-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, k4QQSQ/kEF5u/4xKbqq0QO3xeugbSy4vLtuyt39bDgPuQtzTUTtW9djrMa9ZN7zC v5wTxS84avjz6Aq3TYRaGg== 0000927550-95-000025.txt : 19950516 0000927550-95-000025.hdr.sgml : 19950516 ACCESSION NUMBER: 0000927550-95-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACC CORP CENTRAL INDEX KEY: 0000783233 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 161175232 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14567 FILM NUMBER: 95538388 BUSINESS ADDRESS: STREET 1: 400 WEST AVENUE CITY: ROCHESTER STATE: NY ZIP: 14611 BUSINESS PHONE: 7169873000 MAIL ADDRESS: STREET 1: 400 WEST AVE CITY: NEW YORK STATE: NY ZIP: 14611 FORMER COMPANY: FORMER CONFORMED NAME: AC TELECONNECT CORP DATE OF NAME CHANGE: 19870129 10-Q 1 ACC CORP. 10-Q FOR QUARTER ENDED MARCH 31, 1995 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-14567 ACC CORP. (exact name of registrant as specified in its charter) Delaware 16-1175232 State of other jurisdiction of I.R.S. Employer incorporation or organization Identification No. 400 West Avenue, Rochester, New York 14611 (Address of principal executive offices) (716) 987-3000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: As of April 14, 1995, the Registrant had issued and outstanding 7,756,209 shares of its $.015 par value common stock. The total number of pages in this report is 12. The Index of Exhibits filed with the Report is found at Page 12. ACC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Amounts in 000's, except share and per share data) Three months ended March 31, 1995 1994 Revenue: Toll revenue $37,366 $30,229 Leased lines and other 2,342 2,106 39,708 32,335 Operating expenses: Network costs 24,745 20,365 Depreciation and amortization 2,532 1,960 Selling, general and administrative 12,877 9,055 40,154 31,380 Income (loss) from operations (446) 955 Other income (expense): Interest income 23 25 Interest expense (941) (185) Foreign exchange loss (30) (117) (948) (277) Income from continuing operations before provision for income taxes and minority interest (1,394) 678 Provision for income taxes 270 260 Income from continuing operations before minority interest (1,664) 418 Minority interest in loss (income) of consolidated subsidiary 10 (72) Net income (1,654) 346 Net income(loss) per common & common equivalent share: ($0.23) $0.05 Average number of common and common equivalent shares 7,085,727 7,071,577
ACC CORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in 000's except share data) March 31, December 31, March 31, December 31, 1995 1994 1995 1994 Current assets: Current liabilities: Cash and cash equivalents $81 $1,021 Current maturities of Restricted cash - 272 long-term debt $1,557 $1,613 Accounts receivable, net of allowance for Accounts payable 8,955 10,498 doubtful accounts of $1,707 in 1995 and Accrued network cost 12,060 10,443 $1,035 in 1994 22,405 20,499 Other accrued expense 7,844 8,053 Stock subscriptions receivable 6,401 - Dividends payable - 208 Other receivables 4,967 5,433 Prepaid and other assets 1,616 1,124 Total current Total current assets 35,470 28,349 liabilities 30,416 30,815 Deferred income taxes 3,925 3,675 Property, plant and equipment: Long-term debt 31,214 29,914 At cost 64,723 62,618 Less-accumulated depreciation Minority interest 1,255 1,262 and amortization (20,376) (18,537) 44,347 44,081 Shareholders' equity: Common stock, $.015 par value Authorized-50,000,000 shares Issued- 8,232,323 in 1995 and 7,652,601 in 1994 123 115 Capital in excess of par value 27,904 20,070 Other assets: Cumulative translation Restricted cash - 157 adjustment (1,131) (1,013) Goodwill and customer base 6,573 6,884 Retained earnings (138) 1,524 Deferred installation costs 1,857 1,639 26,758 20,696 Other 3,711 3,642 Less- 12,141 12,322 Treasury stock, at cost (726,589 shares) (1,610) (1,610) Total shareholders' equity 25,148 19,086 Total liabilities and Total assets $91,958 $84,752 shareholders' equity $91,958 $84,752
ACC CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in 000's) FOR THE THREE MONTHS ENDED MARCH 31, 1995 1994 Cash flows from operating activities: Net income (loss) ($1,654) $346 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,532 1,960 Deferred income taxes 250 254 Minority interest in income (loss) of consolidated subsidiary (10) 72 Unrealized foreign exchange loss (gain) (6) 4 (Increase) decrease in assets: Restricted cash - (11) Accounts receivable, net (1,816) (2,573) Other receivables 470 684 Prepaid and other assets (483) 111 Deferred installation costs (630) (366) Other (5) (408) Increase (decrease) in liabilities: Accounts payable (1,541) 761 Accrued network costs 1,527 (916) Other accrued expenses 198 (1,266) Total adjustments 486 (1,694) Net cash used in operating activities (1,168) (1,348) Cash flows from investing activities: Capital expenditures, net (1,845) (4,215) Acquisition of customer base - (992) Net cash used in investing activities (1,845) (5,207) Cash flows from financing activities: Net borrowings under lines of credit 1,512 9,845 Repayment of long-term debt (335) (807) Proceeds from issuance of common stock 1,442 - Dividends paid (208) (3,619) Net cash provided by financing activities 2,411 5,419 Effect of exchange rate changes on cash (338) 208 Net decrease in cash (940) (928) Cash and cash equivalents at beginning of period 1,021 1,467 Cash and cash equivalents at end of period $81 $539 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $942 $162 Income taxes - - Supplemental schedule of noncash investing activities: Equipment purchased through capital leases $55 $694 Supplemental schedule of noncash financing activities: Sale of common stock ($6.6 million received in April, 1995) $6,840 - Exchange of treasury shares for common shares - $327
ACC CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 1995 1. Statement of Management The condensed financial statements of ACC Corp. and subsidiaries ("The Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. The interim financial statements contained herein reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim periods presented. 2. Form 10-K Reference is made to the following footnotes included in the Company's 1994 Annual Report on Form 10-K: Principles of Consolidation Sale of Subsidiary Stock Revenue Property, Plant and Equipment Deferred Installation Costs Goodwill and Customer Base Common and Common Equivalent Shares Foreign Currency Translation Income Taxes Cash Equivalents and Restricted Cash Currency Forward Contracts Reclassifications Operating Information Discontinued Operations Asset Write-down Equal access costs Merger of local exchange subsidiary Acquisition Long-Term Debt, Lines of Credit and Financing Arrangements Common Stock Treasury Stock Commitments and Contingencies Geographic Area Information Related Party Transactions Subsequent Event 3. Net Income Per Share Net Income per common and common equivalent share is computed on the basis of the weighted average number of common and common equivalent shares outstanding during the period. The average number of shares outstanding is computed as follows: For the Three Months Ended March 31,: Average Number Outstanding: 1995 1994 Common Shares 6,932,453 6,906,218 Common Equivalent Shares 153,274 165,359 Total 7,085,727 7,071,577 Fully diluted income per share did not differ materially from the primary data. 4. Reclassification Certain reclassifications have been made to previously reported prior year balances to conform to the March 31, 1995 presentation. 5. Sale of common stock The Company has completed an offshore offering of 825,000 shares of its Common Stock at an average price of $14.53 per share pursuant to SEC Regulation S, to foreign institutional investors through a placement agent. 575,000 shares, representing net proceeds of $7.8 million, after fees of $0.6 million, were sold during the first quarter. Proceeds of $1.4 million were received prior to March 31, and the balance was received during the first week of April. The remaining 250,000 shares were sold in April, 1995 for net proceeds of $3.3 million, after fees of $0.3 million. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Toll revenue for the three months ended March 31, 1995 increased by 23.8% to $37.4 million from $30.2 million for the same period in 1994. This increase was primarily due to the Company's United Kingdom (U.K.) operations, which experienced a $5.2 million increase in toll revenue over the same quarter in 1994. At March 31, 1995, the Company had approximately 213,000 customers compared to approximately 103,000 at March 31, 1994, an increase of over 100%. Billable long distance minutes, which are a measure of the Company's volume, increased 25.8% to 273 million for the three months ended March 31, 1995, from 217 million minutes for the same period in 1994. This increase reflects the success of the Company's sales and marketing programs in all subsidiaries, particularly in the U.K. The rate of growth of billable minutes is higher than the rate of growth of toll revenue due to declining prices, on a per minute basis, and the increase in residential customers whose average rate per minute is lower, in the Canadian long distance marketplace, which were offset somewhat by higher per minute rates from the Company's U.K. customer base. For the three months ended March 31, 1995, leased lines and other revenue increased by 14.3% to $2.4 million from $2.1 million in 1994. This increase was due to increased local service revenue generated through the university program in the U.S. The following chart shows the total revenue contribution from each of the Company's operating units as well as billable long distance minutes (in 000's): Three months ended March 31, Percent Percent Revenue 1995 of Total 1994 of Total United States $15,025 37.8% $13,810 42.7% Canada 19,284 48.6% 18,302 56.6% United Kingdom 5,399 13.6% 223 .7% Total $39,708 100% $32,335 100% Billable minutes United States 117,457 43.1% 111,821 51.5% Canada 130,909 48.0% 104,696 48.2% United Kingdom 24,330 8.9% 730 .3% Total 272,696 100% 217,247 100% OPERATING EXPENSES Network costs increased 21.1% to $24.7 million for the three months ended March 31, 1995, from $20.4 million for the same period in 1994, due primarily to the increase in billable minutes. However, the increase in network costs was less than the increase in billable minutes due to the Company's increasingly efficient utilization of its leased facilities, decreased contribution rates in Canada, and a more favorable mix of traffic due to increased residential and student usage during off-peak hours. As a result, network costs as a percentage of total revenue decreased slightly to 62.3% for the three months ended March 31, 1995, from 63.0% for the same period in 1994. Depreciation and amortization expense increased to $2.5 million for the three months ended March 31, 1995, from $2.0 million for the same period in 1994. This increase was primarily attributable to assets placed in service in the third and fourth quarters of 1994, primarily equipment at U.S. university sites, the U.K. switching center and billing system, and the local switching center in Syracuse, New York. Selling, general and administrative expenses for the three months ended March 31, 1995 were $12.9 million compared with $9.0 million for the same period in 1994. This increase was primarily attributable to increased payroll and related costs, to increased marketing, sales and customer service costs associated with the rapid growth of the Company's operations in the U.K. and Canada, and to increased facility costs due to the Company's expanding operations and new headquarters in Rochester, New York. Costs incurred in the operations of the local service business were constant at approximately $0.5 million for the first quarter in both 1995 and 1994. Expressed as a percentage of revenue, selling, general and administrative expenses were 32.4% for the three months ended March 31, 1995, compared to 28.0% in 1994. This increase was primarily attributable to expenses related to the expansion, including marketing efforts described above and personnel costs, of the U.K. operations. As revenue from the Company's U.K. operations grows, selling, general and administrative expenses, on a consolidated basis, as a percentage of revenue, are anticipated to decline through economies of scale. OTHER INCOME (EXPENSE) Net interest expense increased to $0.9 million for the three months ended March 31, 1995, compared to $0.2 million for the same period in 1994, due to the Company's increased borrowings on its lines of credit related to the financing of university projects in the U.S. and start-up costs for the U.K. and local service operations throughout 1994. Foreign exchange loss reflects the change in the value of Canadian and British currencies relative to the U.S. dollar. Foreign exchange loss for the three months ended March 31, 1995 decreased to $0.03 million compared to $0.1 million for the same period in 1994, due to the Company's increased hedging of foreign currency exposure. The provision for income taxes for the quarter increased to $0.27 million from $0.26 million for the first quarter of 1994. The income tax provision that is recorded at March 31, 1995 is relative to the U.S. operations only. No income tax benefits have been recorded for the first quarter 1995 operating losses in the U.K. and Canada due to the uncertainty of the Company's ability to utilize these losses to reduce future taxable income in those countries. Minority interest in income of consolidated subsidiary reflects the portion of the Company's Canadian subsidiary's income attributable to the approximately 30% of the shares of that subsidiary that are publicly traded in Canada. For the three months ended March 31, 1995, minority interest in loss of consolidated subsidiary was a positive $0.01 million compared to a negative $0.07 million for the same period in 1994 due to the net loss generated by ACC's Canadian operations in 1995 as compared to net income in 1994. The Company's net loss for the three months ended March 31, 1995 was $1.7 million compared to net income of $0.3 million for the same period in 1994. The 1995 net loss is the result of expansion into new markets in Canada, significant startup costs in the U.K., operating expenses of providing local service in the U.S. and increased interest expense. A net loss is anticipated for at least the next two quarters as the Company seeks to develop its new operations and increase its market share in all areas, particularly in the U.K. SEASONALITY As the percentage of the Company's revenue generated by its university customers has increased, especially in the U.S., the Company's business has become more seasonal. Revenue generally increases during the school year, which runs from September through May in the U.S. and Canada, and from October through May in the U.K. During the summer months while university customer revenue is low, selling and administrative expenses, as a percent of revenue, generally increase due to the sales and marketing efforts related to generating new university customers for the following fall semester. CAPITAL RESOURCES AND LIQUIDITY To date, the bulk of the Company's working capital needs have been met through funds generated from operations and from the Company's short-term lines of credit. In addition, the Company has used the proceeds from the sale of ACC TelEnterprises Ltd.'s common stock and the sale of its cellular operations, both in 1993, to fund the expansion of its operations in Canada and the U.K. The Company's principal need for working capital is to meet its selling, general and administrative expenses as its business expands. In addition, the Company's resources have been used for asset additions, customer base acquisitions and payments of dividends to its shareholders. The Company has various credit arrangements with financial institutions consisting of lines of credit, equipment loans and leasing arrangements. At March 31, 1995, the Company had total borrowing capacity of $30.0 million from lines of credit, of which $28.1 million was outstanding, $0.2 million was reserved for letters of credit, and $1.7 million was available. The Company has completed an offshore offering of 825,000 shares of its common stock at an average price of $14.53 per share pursuant to SEC Regulation S, to foreign institutional investors through a placement agent. 575,000 shares, representing net proceeds of $7.8 million, after fees of $0.6 million, were sold during the first quarter. Proceeds of $1.4 million were received prior on March 31, and the balance was received during the first week of April. The remaining 250,000 shares were sold in April, 1995 for net proceeds of $3.3 million, after fees of $0.3 million. During the first quarter of 1995, the Company obtained a commitment letter from a group of banks to enter into a financing agreement to convert its demand lines of credit into a $30.0 million term line of credit bearing an interest rate of prime plus one and one-half percent which will expire on April 1, 1996. At March 31, 1995, the Company had a working capital deficit of approximately $5.0 million. While the Company believes its cash flow from operations, the stock offering discussed above, and this line of credit are sufficient to meet the cash requirements of its current operations for at least the next twelve months, it must obtain additional financing in order to grow at its historic rates and achieve its long-term objectives. The Company is currently negotiating with several entities to obtain additional long-term debt and/or equity financing to support this future growth. PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. 1) Yankee Microwave, Inc. v. ACC Corp., et al. In February, 1990, Yankee Microwave, Inc. ("Yankee") filed a complaint against ACC Corp., its subsidiary, ACC Long Distance Corp., and others in the United States District Court for the District of Massachusetts alleging violations of the Racketeer Influenced and Corrupt Organization ("RICO") statute and the Massachusetts Unfair and Deceptive Trade Practice Statute (G.L. Chapter 93A), breach of contract, interference with contractual relations and violation of the Massachusetts Uniform Fraudulent Conveyance Act, allegedly arising from acts by the defendants as a result of which the plaintiff claimed to have lost approximately $3 million under a contract for microwave transmission services. The claims against ACC Corp. and ACC Long Distance Corp. related to an alleged 1985 service and license agreement between Yankee and Petricca Communication Systems, Inc. ("Petricca") and a 1987 agreement between ACC and Petricca by which ACC acquired certain assets of Petricca. The complaint sought damages in the amount of approximately $3 million and requested that any such damages be trebled and costs and attorneys' fees be awarded pursuant to the federal RICO statute and Massachusetts law. The Company filed a motion to dismiss or for summary judgment in its favor dismissing the suit from Federal court. It also filed a formal complaint with the FCC seeking to have the rates charged by Yankee under its 1985 agreement with Petricca declared unlawful. In January, 1992, the Federal District Court granted the Company's motion for summary judgment by ruling the RICO count to be without merit and dismissing it on the merits, and then dismissed all of Yankee's state law claims for lack of federal subject matter jurisdiction. In February, 1992, Yankee re-filed its state-law claims in Massachusetts state court. The Massachusetts Superior Court conducted a trial on the liability issues in Yankee's claims in August, 1994, and in February, 1995, issued a judgment that rejected all of Yankee's claims against the Company. This judgment left open the precise amounts owed Yankee by ACC in respect of certain other matters and the amount that Yankee owed ACC for damages by reason of Yankee's breach of contract. In April, 1995, ACC and Yankee filed a stipulation in which each waived all further claims against the other and jointly moved for immediate entry of partial final judgment disposing of this case. 2) In Re: Applications of Horizon Cellular Telephone Company of Central Kentucky, L.P. In 1989, the Company's Danbury Cellular Telephone Co. ("DCTC") subsidiary won an authorization to build a cellular telephone system in the area known as Kentucky Rural Service Area ("RSA") #6, which it then constructed. During 1991, DCTC acquired the FCC licenses to build and operate cellular telephone systems in the areas known as Kentucky RSAs #5 and #8, which are adjacent to its RSA #6. In 1993, DCTC sold the assets of its three-RSA cellular telephone system to Horizon Cellular Telephone Company of Central Kentucky, L.P. ("Horizon"). At various steps along the way, DCTC's actions were unsuccessfully challenged at the FCC, at the Kentucky Public Service Commission and in federal court by one Vivian Warner, a losing applicant for the Kentucky RSA #6 license that DCTC won in an FCC- sponsored lottery for awarding these RSA licenses. Although the sale of the Company's cellular business to Horizon closed during the third quarter of 1993, Ms. Warner had filed an application for FCC review of the sale of DCTC's cellular business to Horizon. That matter remains pending at the FCC. To address various issues in preparation for the closing of the sale of DCTC's assets to Horizon, the Company, DCTC and Horizon entered into a Closing Adjustment Agreement. Among other matters, that agreement provides for the unwinding of that transaction should such action ever be required by the final, binding and non-appealable order of any court or other governmental authority having competent jurisdiction over this matter. However, since the Company believes that none of the matters raised by Ms. Warner are likely to cause the FCC to disturb the sale of DCTC's assets to Horizon, it likewise considers as unlikely the possibility that it will be required to unwind this transaction. 3) In Re: Petition of Vivian E. Warner. In August, 1993, Vivian Warner filed a petition with the Federal Trade Commission ("FTC") requesting that it investigate the settlement agreement under which Tsaconas Cellular, Inc. ("Tsaconas") withdrew its objection to Horizon's application described under In Re: Applications of Horizon Cellular Telephone Company of Central Kentucky, L.P. above. As part of that settlement, DCTC and Tsaconas mutually agreed to service area extensions into their respective cellular service areas. Ms. Warner claimed that the agreement may violate the Sherman Antitrust Act of 1890, the Clayton Act of 1914, and other unnamed federal statutes. Ms. Warner urged the FTC to investigate the matter and to report its findings to the FCC. The Company believes that there are no grounds for an FTC investigation. The FTC has taken no action on Ms. Warner's petition, nor has it asked the Company to respond to it. Item 5. OTHER INFORMATION. In October, 1994, the Company signed an agreement to merge its local service subsidiary, ACC National Telecom Corp., with US ONE Communications Corp. ("US ONE"). The proposed merger was subject to several conditions, one of which was US ONE acquiring equity capital. In April, 1995, US ONE notified the Company that it would not be able to fulfill this condition in the foreseeable future. As a result, the parties are in the process of arranging for the termination of the merger agreement. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACC CORP. (Registrant) Dated: May 12, 1995 By: /s/ Michael R. Daley Michael R. Daley Executive Vice President and Chief Financial Officer Dated: May 12, 1995 By: /s/ Sharon L. Barnes Sharon L. Barnes Controller EXHIBIT INDEX Exhibit No. Description Pages 11 Statement regarding computation See Note 3 to the Notes of per share earnings. to Consolidated Financial Statements contained in this report. 27 Financial Data Schedule Filed only with EDGAR filing, per Reg. S-K, Rule 601(c)(1)(v) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S MARCH 31, 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000783233 ACC CORP. 1000 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 81 0 24,112 1,707 228 35,470 64,723 20,376 91,958 30,416 31,214 123 0 0 25,025 91,958 37,366 39,708 24,745 40,154 0 721 941 (1,394) 270 (1,654) 0 0 0 (1,654) (0.23) 0
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