant acquisition during 1993 was
the purchase of substantially all of the assets of Ascom Communications, Inc.
("ACI") in November 1993 for $40.0 million which consisted of $28.0 million
funded by the Company's credit facilities, two promissory notes totaling $6.0
million and $6.0 million of the Company's stock (see Note 6 for the terms of the
notes). The ACI acquisition added 11,600 public pay telephones and included
dedicated switched network facilities installed in five states.
All 1994 and 1993 acquisitions were accounted for as purchases.
43
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed statements of operations for the
years ended December 31, 1995 and 1994 have been prepared to reflect the sale of
the prepaid calling card and international telephone center operations as if the
sale had been consummated as of January 1, 1994, after giving effect to certain
pro forma adjustments as discussed below (in thousands, except per share data).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1995 1994
------------- ---------
<S> <C> <C>
Total revenue ............................. $ 138,391 $ 159,442
============= =========
Net loss from continuing operations ....... $ (21,922) $ (6,248)
============= =========
Net loss per common and common
equivalent share
Primary and fully diluted ............... $ (1.39) $ (0.40)
============= =========
</TABLE>
Pro forma adjustments represent the Company's estimated equity in the losses of
Global Link based on actual 1995 results and accrual of interest income on the
notes receivable from Global Link.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of revenue
Revenue is recognized when earned. Coin call and non-coin call (alternate
operator service and store and forward) revenues are recognized at the time the
call is made. Revenue from service contracts is recognized on a straight-line
basis over the term of the contract.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company defines cash and cash equivalents as those highly liquid investments
purchased with an original maturity of three months or less.
44
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets commencing
when the equipment is installed or placed in service. Installed telephones and
related equipment includes installation and other costs which are capitalized
and amortized over the estimated useful lives of the equipment. The costs
associated with maintenance, repair and refurbishment of telephone equipment are
charged to expense as incurred.
Effective October 1, 1993, the Company revised its depreciation policy to
recognize an extended estimated service life on its pay telephones from 7 to 10
years. The change in pay telephone depreciation reduced depreciation expense and
decreased net loss or increased net income by approximately $3,501,000,
$3,766,000 and $470,000 or $0.22, $0.24 and $0.03 per common share, for the
years ended December 31, 1995, 1994 and 1993, respectively.
The capitalized cost of equipment and vehicles under capital leases is amortized
over the lesser of the lease term or the asset's estimated useful life, and is
included in depreciation and amortization expense in the consolidated statements
of operations.
Inventories
Inventories, which consist primarily of replacement parts, are carried at the
lower of cost or market, with cost being determined on the first-in, first-out
basis.
Intangible assets
Location contracts and intangible assets primarily result from business
combinations and signing bonuses paid to property owners and include acquisition
costs allocated to location owner contracts, agreements not to compete, and
other identifiable intangible assets. These assets are amortized on a
straight-line basis over the estimated life assuming, in some instances, renewal
of the underlying contracts (3 to 10 years). Accumulated amortization at
December 31, 1995, 1994 and 1993 was approximately $15,115,000, $9,486,000 and
$5,505,000, respectively.
Goodwill arising from acquisitions is amortized on a straight-line basis over
the periods to be benefited or 20 years, whichever is less. Accumulated
amortization at December 31, 1995, 1994 and 1993 was approximately $2,795,000,
$2,001,000 and $551,000, respectively.
The carrying value of intangible assets is periodically reviewed by the Company
and impairments, if any, are recognized when the expected future undiscounted
cash flows derived from such intangible assets are less than their carrying
value.
In March 1995, the FASB issued Statement No. 121 ("SFAS 121"), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company will adopt SFAS 121 in the
first quarter of 1996 and, based on current circumstances, does not believe the
effect of adoption will be material.
45
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments
Investments in which the Company has an ownership interest of at least 20
percent but not more than 50 percent are accounted for under the equity method.
Investments of less than 20 percent are generally accounted for under the cost
method.
Other Assets
Other Assets include primarily deferred financing costs, long-term deposits and
a note receivable from a third party which purchased assets from the Company.
The deferred financing costs are amortized over the term of the debt on a
straight line basis. At December 31, 1995, 1994 and 1993, accumulated
amortization of the deferred financing costs was $319,000, $1,905,000 and
$711,000, respectively.
Income taxes
Deferred income taxes are recognized for temporary differences between the tax
and financial reporting bases of the Company's assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion of the
tax assets will not be realized.
Stock Options
Options issued to employees or directors of the Company under the Company's
non-qualified stock option plans are accounted for under Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." The
exercise price of the Company's employer stock options equals the market price
of the underlying stock on the date of grant, therefore no compensation expense
is recognized under APB 25.
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which requires companies to either recognize expense
for stock-based awards based on their fair value on the date of grant or provide
footnote disclosures regarding the impact of such changes. The Company will
adopt the provisions of SFAS 123 on January 1, 1996 but will continue to account
for stock-based compensation under the provisions of APB25.
Earnings per share
Primary earnings per share amounts are computed based upon the weighted average
number of common and common equivalent shares outstanding, assuming proceeds
from the assumed exercise of options were used to purchase common shares
outstanding at the average market price during the period, unless such exercise
is antidilutive. Fully diluted earnings per share assumes that the proceeds were
used to purchase common shares outstanding at the higher of the market value per
share at the end of each period or the average market value during the period,
unless such exercise is antidilutive (see Note 12).
Reclassification
Certain amounts for the prior years have been reclassified to conform with the
current year presentation.
46
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1995 and 1994, consist primarily of amounts
due from a billing and collection clearinghouse for non-coin calls placed
through the Company's public pay and inmate telephones and, to a lesser extent,
commissions from various operator service companies which have been selected to
handle non-coin calls not placed through the Company's automated operator
system. Pursuant to the Company's agreement with the billing and collection
clearinghouse, the collections from LECs are deposited into a trust account and
then distributed directly to the Company. The balance due from one billing and
collection clearinghouse was approximately $4,570,000 and $13,061,000 at
December 31, 1995 and 1994, respectively.
In 1993, the Company recorded net receivables of approximately $1.7 million
relating to the Company's refund claims for overpayment of excise taxes from the
Internal Revenue Service and certain state sales and use taxes from various
local exchange carriers. These refund claims were reflected as a reduction of
telephone charges in the accompanying consolidated statements of operations and
were recorded throughout 1993 as the refund claims were finalized. At December
31, 1994, approximately $980,000 of this amount remained and was included in the
accounts receivable balance. At December 31, 1995, all uncollected balances were
fully reserved.
47
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, USEFUL LIVES
1995 1994 (IN YEARS)
--------- --------- ---------
<S> <C> <C>
Installed telephones and related equipment, including
$1,542 under capital leases in 1994 .................... $ 106,031 $ 104,720 7-10
Telephones and related equipment pending installation .... 9,644 8,430
Land ..................................................... 950 950
Building and improvements ................................ 4,357 4,254 25
Furniture, fixtures and office equipment ................. 7,273 6,950 5-7
Vehicles and equipment under capital leases .............. 4,619 4,905 4
Other .................................................... 1,193 1,193 5
--------- ---------
134,067 131,402
Less accumulated depreciation and amortization, including
$1,689 and $1,656 for capital leases ................... (55,866) (43,645)
--------- ---------
$ 78,201 $ 87,757
========= =========
</TABLE>
During the third and fourth quarters of 1995, the Company recorded inventory
obsolescence reserves of approximately $0.7 million and $1.0 million,
respectively, which are included in Field service and collection expenses in the
accompanying consolidated statements of operations.
Depreciation expense for the periods ended December 31, 1995, 1994 and 1993 was
$14,733,000, $15,308,000 and $11,409,000, respectively.
The majority of the Company's assets are security for long-term bank debt (see
Note 6).
48
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has entered into various noncancellable leases which are classified
as capital leases. Future minimum lease payments under the capitalized lease
obligations, including imputed interest, are as follows (in thousands):
FOR THE YEAR ENDING DECEMBER 31,
-----------------------------------------------------------
1996 ............................................ $ 1,398
1997 ............................................ 1,005
1998 ............................................ 427
1999 ............................................ 21
2000 ............................................ 7
-------
2,858
Less amount representing imputed interest ...... (358)
-------
Present value of obligations under capital leases 2,500
Less current interest payable ................... (26)
Less current portion ........................... (1,156)
-------
$ 1,318
=======
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in thousands):
DECEMBER 31,
-----------------
1995 1994
------- -------
Telecommunication charges .................. $ 5,165 $ 8,569
Commissions ................................ 4,503 3,272
Telephone equipment purchased .............. 222 254
Due on acquisitions ........................ 369 3,077
Other ...................................... 9,344 7,627
------- -------
$19,603 $22,799
======= =======
49
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE AND LONG TERM DEBT
Notes payable and long-term debt consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
$100 Million Senior Notes due 2002 with a stated interest
rate of 12 1/4% .................................................... $ 100,000 $ --
$125 million revolving line of credit with interest rates
ranging from the Bank's prime rate plus 1 1/4% to LIBOR plus 2 1/2% -- 100,240
$40 million revolving line of credit with interest rates ranging
from the Bank's prime rate plus 1.5% to LIBOR plus 3.0%. At
December 31, 1995, the Bank's prime rate was 8.5% and the LIBOR
rate ranged from 6.125% to 7% ...................................... -- --
Five-year promissory note to Ascom Communications, Inc. ............
with interest rate at 7% ........................................... -- 4,000
Mortgage note payable with interest rate at 7.38% .................. -- 2,513
One-year promissory note to Ascom Communications, Inc. .............
with interest rate at 5% ................................. -- 1,232
Various notes payable acquired through the acquisition of
Telecoin Communications, Ltd. with interest rates ranging
from prime plus 1.25% to prime plus 1.5% and maturity
dates ranging from due on demand to October 1998 ................... 1,745 2,645
Other .............................................................. 20 22
--------- ---------
101,765 110,652
Less current maturities ............................................ (506) (14,718)
--------- ---------
$ 101,259 $ 95,934
========= =========
</TABLE>
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 $15.0 million
(see Note 7). The net proceeds of approximately $108.7 million from the Senior
Notes and the Preferred Stock were used to repay the aggregate outstanding
balance of approximately $105.1 million due under the Company's revolving line
of credit and certain other debt obligations including accrued interest.
50
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Company paid
approximately $5.1 million in issuance costs which will be deferred and
amortized over the term of the debt.
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 provided for a new $40.0 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.
In November 1995, the Loan Agreement was amended limiting the Company's
availability under the credit facility based upon achieved levels of operating
cash flow of the Company. At December 31, 1995, the Company had no amounts
borrowed under the facility.
At December 31, 1995, the Company was not in compliance with certain financial
covenants contained in the Loan Agreement. During February 1996, the Bank waived
the Company's non-compliance with these covenants for the three month period
ended December 31, 1995. In connection with the waiver, the Company and the Bank
agreed to amend certain terms contained in the Loan Agreement (the "Amendment").
The Amendment, among other things, will decrease the facility to $10.0 million
and will reduce the requirements of certain financial covenants. The amended
credit facility will bear interest at the Bank's prime rate plus 2% and will
require all outstanding principal balances to be repaid in September 1997.
As a result of various 1995 amendments to its credit facilities, the Company
recorded extraordinary losses of $5.0 million for the write off of deferred
financing costs associated with the early extinguishment of debt, before the
income tax benefit of approximately $1.7 million.
In March 1993, the Company purchased land and an office building which became
the principal offices of the Company. The purchase was financed with a bank in
the principal amount of $2.7 million. All outstanding balances due under the
mortgage note were repaid in conjunction with the refinancing transaction
discussed above.
51
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future maturities of the notes payable and long-term debt, based on amounts
outstanding as of December 31, 1995, are as follows (in thousands):
1996 ........................ $ 506
1997 ........................ 750
1998 ........................ 509
1999 ........................ --
2000 ........................ --
Thereafter 100,000
--------
$101,765
NOTE 7 - PREFERRED STOCK
In connection with the refinancing discussed above, the Company issued 150,000
shares of Series C Cumulative Convertible Preferred Stock to UBS Partners, Inc.,
a wholly-owned subsidiary of Union Bank of Switzerland, for $15.0 million. The
Preferred Stock cumulates dividends at an annual rate of 7%. The dividends 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 in July 2005. 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 and have voting rights equal to those of Common
Shareholders. The Company paid issuance costs of approximately $1.2 million.
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 for approximately $100,000. The warrants are
exercisable at $5.25 per share through the year 2005 and are valued at
approximately $0.6 million (see Note 6).
The issuance costs and the value of the warrants are recorded as a reduction of
the preferred stock balance and are accreted using the effective interest method
through capital in excess of par value over the term of the Preferred Stock.
NOTE 8 - SHAREHOLDERS' EQUITY
In 1994, 1993, 1992 and 1990, under the terms of the Company's loan agreement,
as amended, the Company granted its lender warrants to purchase 250,000,
300,000, 150,000, and 900,000 shares of common or preferred stock, respectively.
The exercise price of 900,000 of these shares is $3.17 per share and the
remaining 700,000 shares is $5.25 per share. The Company's lender exercised its
right to purchase 150,000, 450,000 and 300,000 shares of common stock at $3.17
per share during 1994, 1993 and 1992, respectively. All warrants expire in the
year 2000.
On August 31, 1993, the Company effected a 3 for 2 stock split effective
September 27, 1993. The consolidated financial statements and related financial
information have been retroactively adjusted to reflect the 3 for 2 split.
In August 1993, the Company completed the sale of 1,500,000 shares of its common
stock in a registered private placement. After the deduction of the underwriting
discount and other expenses of the private placement, the net proceeds to the
Company were $12.8 million.
52
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's preferred stock may be issued from time to time at the discretion
of the Board of Directors without shareholder approval. The Board of Directors
is authorized to issue these shares in different series and, with respect to
each series, to determine the dividend rate, provisions regarding redemption,
conversion, liquidation preference and other rights and privileges.
In August 1988, the Company sold 90,000 shares of its previously authorized
common stock. The sale consisted of 45,000 units at a price of $7.00 per unit.
Each unit consisted of two shares of common stock together with one warrant to
purchase a share of common stock at $4.33 and a share of common stock at $4.66.
The warrants were exercised during 1993.
NOTE 9 - STOCK OPTION PLANS
The Company maintains three non-qualified stock option plans covering primarily
employees and directors. Options under the three plans are issuable at the
discretion of committees appointed by the Board of Directors. Certain options
under the plans vest at rates of 10% and 33% per year from the date of issuance
and may expire 30 days after the termination or resignation of the employee or
director.
Under the terms of the plans, the exercise price for options granted is required
to be at least the fair market value of the Company's common stock on the date
of grant.
The following summarizes pertinent information covering stock options issued
pursuant to the Company's stock option plans (in thousands, except per share
data):
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding, beginning of year ............. 2,794 1,803 2,797
Granted ..................................... 200 1,198 776
Exercised ................................... (93) (177) (1,754)
Cancelled ................................... (629) (30) (16)
------------ ------------ ------------
Outstanding, end of year .................... 2,272 2,794 1,803
Exercisable, end of the year ................ 2,055 1,975 1,425
============ ============ ============
Option price per share of outstanding options $2.00-$11.38 $1.33-$11.38 $1.33-$11.38
============ ============ ============
</TABLE>
53
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - EMPLOYEE SAVINGS PLAN
During November 1990, the Company established a savings plan under the
provisions of section 401(k) of the Internal Revenue Code (the "Plan"), which
covers substantially all employees. The Company's contributions to the Plan are
discretionary. Employees participating in the Plan vest in amounts contributed
by the Company over a period of 7 years. The Company matches 25% of employee
contributions to a maximum of 6% of employee earnings each plan year. The
Company's contributions totaled approximately $77,000, $103,000 and $54,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 11 - INCOME TAXES
The components of the provision for income taxes for the years ended December
31, 1995, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Currently payable:
Federal...................................... $ -- $ -- $ (368)
State ........................................ 107 82 137
Deferred ....................................... (1,845) (4,487) 4,375
------- ------- -------
$(1,738) $(4,405) $ 4,144
======= ======= =======
</TABLE>
A tax benefit of $0.3 million and $4.5 million attributable to the exercise of
employee stock options was credited to shareholders' equity during 1994 and
1993, respectively.
A reconciliation between the Company's effective income tax rates and income tax
statutory rates for the years ended December 31, 1995, 1994 and 1993 is as
follows:
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
Statutory tax rate .......... (34.0)% (34.0)% 35.0%
Change in valuation allowance 29.3 -- --
Non-deductible expenses ..... 1.0 (2.7) 1.3
State taxes and other, net .. (3.5) (1.5) 1.4
------ ------ ------
(7.2)% (38.2)% 37.7%
====== ====== ======
54
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant temporary differences included in the net deferred tax asset as
of December 31, 1995 and 1994 are as follows (in thousands):
DECEMBER 31,
--------------------
1995 1994
-------- --------
Deferred tax assets:
Net operating loss carryforward ..................... $ 20,185 $ 11,166
Alternative Minimum Tax Credit carryforward ......... 218 218
Other ............................................... 9,343 972
-------- --------
Total gross deferred tax assets...................... 29,746 12,356
Less - valuation allowance .......................... 12,023 --
-------- --------
Net deferred tax assets.............................. 17,723 12,356
-------- --------
Deferred tax liabilities:
Difference between book and tax bases of fixed assets (13,313) (9,738)
Other ............................................... (1,003) (1,165)
-------- --------
Total deferred tax liabilities ...................... (14,316) (10,903)
-------- --------
Net deferred tax assets ............................. $ 3,407 $ 1,453
======== ========
At December 31, 1995, the Company has tax net operating loss carry forwards of
approximately $68.4 million, which expire in various amounts in the years 2002
to 2010. Approximately $3.2 million of these net operating loss carryforwards
relate to business acquisitions for which annual utilization will be limited to
approximately $330,000, with further limitation if future ownership changes
occur. In addition, these loss carryforwards can only be utilized against future
taxable income, if any, generated by these acquired companies as if these
companies continued to file separate income tax returns.
During 1995, the deferred tax asset valuation allowance against net operating
losses increased to $12.0 million. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the periods that
temporary differences and carryforwards are expected to be available to reduce
taxable income. Based upon past earnings history, trends, regulatory changes,
expiration dates of net operating loss carryforwads and tax planning strategies
that could be implemented, if necessary, to realize its deferred tax assets. The
Company has recorded a valuation allowance to reflect the estimated amount of
deferred tax assets, which may not be realized due to the expiration of its
operating loss carryforwards.
55
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - EARNINGS PER SHARE
For the years ended December 31, 1995, 1994 and 1993, the treasury stock method
was used to determine the dilutive effect of the options and warrants on
earnings per share data. Net (loss) income from continuing operations per share
and the weighted average number of shares outstanding used in the computations
are summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------- -------------------- -----------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net (loss) income from
continuing operations $(22,467) $(22,467) $ (7,112) $ (7,112) $ 6,856 $ 6,856
Deduct:
Cumulative preferred
stock dividend
requirement 473 473 -- -- -- --
-------- -------- -------- -------- ------- -------
(Loss) income for per
share computations $(22,940) $(22,940) $ (7,112) $ (7,112) $ 6,856 $ 6,856
======== ======== ======== ======== ======= =======
Number of shares:
Weighted average common
shares outstanding 16,091 16,091 15,713 15,713 12,700 12,700
Add:
Net additional
shares issuable(1) -- -- -- -- 1,779 1,817
-------- -------- -------- -------- ------- -------
Weighted average
shares used in the
per share compu-
tations 16,091 16,091 15,713 15,713 14,479 14,517
======== ======== ======== ======== ======= =======
$ (1.43) $ (1.43) $ (.45) $ (.45) $ .47 $ .47
======== ======== ======== ======== ======= =======
</TABLE>
1. Assumes exercise of outstanding common stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if
applicable, on the assumed repurchase of stock.
56
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments held by the Company at December
31, 1995 are based on a variety of factors and assumptions and may not
necessarily be representative of the actual gains or losses that will be
realized in the future and do not include expenses that could be incurred in an
actual sale or settlement.
Long-Term Debt
The fair value of the Company's Senior Notes was estimated by obtaining quoted
market prices. The carrying amount and fair value of the Company's Senior Notes
at December 31, 1995 were approximately $100 million and $80 million,
respectively.
The fair value of the Company's credit facility is assumed to be equal to its
carrying value. At December 31, 1995 there were no amounts outstanding under
the credit facility. At December 31, 1994, the outstanding balance under the
credit facility was approximately $100.2 million.
Preferred Stock
The Company's Preferred Stock does not have a quoted market price and the
Company does not believe it is practicable to estimate a fair value different
from the security's carrying value of approximately $13.4 million because of
features unique to this security including, but not limited to, the right to
appoint two directors and super majority voting requirements. The amounts due
upon redemption equal $15.0 million plus accumulated dividends.
NOTE 14 - LEASES
The Company leases office and warehouse space under various noncancellable
operating lease agreements expiring through 1999. Rental expense under such
leases aggregated approximately $822,000 , $650,000 and $569,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. The Company received
$164,000 in sub-leasing income in 1995 and allocated approximately $150,000 in
1995 and 1994 for rent expense to its cellular telephone operations. Under a
sub-leasing agreement with a third party, the Company will receive $237,000 and
$138,000 in 1996 and 1997, respectively.
Future minimum payments under the above rental agreements as of December 31,
1995 are as follows (in thousands):
FOR THE YEAR ENDING DECEMBER 31,
----------------------------------------
1996 ............................ $645
1997 ............................ 238
1998 ............................ 36
1999 ............................ 12
2000............................. --
----
$931
====
57
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - 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 Consolidated Statements of Operations. The
Proposed Settlement was approved by the United States District Court during
January 1996.
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 6.
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 to reflect this settlement.
On July 1, 1993, the Company filed suit against Bell South Telecommunications,
Inc., a unit of Bell South Corp., that does business as Southern Bell Telephone
& Telegraph ("Bell South") alleging, among other things, violation of the
federal and State of Florida antitrust laws based upon alleged monopolization
and misrepresentation in connection with Southern Bell's operation of its pay
telephone business in Florida. The suit seeks unspecified damages and other
relief. The Company is unable to predict the outcome of the litigation.
During 1993, the Company negotiated a settlement of various issues that were in
dispute with a major vendor. This agreement was finalized in 1994. As a result,
the Company terminated certain of its capital leases and was released from
certain obligations owed through October 31, 1993. This settlement has been
reflected as a reduction of telephone charges in 1993 and approximated
$1,156,000.
In addition to the aforementioned litigation, the Company is a party to certain
legal actions arising in the normal course of business. In the opinion of
management, the ultimate outcome of such litigation will not have a material
effect on the financial position, results of operations or cash flows of the
Company.
The Company has employment contracts with certain officers which expire through
December 31, 1998. The contracts provide for increases in annual base salary,
contingent upon the profitability of the Company, as well as bonus and stock
option provisions.
NOTE 16 - PREPAID CALLING CARD AND INTERNATIONAL TELEPHONE CENTERS
In December 1994, in an effort to return its focus to its core public pay
telephone business, the Company's Board of Directors approved the sales of the
Company's prepaid calling card and international telephone center operations.
58
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1.0 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 on the notes is received.
Accordingly, a provision for losses from January 1, 1995 through February 15,
1995, the divestiture date, of approximately $290,000 has been included in loss
on disposal for the period ended December 31, 1994.
As a result of the February 1995 transaction with Global Link 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.
Under the terms of the sale agreement, 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 during the year
ended December 31, 1995.
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 December 31, 1995 are included in "Other" in the
accompanying consolidated 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 at December 31, 1995 represents $6.6
million of outstanding notes receivable and $1.1 million of other receivables
less the $3.4 million deferred gain on the February 1995 transaction and $0.6
million representing the Company's share of Global Link's 1995 year to date
operating loss and is included in Investments in unconsolidated affiliate in the
accompanying consolidated balance sheet.
On March 1, 1996, Global Link consummated a merger transaction (the "Merger")
with Global Telecommunications Solutions, Inc. ("GTS"). In connection with the
Merger, the Company exchanged its outstanding notes and other receivables
including accrued interest and its 19.99% equity ownership in Global Link for
shares of GTS common stock, $0.6 million in cash and $1.5 million of notes
receivables with various due dates through September 1997. For financial
accounting purposes approximately $1.0 million of net gains will be deferred
until cash from the receivables is collected a gain of approximately $0.3
million will be recorded in the first quarter of 1996.
During the year ended December 31, 1994, the Company recorded a provision of
approximately $3.4 million for the estimated impairment of asset value for its
international telephone center.
On September 28, 1995, the Company sold its international telephone center
operations for $2.0 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 purposes, the recovery of
$2.0 million previously written-off will be recognized
59
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as the cash is received. Accordingly, $0.5 million gain has been included in
Loss on disposal of prepaid calling card and international telephone centers in
the accompanying consolidated statements of operations during the year ended
December 31, 1995.
The following tables set forth the net assets and the results of operations for
the Company's prepaid calling card business and international telephone center
which are included in the accompanying consolidated financial statements (in
thousands):
DECEMBER 31,
---------------
1995 1994
------ ------
Current Assets, net ....... $ -- $1,286
Fixed Assets, net ......... -- 717
Other long-term assets, net -- 592
------ ------
$ -- $2,595
====== ======
DECEMBER 31,
---------------------------
1995 1994 1993
----- ------- -------
Revenues ................. $ -- $ 5,149 $ 1,281
Loss from operations ..... -- (1,816) (1,731)
Loss on disposal ......... (566) (3,690) --
----- ------- -------
Total loss from operations
before income taxes ...... (566) (5,506) (1,731)
Benefit from income taxes -- 2,064 652
----- ------- -------
Net loss from operations . $(566) $(3,442) $(1,079)
===== ======= =======
The prepaid calling card and international telephone centers had revenues of
$781,000 and net losses of $341,000 for the year ended December 31, 1995 which
were previously accrued for in 1994.
NOTE 17 - DISCONTINUED OPERATIONS
In December 1994, as part of the effort to return its focus to its core public
pay telephone business, the Company's Board of Directors also adopted a formal
plan to divest itself of its inmate telephone and cellular telephone 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. This provision included approximately $3.2
million for the estimated operating losses of the cellular telephone operations
for the year ended December 31, 1995. The provision was net of an estimated gain
on disposition of approximately $1.8 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.
60
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED 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
proceeds from the sale were $0.3 million in cash, a $2.0 million promissory note
bearing interest at 8.0%, with principal and interest payable semi-annually
through 2000, shares of STC common stock, a $2.5 million potential revenue earn
out, and STC will pay approximately $1.2 million of PTCC's liabilities. For
financial accounting purposes the $2.5 million potential earn out will be
recognized as received. This transaction resulted in a loss of approximately
$14.6 million which was recorded as a loss on disposal in September 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 difference between the actual loss
and the 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 period from January 1, 1995 through the divestiture date, the cellular
telephone operations had revenues of approximately $6.8 million and net
operating losses of $3.7 million which were previously accrued for in 1994.
During the third quarter of 1995, the Company decided to retain the remaining
portion of its inmate telephone operations (see Note 1). The accompanying
consolidated financial statements 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 operating
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 year ended December
31, 1995.
The following combining tables set forth the net assets and liabilities and
results of operations and loss on disposal of the cellular telephone operations
as they are included in the consolidated financial statements (in thousands):
DECEMBER 31,
---------------------------
1995 1994
------- -------
Current assets, net ................. $ -- $ 1,147
Fixed assets, net ................... -- 6,667
Other long-term assets, net ......... -- 3,111
Liabilities ......................... -- (4,116)
------- -------
$ -- $ 6,809
======= =======
61
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1995 1994 1993
-------- -------- -------
Revenues .................................. $ -- $ 11,581 $ 6,283
Income (loss) from discontinued operations
before income taxes ..................... -- (6,253) (2,954)
Loss on disposal .......................... (14,600) (1,380) --
-------- -------- -------
Total net loss on discontinued operations
before income taxes ..................... -- (7,633) (2,954)
(Provision for) benefit from
income taxes ............................ -- (1,113) 1,113
Minority interest, net .................... -- -- 327
-------- -------- -------
Net loss from discontinued operations ..... $(14,600) $ (8,746) $(1,514)
======== ======== =======
NOTE 18 - RELATED PARTY TRANSACTIONS
In March 1994, the Company sold certain assets used in the operation of the
Company's two telephone centers located in New York City to Global Link. The
total purchase price for the transaction was $2.5 million and 10% of the issued
and outstanding capital stock of Global Link. The Company recorded a net gain on
the sale of approximately $2.0 million. At the time of the transaction, Messrs
Bernard M. Frank and Jody Frank, both directors of the Company, were directors
and shareholders of Global Link. In addition, Mr. Jeffrey Hanft, an officer and
director of the Company, and Mr. Robert D. Rubin, an officer of the Company,
were appointed directors of Global Link as a result of this transaction.
During February 1995, the Company sold its prepaid calling card business to
Global Link for approximately $6.3 million. The Company received $1.0 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. 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
19.99%. To correct this error, the Company agreed with Global Link to reduce its
share ownership to the intended 19.99% level. Since the March 1994 transaction
with Global Link, Mr. Bernard M. Frank has resigned as a director of the
Company. Prior to the February 1995 transaction, Mr. Robert D. Rubin resigned as
a director of Global Link. Additionally, Mr. Jeffrey Hanft resigned as a
director of Global Link in October 1995, and Mr. Jody Frank resigned as a
director of Global Link prior to the March 1996 transaction with GTS (see Note
16).
During 1994 and 1995, the Company made loans of approximately $3.6 million to
certain officers and directors for, among other things, the repayment of debt
previously incurred by them in connection with the exercise of stock options and
payment of related income taxes. The officers and directors exercised the Stock
Options in December 1993 to purchase the Company's common stock for purposes of
increasing the Company's shareholders' equity without accessing external capital
markets. The officers and directors executed promissory notes for a portion of
the amounts due and certain of these notes are secured by a pledge of
approximately 0.6 million shares of the Company's common stock and are due on
March 28, 1996. In addition, during 1994 and 1995, under the terms of employment
contracts with certain officers, the Company paid approximately $0.6 million in
life insurance policy premiums. Such premiums are required to be reimbursed by
such officers upon termination.
62
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is currently attempting to collect the loan amounts due from these
officers and directors and has recorded a reserve for potential uncollectible
loan and insurance amounts of approximately $3.2 million in the fourth quarter
of 1995 which is included in "Other" in the accompanying consolidated statements
of operations.
During December 1995, the Company entered into a settlement agreement in
connection with the termination of an employment contract and settlement of a
claim made by Robert D. Rubin, the Company's former president. As part of the
settlement agreement, approximately $1.4 million of severance costs were
incurred by the Company and have been recorded in "Other" in the accompanying
1995 consolidated statement of operations. Mr. Rubin repaid approximately $0.4
million of amounts owed the Company as part of the settlement agreement.
NOTE 19 - BUSINESS SEGMENT INFORMATION:
The Company's continuing operations consist of public pay telephones and inmate
telephones. Certain business segment information for the years ended December
31, 1995, 1994 and 1993 are as follows (in thousands):
1995 1994 1993
--------- --------- --------
Revenues:
Public pay ............................ $ 112,240 $ 114,958 $ 81,260
Inmate ................................ 26,029 42,869 35,217
Other(1) .............................. 122 1,615 528
--------- --------- --------
$ 138,391 $ 159,442 $117,005
========= ========= ========
Operating (loss) income:
Public pay ............................ $ (1,933) $ (1,489) $ 10,833
Inmate ................................ (815) 2,202 4,696
Other(1) .............................. (750) (56) 266
--------- --------- --------
$ (3,498) $ 657 $ 15,795
========= ========= ========
Corporate expenses(2) .................... $ 10,743 $ 5,506 $ 1,730
Interest expense ......................... 9,964 6,668 3,065
--------- --------- --------
Consolidated (loss) income from continuing
operations before income taxes and
extraordinary items .................... $ (24,205) $ (11,517) $ 11,000
========= ========= ========
Identifiable assets:
Public pay ............................ $ 117,208 $ 136,657 $115,920
Inmate ................................ 16,538 25,434 33,300
Other(1) .............................. 144 1,625 1,669
Corporate assets(3) ................... 26,181 26,875 22,453
--------- --------- --------
$ 160,071 $ 190,591 $173,342
========= ========= ========
Depreciation and amortization expense:
Public pay ............................ $ 19,570 $ 19,019 $ 12,958
Inmate ................................ 2,881 3,337 2,073
Other(1) .............................. -- 166 --
--------- --------- --------
$ 22,451 $ 22,522 $ 15,031
========= ========= ========
Capital expenditures:
Public Pay ............................ $ 8,386 $ 7,076 $ 8,676
Inmate ................................ 198 2,526 3,976
Other(1) .............................. -- 55 --
Corporate expenditures (3) ............ 190 1,861 4,720
--------- --------- --------
$ 8,774 $ 11,518 $ 17,372
========= ========= ========
63
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------
(1) "Other" consists primarily of the Company's international operations.
(2) Corporate expenses include the results of operations and loss on disposal
of the Company's prepaid calling card and international telephone
centers, litigation settlement expense, amounts incurred in connection
with the settlement of contracts and notes receivable with certain
corporate officers and the equity pick-up of Global Link's operating
losses.
(3) Corporate assets consist primarily of cash and cash equivalents, land,
building, building improvements and assets of discontinued operations.
Corporate expenditures consist primarily of land, building, building
improvements and expenditures related to discontinued operations.
Corporate expenditures do not include amounts paid for acquisitions.
64
<PAGE>
SCHEDULE II
PEOPLES TELEPHONE COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES OTHER(1) DEDUCTIONS(2) OF PERIOD
--------- -------- -------- ------------- ---------
CLASSIFICATION
<S> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/95:
Allowance for doubtful accounts .. $6,035 7,386 -- 8,313 $ 5,108
====== ====== ==== ===== =======
Deferred tax asset valuation
allowance ...................... $ -- 12,023 -- -- $12,023
====== ====== ==== ===== =======
Accumulated amortization:
Location contracts .......... $6,942 5,090 -- 148 $11,884
====== ====== ==== ===== =======
Intangible assets ........... $2,544 1,142 -- 455 $ 3,231
====== ====== ==== ===== =======
Goodwill .................... $2,001 1,082 -- 288 $ 2,795
====== ====== ==== ===== =======
YEAR ENDED 12/31/94:
Allowance for doubtful accounts .. $2,115 11,621 (43) 7,658 $ 6,035
====== ====== ==== ===== =======
Accumulated amortization:
Location contracts .......... $3,656 4,120 (93) 741 $ 6,942
====== ====== ==== ===== =======
Intangible assets ........... $1,849 1,171 (215) 261 $ 2,544
====== ====== ==== ===== =======
Goodwill.................... $ 551 924 526 -- $ 2,001
====== ====== ==== ===== =======
YEAR ENDED 12/31/93:
Allowance for doubtful accounts .. $ 73 5,591 -- 3,549 $ 2,115
====== ====== ==== ===== =======
Accumulated amortization:
Location contracts .......... $2,210 1,839 93 486 $ 3,656
====== ====== ==== ===== =======
Intangible assets........... $ 621 1,013 215 -- $ 1,849
====== ====== ==== ===== =======
Goodwill.................... $ 260 291 -- -- $ 551
====== ====== ==== ===== =======
</TABLE>
(1) Adjustments represents the allowance for doubtful accounts and
accumulated amortization related to the prepaid calling card and
international telephone centers which were reclassified to "net assets
held for sale" and the inmate and cellular telephone assets which were
reclassified to "net assets of discontinued operations." Also, 1994
amounts include a reclassification of $526 from accumulated
depreciation.
(2) Deductions represent bad debt write-offs and adjustments to accumulated
amortization for assets sold.
65
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The information required by this Item 9 is contained in the Company's Current
Report on Form 8-K dated December 15, 1995 previously filed with the Securities
and Exchange Commission on December 22, 1995 and Current Report on Form 8K/A No.
1 dated December 15, 1995 previously filed on January 5, 1996.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
66
<PAGE>
PART IV
[TO BE REVISED BY FJH]
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed with, and as a part of, this
Annual Report on Form 10-K.
1. FINANCIAL STATEMENTS.
For a complete list of the Financial Statements filed with
this Annual Report on Form 10-K, see the Index to Financial
Statements and Schedules on Page .
2. FINANCIAL STATEMENT SCHEDULES.
The following Supplementary Schedules are filed with this
Annual Report on Form 10-K:
See Index to Financial Statements and Schedules on Page 33.
3. EXHIBITS.
(i) See Exhibit Index on Pages 69-72.
(b) Reports on Form 8-K.
(1) A Current Report on Form 8-K dated November 13, 1995
relating to Items 2 and 7.
(2) A Current Report on Form 8-K dated November 29, 1995
relating to Item 5.
(3) A Current Report on Form 8-K dated December 15, 1995
relating to Item 4 as amended
by the 8-K/A No. 1 thereto.
(4) A Current Report on Form 8-K dated December 31, 1995
relating to Item 5.
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 29, 1996 /s/ Robert E. Lund
------------------
ROBERT E. LUND
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert E. Lund President,
- ------------------------- Chief Executive Officer, Director
Robert E. Lund March 29, 1996
/s/ Bonnie S. Biumi Executive Vice President,
- ------------------------- Chief Financial Officer
Bonnie S. Biumi March 29, 1996
/s/ Teri L. Miller
- -------------------------
Teri L. Miller Corporate Controller March 29, 1996
/s/ Jeffrey Hanft
- -------------------------
Jeffrey Hanft Director, Chairman March 29, 1996
/s/ Jody Frank
- -------------------------
Jody Frank Director March 29, 1996
/s/ Jeffrey J. Keenan
- -------------------------
Jeffrey J. Keenan Director March 29, 1996
/s/ Charles J. Delaney
- -------------------------
Charles J. Delaney Director March 29, 1996
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
I. EXHIBITS
<S> <C>
3.1 Amended and Restated Certificate of Incorporation adopted on November 30, 1987
(incorporated herein by reference from the Registration Statement on Form 10, No. 0-
16479, filed with the Securities and Exchange Commission (the "SEC") (the
"Registration Statement").
3.2 Restated Bylaws adopted on November 30, 1987 (incorporated herein by reference
from the Registration Statement). (File No. 0-16479)
3.3 Amendments to Certificate of Incorporation adopted on March 8, 1990 and March 15,
1990, respectively (incorporated herein by reference from the Annual Report on Form
10-K for the year ended December 31, 1989). (File No. 0-16479)
3.4 Amendment to Certificate of Incorporation adopted on June 29, 1990 (incorporated
herein by reference from the Annual Report on Form 10-K for the year ended December
31, 1990). (File No. 0-16479)
3.5 Certificate of Amendment to Certificate of Incorporation filed on July 18, 1995
authorizing the Preferred Stock (incorporated herein by reference to Form 8-K dated
July 19, 1995.) (File No. 0-16479)
4.1 Form of Second Amended and Restated Warrant Agreement dated as of February 17,
1994 between the Company and Creditanstalt American Corporation (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the year ended
1994.) (File No. 0-16479)
4.2 Exchange Agreement, dated as of May 3, 1995, by and between the Company and
Creditanstalt Corporate Finance, Inc. (incorporated here by reference to Form 8-K
dated July 19, 1995.) (File No. 0-16479)
4.3 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 herein by
reference to Form 8-K dated July 19, 1995.) (File No. 0-16479)
10.1 Asset Purchase Agreement dated March 1, 1993, and related financial statements,
among the Company, Silverado Communications Corp., Telink Telephone Systems,
Inc. and other shareholders and Agreement and Plan of Merger, dated March 1, 1993,
between the Company and Silverado Communications Corp (incorporated herein by
reference from Form 8-K dated March 30, 1993). (File No. 0-16479)
10.2 Asset Purchase Agreement dated March 1, 1993, and related financial statements,
among the Company, PTC Cellular, Inc., Portable Cellular Communications, Inc. and
Nationwide Cellular Service, Inc. (incorporated herein by reference to Form 8-K dated
July 26, 1993). (File No. 0-16479)
69
<PAGE>
10.3 Asset Purchase Agreement dated July 20, 1993, and related financial statements,
among the Company, Southwest Pay Telephone Systems, Inc. and Randall D. Veselka
and Stock Purchase Agreement, dated July 20, 1993, between the Company, Southwest
Pay Telephone Systems, Inc. and Randall D. Veselka (incorporated herein by reference
to Form 8-K dated July 21, 1993). (File No. 0-16479)
10.4 Asset Purchase Agreement dated October 13, 1993 between the Company, Ascom
Communications, Inc. ("Ascom") and Ascom Holding, Inc., audited financial
statements of Ascom for the period from January 1, 1992 through October 31, 1993
and audited financial statements of Ascom for the period from January 1, 1992 through
October 31, 1993 as re-filed (incorporated herein by reference Form to 8-Ks dated
November 8, 1993, January 21, 1994 and January 31, 1994, respectively). (File No.
0-16479)
10.5 Employment Agreement dated January 1, 1994, and related Stock Option Agreement
dated February 16, 1994, between the Company and Jeffrey Hanft (incorporated herein
by reference to the Company's Annual Report on Form 10-K for the year ended 1993).
(File No. 0-16479)
10.6 Employment Agreement dated January 1, 1994, and related Stock Option Agreement
dated February 16, 1994, between the Company and Robert D. Rubin (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the year ended
1993). (File No. 0-16479)
10.7 Employment Agreement dated January 1, 1994, and related Stock Option Agreement
dated February 16, 1994, between the Company and Richard F. Militello (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the year ended
1993).(File No. 0-16479)
*10.8 Employment Agreement dated June 22, 1994 and related Stock Option Agreement
dated July 11, 1994 between the Company and Lawrence T. Ellman.
10.9 Purchase Agreement dated June 23, 1994 among the Company and Atlantic Teleco,
Inc., Bender Telephone Inc., Stanley S. Bender and Howard M. Bender and Jerome D.
Scheer and Purchase Agreement dated June 23, 1994 among the Company and BTE
Associates L.P., Bender Telephone, Inc. and B&B Associates, audited financial
statements of Atlantic Teleco Joint Venture from January 1, 1992 through December
31, 1993 and combined pro forma financial statements (incorporated herein by
reference to Form 8-Ks dated June 23, 1994, September 7, 1994 and July 26, 1995,
respectively). (File No. 0-16479)
10.10 Employment Agreement dated July 11, 1994 and related Stock Option Agreement
dated July 11, 1994, between the Company and Bonnie S. Biumi. (incorporated herein
by reference to the Company's Annual Report on Form 10-K for the year ended 1994).
(File No. 0-16479)
10.11 Employment Agreement dated January 1, 1995, between the Company and Bruce W. Renard
(incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended 1994). (File No. 0-16479)
10.12 Asset Purchase Agreement dated February 14, 1995 between the Company and Global
Link Teleco Corporation and pro forma financial information for the periods from
January 1, 1993 through December 31, 1993 and the nine months ending September
30, 1994 (incorporated herein by reference to Form 8-Ks dated February 15, 1995 and
June 16, 1995). (File No. 0-16479)
10.13 AT&T Commission Agreement dated April 20, 1995 by and between AT&T
Communications, Inc. and the Company (incorporated herein by reference to
Amendment No. 2 to Form S-3 Registration No. 33-58657.)
70
<PAGE>
10.14 Security Purchase Agreement between UBS Capital Corporation; Appian Capital
Partners, L.L.C. and the Company dated July 3, 1995 (incorporated herein by reference
to Form 8-K dated July 19, 1995.) (File No. 0-16479)
10.15 Indenture, dated as of July 15, 1995, between the Company and First Union National
Bank of North Carolina (incorporated herein by reference to Form 8-K dated July 19,
1995.) (File No. 0-16479)
10.16 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 herein by
reference to Form 8-K dated July 19, 1995.) (File No. 0-16479)
10.17 Form of Stock Purchase Warrant issued on July 19, 1995 to Appian Capital Partners,
L.L.C. (incorporated herein by reference to Form 8-K dated July 19, 1995.) (File No.
0-16479)
10.18 Form of Contingent Stock Purchase Warrant issued on July 19, 1995 to UBS Partners,
Inc. (incorporated herein by reference to Form 8-K dated July 19, 1995.) (File No. 0-
16479)
10.19 Registration Rights Agreement dated as of July 19, 1995 between the Company and
UBS Partners, Inc. (incorporated herein by reference to Form 8-K dated July 19,
1995.) (File No. 0-16479)
10.20 Fourth Amended and Restated Loan and Security Agreement dated July 19, 1995 by
and among the Company, the lenders named therein and Creditanstalt-Bankverein
(incorporated herein by reference to Form 8-K dated July 19, 1995.) (File No. 0-
16479)
10.21 Asset Purchase Agreement dated as of November 1, 1995 between the Company, PTC
Cellular, Inc. and Shared Technologies Cellular, Inc. (incorporated herein by reference
to Form 8-K dated November 13, 1995.) (File No. 0-16479)
*10.22 Waiver and First Amendment dated November 29, 1995 between the Company and
Credistanstalt-Bankverein with regard to the Fourth Amended and Restated Loan and
Security Agreement.
10.23 Stock Incentive Plan of the Company (incorporated herein by reference to pages A-1
through A-7 of the Company's 1994 Proxy Statement.).
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*21 List of Subsidiaries
*23.1 Consent of Ernst & Young LLP
*27 Financial Data Schedule (for SEC use only)
<FN>
* Filed as part of this Annual Report on Form 10-K.
</FN>
</TABLE>
72
EMPLOYMENT AGREEMENT
Agreement (the "Agreement") dated as of June 22, 1994 (the "Execution
Date") between PEOPLES TELEPHONE COMPANY, INC., a New York corporation (the
"Company"), and LARRY ELLMAN (the "Employee").
RECITALS
WHEREAS, the Company is presently engaged in the business of owning and
operating telephone and wire communication systems and other businesses (the
"Business"); and
WHEREAS, the Employee has many years of business experience and the
Employee and the Company desire to enter into this Agreement, subject to the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants set forth in this Agreement:
1. Employment and Term.
a. During the term of this Agreement, the Company agrees to
employ the Employee and the Employee agrees to serve as an employee of the
Company as hereinafter provided. The term (the "Term of Employment") shall begin
on June 22, 1994 and shall end on June 22, 1997.
2. Duties.
a. The Employee agrees during the Term of Employment to
perform the duties of the President of the Pay Telephone Division and to perform
such other duties and assignments of an executive nature relating to the
business of the Company as the board of directors of the Company directs. During
the Term of Employment the Employee shall, except during customary vacation
periods and periods of illness, devote all of his business time and attention to
the performance of the duties under this Agreement and to promote the best
interests of the Company. The Employee shall report to and shall be subject to
the supervision of the Chief Executive Officer, the Executive Vice President and
the Chief Operating Officer only. The Employee shall not, either during or
outside of normal business hours, directly or indirectly, engage in any aspect
of the telecommunications business for or on behalf of any entity other than the
Company, nor engage in any activity inimical to the best interests of the
Company.
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3. Compensation and Related Matters.
a. Base Salary. The Employee shall receive an annual base
salary as follows: (i) during the first year of this Agreement, the Employee
shall receive a salary in the amount of $150,000 (the "Base Salary"); (ii)during
the second year of this Agreement, the Employee shall receive a salary in an
amount equal to the Base Salary plus 10% (the "Adjusted Base Salary), if such
Adjusted Base salary is approved by the Company's Board of Directors; and (iii)
during the third year of this Agreement, the Employee shall receive a salary in
an amount equal to the Adjusted Base Salary plus 10% (the "Second Adjusted Base
Salary"), if such Second Adjusted Base salary is approved by the Company's Board
of Directors. The Employee shall receive the Base Salary, the Adjusted Base
Salary and the Second Adjusted Base Salary during the term of this Agreement in
substantially equal monthly or bi-weekly installments in accordance with the
normal practice of the Company.
b. The Annual Bonus. The Employee shall receive an annual
bonus (the "Bonus") equal to not less than $25,000. The Bonus shall be payable
no later than the 31st day after the end of each year during the term of this
Agreement. The Bonus shall not exceed 100% of the Employee's annual salary as
provided in Section 3(a) above for any year during the term of this Agreement.
c. Stock Options. The Company shall grant the Employee a right
to purchase 45,000 shares of common stock of the Company effective as of the
Execution Date of this Agreement at a price per share of $5.6875.
Unless otherwise agreed, the foregoing options shall vest one
third (1/3) upon execution of the Employment Agreement, one third (1/3) after
twelve (12) months following that date and one third (1/3) after twenty-four
(24) months following that date. In addition, the Employee may receive
additional stock option grants subject to approval of the Board of Directors and
on the terms approved by the Board of Directors.
d. Car Allowance. The Company shall pay the Employee a car
allowance during the term of this Agreement in an amount up to $500 per month to
reimburse the Employee for his automobile expenses, including car/lease
payments, insurance costs and related automobile expenses.
e. Fringe Benefits. During the Term of Employment, the Company
shall provide Employee with individual medical insurance at the Company's
expense, through a major medical/group hospitalization insurance provider
determined by the Company, in its sole and absolute discretion. Additionally,
the Employee shall enjoy the customary benefits afforded to its employees. The
Employee also shall be entitled to participate in employee benefit plans now or
hereafter provided or made available to the Company's employees generally, such
as life insurance, and pension, retirement and stock option plans. Nothing in
this Agreement shall require the Company to establish, maintain or continue any
of the fringe benefits already in
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<PAGE>
existence for employees of the Company and nothing in this Agreement shall
restrict the right of the Company to amend, modify or terminate such fringe
benefit programs.
f. Vacations. During the Term of Employment, the Employee
shall be entitled each year to vacations as are customarily taken by the
Company's executive officers. The Company shall not pay the Employee any
additional compensation for any vacation time not used by the Employee.
g. Relocation costs. The Company shall pay the cost of moving
the Employee's household furnishings and personal property and insuring same
against loss from Baltimore, Maryland to Miami, Florida. Such cost shall be
approved by the Company prior to the Employee's incurrence of same.
Additionally, the Company agrees to provide Employee with the use of a furnished
apartment in Dade County, Florida through August 1994. No other relocation costs
of any type will be borne by the Company.
4. Termination.
This Agreement may be terminated prior to the expiration of
the term set forth in Section 1 above as follows:
a. Death. This Agreement shall terminate upon the death of the
Employee, and the Company shall have no further obligation under this Agreement
to make any payments to, or bestow any benefits on, his beneficiary or
beneficiaries from and after the date of the Employee's death, other than
payments or benefits accrued and due and payable to him prior to the date of
death pursuant to this Agreement.
b. Disability. The Company may terminate the Employee's
employment under this Agreement if as a result of his incapacity due to accident
or illness, the Employee shall have been unable to satisfactorily perform his
normal duties under this Agreement for a period of six months. Except as
specifically provided in this Section 4, the Company shall have no further
obligation under this Agreement to make any payments to, or bestow any benefits
on, the Employee from and after the date of the termination.
c. Cause. The Company may terminate the Employee's employment
under this Agreement for Cause at any time. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Employee's employment if he (1)
engages in one or more acts constituting a felony or involving fraud or serious
moral turpitude; (2) refuses (except by reason of incapacity due to accident or
illness) to perform his duties; or (3) engages in misconduct injurious to the
Company. In the event of a termination for Cause, the Company shall have no
further obligation under this Agreement to make any payments to, or bestow any
benefits on, the Employee from and after the date of the termination, other than
payments or benefits accrued and due and payable to him prior to the date of
termination.
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<PAGE>
5. Non-Competition.
a. The Employee hereby covenants and agrees that, except with
the written consent of the Company, the Employee will not, during the Term of
Employment and for one year after the end of the Term of Employment, alone or in
association with others as principal, officer, agent, employee, director or
stockholder of any corporation, partnership, association or other entity, or
through the lending of capital, lending of money or property, or rendering of
services or otherwise, (i) engage in any business all or part of which is, at
the time, competitive with the business then conducted by the Company, directly
or indirectly, in any state in which the Company then operates (ii) solicit or
attempt to solicit any person (natural or otherwise) who had entered into an
agreement with the Company to conduct its business; and (iii) solicit or attempt
to solicit any person employed by the Company to leave their employment or not
fulfill their contractual responsibility, whether or not the employment or
contracting is full-time or temporary, pursuant to a written or oral agreement,
or for a determined period or at will.
6. Company's Right to Injunctive Relief; Attorneys' Fees.
a. The Employee acknowledges that the Employee's services to
the Company are of a unique character which gives them a special value to the
Company, the loss of which cannot reasonably or adequately be compensated in
damages in an action at law, and that a breach of this Agreement will result in
irreparable and continuing harm to the Company, and that therefore, in addition
to any other remedy which the Company may have at law or in equity, the Company
shall be entitled to injunctive relief for a breach of this Agreement by the
Employee. The Employee and the Company agree that the prevailing party in any
action to enforce any breach of any covenant in this Agreement shall be
reimbursed by the other party for all expenses and reasonable attorneys' fees
incurred by that party to enforce this Agreement.
7. Trade Secrets and Confidential Information.
a. The Employee acknowledges that the Company's business
depends to a significant degree upon the possession of information which is not
generally known to others, and that the profitability of the Company's business
requires that this information remain proprietary to the Company.
b. The Employee shall not except as required in the course of
employment by the Company, disclose or use during or subsequent to the Term of
Employment, any confidential information relating to the Company's business of
which Employee becomes aware by reason of being employed by the Company or to
which Employee gains access. Such information includes, but is not limited to,
lists of property owners, data, records, computer programs, manuals, processes,
methods and intangible rights which are either developed by the Employee during
the Term of Employment or to which the Employee has access. All records and
equipment and other
5
<PAGE>
materials relating in any way to any confidential information relating to
property owners or to the Company's business shall be and remain the Company's
sole property during and after the Term of Employment.
c. Upon termination of employment, the Employee shall promptly
return to the Company all materials and all copies of materials involving any
confidential information in the Employee's possession or control. The Employee
agrees to represent to the Company that he has complied with the provisions of
this Section 7 upon termination of employment.
d. The Employee acknowledges that he is not a party to any
agreement which may restrict his employment with the Company.
8. Miscellaneous.
a. The captions in this Agreement are not part of its
provisions, are merely for reference and have no force or effect. If any caption
is inconsistent with any provision of this Agreement, such provision shall
govern.
b. This Agreement is made in and shall be governed by and
construed in accordance with the laws of the State of Florida, without giving
effect to conflict of law principles.
c. To the extent that the terms set forth in this Agreement or
any word, phrase, clause or sentence is found to be illegal or unenforceable for
any reason, such word, phrase, clause or sentence shall be modified or deleted
in such manner so as to afford the Company the fullest protection commensurate
with making this Agreement, as modified, legal and enforceable under applicable
laws, and the balance of this Agreement shall not be affected thereby, the
balance being construed as severable and independent.
d. All notices given under this Agreement shall be in writing
and shall be sent by registered or certified mail or delivered by hand and, if
intended for the Company, shall be addressed to it or delivered to it at 2300
N.W 89th Place, Miami, Florida 33172 to the attention of Robert D. Rubin,
Executive Vice President. If intended for the Employee, notices shall be
delivered personally or shall be addressed (if sent by mail) to the Employee's
then current residence address as shown on the Company's records, or to such
other address as the Employee directs in a notice to the Company. All notices
shall be deemed to be given on the date received at the address of the addressee
or, if delivered personally, on the date delivered.
e. As used in this Agreement where appropriate, the masculine
shall include the feminine; where appropriate, the singular shall include the
plural and the plural shall include the singular.
6
<PAGE>
f. This Agreement contains all obligations and understandings
between the parties relating to the subject of this Agreement and merges all
prior discussions, negotiations and agreements, if any, between them, and none
of the parties shall be bound by any conditions, definitions, understandings,
warranties or representations other than as expressly provided or referred to in
this Agreement. This Agreement is intended to cancel and supersede all existing
agreements between the Employee and the Company.
g. This Agreement may be modified only by a written instrument
properly executed by the parties to this Agreement.
h. No waiver by any party to this Agreement, whether expressed
or implied, of its rights under any provision of this Agreement shall constitute
a waiver of the party's rights under the provisions at any other time or a
waiver of the party's rights under any other provision of this Agreement.
i. The Employee and the Company agree that the prevailing
party in any action to enforce any breach of any covenant in this Agreement
shall be reimbursed by the other party for all expenses and reasonable
attorneys' fees incurred by that party to enforce this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the day and year first above written.
PEOPLES TELEPHONE COMPANY, INC.
By: /s/ Robert D. Rubin
Robert D. Rubin
Executive Vice President
THE EMPLOYEE
By: /s/ Larry Ellman
Larry Ellman
7
PEOPLES TELEPHONE COMPANY, INC.
STOCK OPTION AGREEMENT
THIS IS A STOCK OPTION AGREEMENT dated as of this 11TH day of JULY ,
1994 (the "Grant Date") between Peoples Telephone Company, Inc., a New York
corporation with its principal offices located at 2300 N.W. 89th Place, Miami,
Florida 33172 (the "Company"), and LAWRENCE T. ELLMAN located at 5832 MOSSROCK
DRIVE, NORTH BETHESDA, MARYLAND 20852 (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Company desires to grant stock options to the Optionee and
the Optionee desires to accept the grant of such option, subject to the terms
and conditions of this Agreement.
NOW, THEREFORE, the Company and the Optionee hereby agree:
SECTION 1. GRANT OF OPTIONS.
Subject to the provisions of this Agreement, the Company hereby grants
to the Optionee an option (the "Option") to purchase from the Company 45,000
shares of its common stock, par value $.01 per share (the "Option Shares"), at
the price of $ 5.6875 per share (the "Option Price").
SECTION 2. EXERCISE OF OPTION.
(a) No portion of the Option may be exercised by the Optionee on or at
any time after the fifth anniversary of the Grant Date.
(b) Except as provided in subsection (a) of this Section, the Optionee
may execute the Option and acquire the Option Shares as follows:
(i) The Optionee may acquire one-third (1/3) of the shares on
or after January 11, 1995 (the "Initial Vesting Date").
(ii) The Optionee may acquire an additional one-third (1/3) of
the Option Shares one year after the Initial Vesting Date; and.
(iii) The Optionee may acquire the final third (1/3) of the
Option Shares two years after the Initial Vesting Date.
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<PAGE>
(c) The Option may be exercised in whole or in part by the Optionee
delivering a written notice to the Company specifying the number of the Option
Shares the Optionee desires to purchase pursuant to the Option and tendering in
cash or in shares of the Company's common stock an amount equal to the Option
Price multiplied by such number of Option Shares. The Optionee shall not
purchase fewer than 100 of the Option Shares at any one time unless the
remaining Option Shares equal less than 100 shares.
SECTION 3. SHARE CERTIFICATES.
Upon exercise of any or all of the Option Shares the Company will cause
one or more stock certificates evidencing the Optionee's ownership of the Option
Shares so purchased by the Optionee to be issued to the Optionee. Unless the
Option Shares have been registered under the Securities Act of 1933, as amended
(the "Act"), pursuant to a Registration Statement on Form S-8 which has been
declared effective by the United States Securities and Exchange Commission, the
Company shall cause the following legend to be placed upon each stock
certificate representing the Option Shares:
"The shares of stock represented by this Certificate have been acquired
directly or indirectly from the Issuer or an affiliate of the Issuer
without being registered under the Securities Act of 1933, as amended,
(the "Act"), or the securities laws of any state or other jurisdiction,
including the Florida Securities Act, and are restricted securities as
that term is defined under Rule 144 promulgated under the Act. These
shares may not be sold, transferred, pledged, hypothecated or otherwise
disposed of in any manner (the "Transfer") unless they are registered
under the Act and the securities laws of all applicable states and
other jurisdictions or unless the request for the Transfer is
accompanied by a favorable opinion of counsel satisfactory to the
Issuer, stating that the Transfer will not result in a violation of
such laws."
SECTION 4. INVESTMENT SECURITIES.
The Optionee represents and warrants to the Company that any Option
Shares purchased by him upon the exercise of this Agreement will be acquired for
investment and not for distribution within the meaning of the Act, provided,
however, that the foregoing representation and warranty shall be inoperative if
the Option Shares are registered under the Act. The Optionee agrees to give
prompt written notice to the Company if he makes any disposition of any shares
of common stock purchased by him under this Option within the two year period
beginning on the day after the date of the issue of the shares to him.
2
<PAGE>
SECTION 5. MISCELLANEOUS PROVISIONS.
(a) Notices. Unless otherwise specifically provided in this Agreement,
all notices to be given hereunder shall be in writing and sent to the parties by
certified mail, return receipt requested, which shall be addressed to each
party's respective address, as set forth in the first paragraph of this
Agreement, or to such other address as the party shall give to the other party
by a notice given in accordance with this Section and, except as otherwise
provided in this Agreement, shall be effective when deposited in the United
States mail properly addressed and postage prepaid. If the notice is sent other
than by United States mail, the notice shall be effective when actually received
by the party being noticed.
(b) Assignment. This Agreement may not be assigned in whole or in part
by either of the parties without the express written consent of the other party.
(c) Further Assurances. Both parties shall execute and deliver all
other instruments and do all other acts as may be necessary to carry out the
intent and purposes of this Agreement.
(d) Gender. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms
and the singular form of nouns and pronouns shall include the plural and vice
versa.
(e) Captions. The captions contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit, extend or prescribe
the scope of this Agreement or the intent of any of its provisions.
(f) Completeness and Modification. This Agreement constitutes the
entire understanding between the parties superseding all prior and
contemporaneous agreements or understandings among the parties concerning the
grant of stock options to the Optionee and shall not be terminated, except in
accordance with its terms or amended except in accordance with a writing
executed by both of the parties.
(g) Waiver. The waiver of a breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other breach of
the same or any other term or condition.
(h) Severability. The invalidity or unenforceability, in whole or in
part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word or of any provisions of this
Agreement shall not affect the validity or enforceability of the remaining
portions of this Agreement.
(i) Construction. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
3
<PAGE>
(j) Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs, successors, estate and personal representatives of the
Optionee and upon the successors and assigns of the Company.
(k) Litigation-Attorneys' Fees. In connection with any litigation
arising out of the enforcement of this Agreement or for its interpretation, the
prevailing party shall be entitled to recover its costs, including reasonable
attorneys' fees, at the trial and all appellate levels from the other party who
was an adverse party to the litigation.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth in the first paragraph of this Agreement.
PEOPLES TELEPHONE COMPANY, INC.
BY: ____________________________
ROBERT D. RUBIN, PRESIDENT
LAWRENCE T. ELLMAN, THE OPTIONEE
BY: ____________________________
4
<PAGE>
FORM 3
Washington, D.C. 20549
OMB Number 3235-0104
Expires: February 1, 1994
Estimated average burden
hours per response D5
INITIAL STATEMENT OF BENEFICIAL OWNERSHIP OF SECURITIES
Filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, Section
17(a) of the Public Utility Holding Company Act of 1935 or Section 30(f) of the
Investment Company Act of 1940
1. Name and Address of Reporting Person
ELLMAN, LAWRENCE T.
(Last) (First) (Middle)
5832 Mossrock Drive
(Street)
North Bethesda, MD 20852
(City) (State) (Zip)
2. Date of Event Requiring Statement
(Month/Day/Year)
7/11/94
3. IRS or Social Security Number of Reporting Person (Voluntary)
###-##-####
4. Issuer Name and Ticker or Trading Symbol
PTEL - Peoples Telephone Company, Inc.
5. Relationship of Reporting Person to Issuer
(Check all applicable)
___ Director ___ 10% Owner
_X_ Officer (give title below) ___Other (specify below)
President - Pay Telephone Division
6. If Amendment, Date of Original
(Month/Day/Year)
Table 1 - Non-Derivative Securities Beneficially Owned
1. Title of Security (Instr. 4)
2. Amount of Securities Beneficially Owned (Instr. 4)
3. Ownership Form: Direct (D) or Indirect (I) (Instr. 5)
4. Nature of Indirect Beneficial Ownership (Instr. 5)
Reminder: Report on a separate line for each class of securities beneficially
owned directly or indirectly.
(Print or Type Responses)
(Over)
SEC (illegible)
<PAGE>
WAIVER AND FIRST AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
WAIVER AND FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Agreement") is being entered into as of the 29th day of
November, 1995 by and among PEOPLES TELEPHONE COMPANY, INC., a New York
corporation (hereinafter referred to as "Borrower"), the Lenders party to the
Loan Agreement (hereinafter referred to as "the Lenders") and
Creditanstalt-Bankverein, as agent for the Lenders (in such capacity, the
"Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the Lenders and the Agent are party to that certain
Fourth Amended and Restated Loan and Security Agreement, dated as of July 19,
1995 (as so amended, the "Loan Agreement"), pursuant to which the Lenders made
available to the Borrower a $40 million revolving credit facility; and
WHEREAS, Borrower has requested that the Lenders waive certain financial
covenant Defaults by Borrower under the Loan Agreement; and
WHEREAS, the Lenders are willing, subject to the terms and conditions
hereof, to waive such Defaults and to make such amendments and modifications;
NOW, THEREFORE, in consideration of the foregoing premises, the terms and
conditions herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agent and the
Lenders hereto hereby agree as follows:
1. DEFINED TERMS. Defined terms used herein, as indicated by the initial
capitalization thereof, shall have the meaning ascribed to such terms in the
Loan Agreement.
2. AMENDMENT OF DEFINITION. Section 1.1 of the Loan Agreement is hereby
amended by deleting in its entirety the definition for "Borrowing Base"
contained therein and substituting in lieu thereof a new definition to read as
follows:
"Borrowering Base" shall mean, as of any date, an amount equal to the
lesser of (a) and (b) below:
(a) up to (i) seventy-five percent (75%) of the net amount of
Borrower's Eligible Accounts plus (ii) an amount equal to $1,200 multiplied
by the number of Eligible Pay Telephones; or
(b) (i) $10,000,000, if the Borrower's Operating Cash Flow for the 3
month period most recently ended is less than $6,000,000;
<PAGE>
(ii) $20,000,000, if Borrower's Operating Cash Flow for the three
month period most recently ended equals or exceeds $6,000,000 but
Borrower's Operating Cash Flow for the six month period most recently ended
is less than $13,000,000; and
(iii) $30,000,000 if (A) Borrower's Operating Cash Flow for the
three month period most recently ended equals or exceeds $6,000,000; and
(B) Borrower's Operating Cash Flow for the six month period most recently
ended equals or exceeds $13,000,000 but is less than $14,000,000; and
(iv) $40,000,000 if (A) Borrower's Operating Cash Flow for the
three month period most recently ended equals or exceeds $6,000,000; and
(B) Borrower's Operating Cash Flow for the six month period most recently
ended equals or exceeds $14,000,000.
3. BORROWING BASE CERTIFICATE. The Loan Agreement is hereby amended by
deleting Exhibit D thereof in its entirety and by substituting in lieu therefor
a new Exhibit D, which is attached hereto as Exhibit A and incorporated herein
by reference.
4. PROJECTED FINANCIAL STATEMENTS. Borrower agrees to deliver to Lenders
not later than December 11, 1995, a projected operating budget for Borrower for
the year beginning January 1, 1996, consisting of projected monthly balance
sheets, income statements and a statement of cash flows.
5. WAIVER. The Agent and the Lenders hereby waive any Default or Event of
Default arising under the Loan Agreement solely as a result of Borrower's
failure, for the fiscal quarter of Borrower ending September 30, 1995, to
maintain (a) the minimum Net Worth required by Section 8.1 of the Loan
Agreement; (b) the minimum Leverage Ratio required by Section 8.2 of the Loan
Agreement; (c) the minimum Operating Cash Flow required by Section 8.4 of the
Loan Agreement; and (d) the minimum Interest Coverage Ratio required by Section
8.5 of the Loan Agreement.
6. WAIVER FEE. In consideration for the waiver set forth in this Agreement,
the Borrower agrees to pay to the Agent for the ratable benefit of the Lenders,
concurrent with the execution and delivery of this Agreement, a waiver fee equal
to $50,000.
7. CONDITIONS PRECEDENT. Subject to the other terms and conditions hereof,
this Agreement shall not become effective until the Agent shall have had
delivered to it counterparts of this Agreement duly executed and delivered by
the Borrower and each of the Lenders; provided, however, that the waivers set
forth in Section 5 hereof shall not become effective until Borrower shall pay to
the Agent, for the benefit of the Lenders, the waiver fee prescribed in Section
6 hereof. Upon receipt by the Agent of all such executed copies and, in the case
of such waivers, the payment of such fee, this Agreement shall become effective
as of the date hereof.
<PAGE>
8. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. Borrower hereby represents
and warrants to the Agent and the Lenders that (a) all of Borrower's
representations and warranties contained in the Loan Agreement and the other
Loan Documents are true and correct on and as of the date of Borrower's
execution of this Agreement; (b) except in respect of the covenants referenced
in Section 5 hereof, no Default or Event of Default has occurred and is
continuing as of such date under any Loan Document; (c) Borrower has the power
and authority to enter into this Agreement and to perform all of its obligations
hereunder; (d) the execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action on the part of Borrower;
and (e) the execution and delivery of this Agreement and performance thereof by
Borrower does not and will not violate the Articles of Incorporation, By-laws or
other organizational documents of the Borrower and does not and will not violate
or conflict with any law, order, writ, injunction, or decree of any court,
administrative agency or other governmental authority applicable to Borrower or
its properties.
9. EXPENSES. Borrower agrees to pay, immediately upon demand by the Agent,
all costs, expenses, attorneys' fees and other charges and expenses actually
incurred by the Agent in connection with the negotiation, preparation, execution
and delivery of this Agreement and any other instrument, document, agreement or
amendment executed in connection with this Agreement.
10. DEFAULTS HEREUNDER. The breach of any representation, warranty or
covenant contained herein or in any document executed in connection herewith, or
the failure to serve or comply with any term or agreement contained herein shall
constitute a Default or Event of Default under the Loan Agreement and the Agent
and the Lenders shall be entitled to exercise all rights and remedies they may
have under the Loan Agreement, any other documents executed in connection
therewith and applicable law.
11. REFERENCES. All references in the Loan Agreement and the Loan Documents
to the Loan Agreement shall hereafter be deemed to be references to the Loan
Agreement as amended hereby and as the same may hereafter be amended from time
to time.
12. LIMITATION OF AGREEMENT. Except as especially set forth herein, this
Agreement shall not be deemed to waive, amend or modify any term or condition of
the Loan Agreement, each of which is hereby ratified and reaffirmed and which
shall remain in full force and effect, nor to serve as a consent to any matter
prohibited by the terms and conditions thereof.
<PAGE>
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and any party hereto may execute any counterpart, each of which,
when executed and delivered, will be deemed to be an original and all of which,
taken together will be deemed to be but one and the same agreement.
14. FURTHER ASSISTANCE. Borrower agrees to take such further action as the
Agent or the Majority Lenders shall reasonably request in connection herewith to
evidence the amendments herein contained to the Loan Agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the successors and permitted assigns of the parties hereto.
16. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal on the date first above written.
"BORROWER"
PEOPLES TELEPHONE COMPANY, INC.
By: (illegible)
Name: Chief Financial Officer
Title: Bonnie B(illegible)
Attest: (illegible)
By: (illegible)
Its: Secretary
[CORPORATE SEAL]
(Signatures continued on next page)
<PAGE>
(Signatures continued from pervious page)
"AGENT"
CREDITANSTALT-BANKVEREIN
By: /s/ Robert M. Biringer
Robert M. Biringer
Senior Vice President
By: /s/ Joseph P. Longosz
Joseph P. Longosz
Vice President
(Signatures continued on next page)
<PAGE>
(Signatures continued from pervious page)
"LENDER"
CREDITANSTALT-BANKVEREIN
By: /s/ Robert M. Biringer
Robert M. Biringer
Senior Vice President
By: /s/ Joseph P. Longosz
Joseph P. Longosz
Vice President
EXHIBIT 21
SUBSIDIARIES
------------
Peoples Telephone of South Carolina, Inc. South Carolina
Campus Telephone Inc. Texas
(d/b/a Telink Inc.)
PTC Cellular, Inc. Delaware
Silverado Communications, Inc. Colorado
Southwest Inmate Pay Telephone Systems, Inc. Texas
PTC Global Link, Inc. Florida
PTC Security Systems, Inc. Florida
Telink, Inc. Texas
Telink Telephone System, Inc. Georgia
Peoples Acquisition Corp. Pennsylvania
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-58607) and the related prospectus of Peoples Telephone Company,
Inc., and the Registration Statement (Form S-8 No. 33-58603) pertaining to stock
option and incentive plans of Peoples Telephone Company, Inc. of our report
dated March 8, 1996, with respect to the consolidated financial statements and
schedule of Peoples Telephone Company, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Miami, Florida
March 29, 1996
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<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,366,000
<SECURITIES> 0
<RECEIVABLES> 12,208,000
<ALLOWANCES> (5,108,000)
<INVENTORY> 1,990,000
<CURRENT-ASSETS> 25,220,000
<PP&E> 134,067,000
<DEPRECIATION> (55,866,000)
<TOTAL-ASSETS> 160,071,000
<CURRENT-LIABILITIES> 29,320,000
<BONDS> 101,259,000
13,886,000
0
<COMMON> 161,000
<OTHER-SE> 14,127,000
<TOTAL-LIABILITY-AND-EQUITY> 160,071,000
<SALES> 138,391,000
<TOTAL-REVENUES> 138,391,000
<CGS> 106,838,000
<TOTAL-COSTS> 141,148,000
<OTHER-EXPENSES> 11,483,000
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<INTEREST-EXPENSE> 9,965,000
<INCOME-PRETAX> (24,205,000)
<INCOME-TAX> 1,738,000
<INCOME-CONTINUING> (22,467,000)
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