0000927550-95-000038.txt : 19950815 0000927550-95-000038.hdr.sgml : 19950815 ACCESSION NUMBER: 0000927550-95-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95563315 BUSINESS ADDRESS: STREET 1: 400 W AVE 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 F/Q/E 6/30/95 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 June 30, 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 August 8, 1995, the Registrant had issued and outstanding, 7,761,607 shares of its $.015 par value Common Stock. The total number of pages in this report is 16. The Index of Exhibits filed with the Report is found at Page 16 ACC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Amounts in 000's, except per share data) Three months ended Six months ended June 30, June 30, 1995 1994 1995 1994 Revenue: Toll revenue $39,585 $27,004 $76,948 $57,234 Leased lines and other 2,048 1,803 4,387 3,910 41,633 28,807 81,335 61,144 Operating expenses: Network costs 26,314 18,874 51,060 39,240 Depreciation and amortization 2,863 2,107 5,394 4,055 Selling, general and administrative 13,311 9,634 26,192 18,690 42,488 30,615 82,646 61,985 Loss from operations (855) (1,808) (1,311) (841) Other income (expense): Interest (1,409) (327) (2,327) (499) Terminated merger costs - (200) - (200) Foreign exchange gain (loss) (64) 284 (95) 168 (1,473) (243) (2,422) (531) Loss before provision for (benefit from) income taxes and minority interest (2,328) (2,051) (3,733) (1,372) Provision for (benefit from) income taxes 18 (832) 290 (572) Loss before minority interest (2,346) (1,219) (4,023) (800) Minority interest in loss of consolidated subsidiary 96 195 107 124 Net loss ($2,250) ($1,024) ($3,916) ($676) Net loss per common & common equivalent share: ($0.29) ($0.15) ($0.52) ($0.10) Average number of common and common equivalent shares 7,858,492 7,042,733 7,467,907 7,051,477
ACC CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in 000's except share data) June 30, December 31, 1995 1994 (Unaudited) (Audited) Current assets: Cash and cash equivalents $215 $1,021 Restricted cash - 272 Accounts receivable, net of allowance for doubtful accounts of $2,136 in 1995 and $1,035 in 1994 25,983 20,499 Other receivables 4,704 5,433 Prepaid and other assets 1,648 1,124 Total current assets 32,550 28,349 Property, plant and equipment: At cost 70,497 62,618 Less-accumulated depreciation and amortization (22,482) (18,537) 48,015 44,081 Other assets: Restricted cash - 157 Goodwill and customer base 6,590 6,884 Deferred installation costs, net 1,744 1,639 Other 4,425 3,642 12,759 12,322 Total assets $93,324 $84,752 Current liabilities: Current maturities of long-term debt $2,312 $1,613 Accounts payable 7,154 10,498 Accrued network costs 17,226 10,443 Other accrued expenses 7,369 8,053 Dividends payable - 208 Total current liabilities 34,061 30,815 Deferred income taxes 3,841 3,675 Long-term debt 17,973 29,914 Subordinated debt 9,808 - Minority interest 1,187 1,262 Shareholders' equity: Common stock, $.015 par value Authorized-50,000,000 shares Issued- 8,488,223 in 1995 and 7,652,601 in 1994 118 115 Capital in excess of par value 31,510 20,070 Cumulative translation adjustment (942) (1,013) Retained earnings (2,622) 1,524 28,064 20,696 Less- Treasury stock, at cost (726,589 shares) (1,610) (1,610) Total shareholders' equity 26,454 19,086 Total liabilities and shareholders' equity $93,324 $84,752
ACC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in 000's, except per share data) FOR THE SIX MONTHS ENDED JUNE 30 1995 1994 Cash flows from operating activities: Net loss ($3,916) ($676) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,394 4,055 Deferred income taxes 268 (594) Minority interest in loss of consolidated subsidiary (107) (124) Unrealized foreign exchange loss (gain) 207 (229) Amortization of deferred financing costs 108 - Loss on disposal of equipment 193 - (Increase)decrease in assets: Restricted cash - (24) Accounts receivable, net (5,268) (1,791) Other receivables 743 253 Prepaid and other assets (515) 154 Deferred installation costs (863) (535) Other 383 (541) Increase(decrease) in liabilities: Accounts payable (3,407) (700) Accrued network costs 6,716 (2,429) Other accrued expenses (398) 215 Total adjustments 3,454 (2,290) Net cash used in operating activities (462) (2,966) Cash flows from investing activities: Capital expenditures (4,775) (12,880) Acquisition of customer base (227) (1,757) Net cash used in investing activities (5,002) (14,637) Cash flows from financing activities: Net borrowings (repayments) under lines of credit (13,316) 20,885 Repayment of long-term debt (933) (1,132) Proceeds from issuance of common stock 11,243 - Proceeds from issuance of subordinated debt 10,000 - Financing costs (1,319) (1) Dividends paid (440) (3,826) Net cash provided by financing activities 5,235 15,926 Effect of exchange rate changes on cash (577) 324 Net decrease in cash and cash equivalents (806) (1,353) Cash and cash equivalents at beginning of period 1,021 1,467 Cash and cash equivalents at end of period $215 $114 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $2,041 $417 Income taxes $103 $280 Supplemental schedule of noncash investing activities: Equipment purchased through capital leases $2,995 $805 Supplemental schedule of noncash financing activities: Exchange of treasury shares for common shares - $327
ACC CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 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 Six Months For the Three Ended June 30: Months Ended June 30: Average Number Outstanding: 1995 1994 1995 1994 Common Shares 7,332,899 6,908,061 7,728,944 6,909,883 Common Equivalent Shares 135,008 143,416 129,548 132,850 Total 7,467,907 7,051,477 7,858,492 7,042,733
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 June 30, 1995 presentation. 5. Sale of Common Stock During 1995, the Company made 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 investors through a placement agent. The offering raised net proceeds of $11.1 million, after deduction of fees and expenses of $0.9 million. In conjunction with this transaction, warrants to purchase 82,500 shares of Common Stock were issued. 6. Private Placement In May, 1995, the Company completed a $10 million private placement of 12% convertible subordinated debt to a group of private investors led by Fleet Equity Partners. The notes are convertible into 10,000 shares of cumulative, convertible Series A Preferred Stock subject to approval of that class of stock by the Company's shareholders, which was received at their annual meeting on July 19, 1995. The Series A preferred shares will have a liquidation value of $1,000 per share, will accrue cumulative dividends of 12% annually, and will be convertible into Common Stock at an initial conversion price of $16 per share, or 625,000 shares, subject to certain adjustments. All of the outstanding Series A preferred shares will be repaid in cash or partly in cash and partly in Common Stock, on the seventh anniversary of the closing at the greater of i) the principal amount plus all accrued and unpaid interest and dividends or ii) the fair market value of the underlying Common Stock into which the preferred shares are convertible. Optional repayments are permitted at any time. The preferred shares will be automatically converted into Common Stock if, after the second anniversary of the closing, i) the daily trading volume of the Common Stock exceeds 5% of the number of shares of Common Stock issuable upon conversion of the preferred shares for 45 consecutive trading days, ii) the holders of the preferred shares are not subject to any underwriters lock up agreement and iii) the average closing price of the Common Stock for 15 consecutive trading days exceeds the price set forth in the investment agreement (ranging from $32.00 to $57.33), depending on the period of time that the preferred shares have been outstanding. At closing, warrants for 100,000 shares of the Company's Common Stock were issued at an initial exercise price of $16 per share. Also at closing, the Company issued warrants to purchase Common Stock that will become exercisable upon one or more optional repayments of the Series A preferred shares, and will permit each holder to acquire initially the same number of shares of Common Stock into which the preferred shares were convertible as of the relevant repayment date. The Series A preferred stock will be senior to all classes and series of preferred stock and Common Stock as to the payment of dividends and redemptions, and upon liquidation at liquidation value, senior to all other classes of the Company's capital stock. In certain circumstances, the holders of the Series A Preferred Stock will have preemptive rights to purchase, on an as-converted basis, a pro rata portion of certain Common Stock issuances by the Company. The Fleet Equity investors are entitled to elect one director to the Company's Board of Directors, so long as more than 33% of the Series A Preferred Stock (or subordinated debt) is outstanding. They also have the right to approve certain transactions as listed in the agreement. At June 30, 1995, the legal form of the transaction was subordinated debt, and it has been reflected as such on the accompanying balance sheet. The debt has been recorded net of unamortized discount of approximately $8,000, and the value assigned to the warrants issued at closing of $0.2 million. Unamortized issuance costs of approximately $0.9 million are shown on the accompanying balance sheet as other long term assets. On subsequent balance sheets, as long as the preferred shares are outstanding, the unamortized portions of these amounts will be shown as a reduction of redeemable preferred stock. The carrying value of the redeemable preferred stock will be accreted to the liquidation value, as defined, over the seven year term. 7. Long-Term Debt On June 7, 1995, the Company entered into a commitment for a $35 million five year senior credit facility with two financial institutions. On July 21, 1995, the transaction was closed and $15 million was borrowed under the new agreement, which was used to pay down and terminate the Company's previously existing lines of credit and to pay fees related to the transaction. The agreement contains certain financial covenants, one of which limits the amount that may be borrowed against this facility, based on the Company's operating cash flow. The facility will be reduced in quarterly increments commencing 24 months after closing. Borrowings under the facility are secured by certain of the Company's assets, and will bear interest at either LIBOR or prime interest rates, with additional percentage points added based on a ratio of debt to operating cash flow, as defined in the loan agreement. The Company is obligated to pay the managing agent banks a contingent interest payment based on the appreciation in value of 140,000 shares of the Company's Common Stock over the 18 month period following the date of closing. The payment will range from $750,000 to $2,100,000. In addition to paying off the Company's previously existing lines of credit, proceeds from the facility will be used to finance capital expenditures and provide working capital. ITEM 2. Management's Discussion and Analysis of Financial Condition and the Results of Operations RESULTS OF OPERATIONS 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): Revenue and minutes are shown net of revenue and minutes from affiliates. Three months ended June 30, Percent of Percent of Revenue 1995 Total 1994 Total United States $13,492 32.4% $12,401 43.1% Canada 19,908 47.8% 16,080 55.8% United Kingdom 8,169 19.6% 326 1.1% Local Exchange 64 .2% - - $41,633 100.0% $28,807 100.0% Billable Minutes United States 106,996 39.8% 102,195 50.1% Canada 125,334 46.7% 100,673 49.3% United Kingdom 36,157 13.5% 1,252 .6% 268,487 100.0% 204,120 100.0% Six months ended June 30, Percent of Percent of Revenue 1995 Total 1994 Total United States $28,493 35.0% $26,213 42.9% Canada 39,191 48.2% 34,382 56.2% United Kingdom 13,568 16.7% 549 .9% Local Exchange 83 .1% - - $81,335 100.0% $61,144 100.0% Billable Minutes United States 224,413 41.5% 214,016 50.8% Canada 256,244 47.3% 205,369 48.7% United Kingdom 60,486 11.2% 1,982 .5% 541,143 100.0% 421,367 100.0% For the three months ended June 30, 1995, toll revenue increased by 46.6% to $39.6 million from $27.0 million for the three months ended June 30, 1994. In the United States, revenue increased 8.5%, due to both volume and price increases. In Canada, revenue increased 25.3% primarily as a result of an increased volume of billable minutes, with prices remaining fairly consistent with the second quarter of 1994, representing an improvement over the preceding two quarters. In the United Kingdom (U.K.), revenue increased 2,444% due to substantial volume increases, offset slightly by lower prices, as a result of entering into commercial and residential markets, whereas in 1994, ACC's U.K. customers were primarily university students. For the six months ended June 30, 1995, toll revenue increased by 34.4% to $76.9 million from $57.2 million for the six months ended June 30, 1994. In the United States, revenue increased 8%, and was fairly evenly split between volume and price increases. In Canada, revenue increased 14.8%, largely attributable to volume increases, with slight price declines compared to the same six months in 1994. The price declines were a result of price competition in the first quarter of 1994 that resulted in decreased rates in the second quarter of 1994, but which have been relatively stable since June 30, 1994. The U.K. had a 2,412% revenue increase, due to significant volume increases offset by price declines as discussed above. In the U.K., favorable exchange rates accounted for approximately 6% of the increase. Leased lines and other revenue increased 13.6% to $2.0 million for the quarter ended June 30, 1995 from $1.8 million for the same period in 1994. For the six month period ended June 30, 1995, leased lines and other revenue increased 12.2% to $4.4 million from $3.9 million for the same period in 1994. These increases primarily related to increased local revenue generated by both the University Program in the U.S. and the start up of local exchange operations in upstate New York. OPERATING EXPENSES Network costs increased to $26.3 million and $51.1 million for the three and six months ended June 30, 1995, respectively, from $18.9 million and $39.2 million for the same periods in 1994. Expressed as a percentage of revenue, network costs decreased to 63% for the three months ended June 30, 1995 from 66% for the same period in 1994, and decreased slightly to 63% for the six month period ended June 30, 1995 from 64% for the same period in 1994. The decreases, as a percentage of revenue, were mainly due to lower Canadian contribution rates and volume related efficiencies in Canada. These decreases were partially offset by increased per minute costs in the United Kingdom where the Company's network is still being developed. Depreciation and amortization increased to $2.8 million and $5.4 million for the three and six months ended June 30, 1995, respectively, from $2.1 million and $4.1 million for the same periods in 1994. These increases were primarily due to assets placed in service during the third and fourth quarters of 1994, particularly equipment at U.S. university sites, the U.K. switching center and billing system, and the local switching center in Syracuse, New York. The Company anticipates that depreciation will increase during the second half of 1995 as a result of several switching center upgrades scheduled. Selling, general and administrative expenses increased to $13.3 million and $26.2 million for the three and six month periods ended June 30, 1995, respectively, from $9.6 million and $18.7 million for the same periods in 1994. These increases were primarily attributable to increased payroll and related costs, increased marketing, sales and customer costs associated with the rapid growth of the Company's operations in the U.K. and Canada, and increased facility costs due to the Company's expanding operations and headquarters in Rochester, New York. Costs incurred in the operations of the local service business decreased to $0.5 million and $0.9 million, respectively, for the three and six month periods ended June 30, 1995 from $0.8 million and $1.3 million for the same periods in 1994, due to reduced legal, regulatory, and engineering costs as that business moves out of start-up mode. Expressed as a percentage of revenue, selling, general and administrative expenses declined to 32% for the three months ended June 30, 1995 compared to 33% for the same period in 1994, primarily as a result of significant revenue increases in the U.K. For the six month periods ended June 30, 1995 and 1994, selling, general and administrative expenses as a percentage of revenue were 32% and 31%, respectively. The year to date increase is reflective of the increased level of activity in the U.K. in the first quarter of 1995 versus the first quarter of 1994. Under its present business plans, the Company anticipates that this ratio will decrease slightly in the third quarter. As the Company's revenue continues to increase and its operations mature, particularly in the emerging U.K. market, selling, general and administrative expenses are anticipated to decrease as a percent of revenue. OTHER INCOME (EXPENSE) Net interest expense increased to $1.4 million and $2.3 million, respectively, for the three and six month periods ended June 30, 1995 from $0.3 million and $0.5 million for the same periods in 1994. These increases were due to increased borrowing on the Company's lines of credit related to financing of university projects in the U.S., start up of the U.K. and the local service businesses during 1994, write-off of deferred financing costs related to the Company's lines of credit which were terminated in July, 1995, and debt service costs associated with the subordinated 12% notes issued in May, 1995. The Company anticipates that interest expense will decline in the short term as a result of the new financing arrangements discussed in the Notes to Consolidated Financial Statements. 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 June 30, 1995 was $0.1 million compared to a gain of $0.3 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 was $18,000 compared to a benefit of $0.8 million for the second quarter of 1994. The income tax provision that was recorded at June 30, 1995 is relative to the U.S. operations only. No income tax benefits have been recorded for the 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 June 30, 1995, minority interest in loss of consolidated subsidiary was $0.1 million compared to $0.2 million for the same period in 1994 due to the improvement in the Canadian subsidiary's operating results in 1995. The Company's net loss for the three and six month periods ended June 30, 1995 was $2.3 million and $3.9 million, respectively, versus $1.0 million and $0.7 million for the same periods in 1994. These results were primarily due to continued start-up losses in the U.K. and local exchange businesses, debt restructuring costs, and non-recognition of income tax benefits in foreign subsidiaries. The Company anticipates a net loss for at least the next quarter as it continues to make investments in all subsidiaries, particularly 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. During 1995, the Company has been focused on improving its balance sheet, as well as obtaining debt and equity financing to continue to finance the growth of the business. During the second quarter and subsequently, three transactions have been completed to accomplish these goals. In April, the Company 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 investors through a placement agent, raising net proceeds of $11.1 million, after fees of $0.9 million. In May, 1995, the Company completed a $10 million private placement of 12% convertible subordinated debt to a group of private investors led by Fleet Equity Partners. The notes are convertible into 10,000 shares of cumulative, convertible Series A Preferred Stock subject to approval of the creation of that class of stock by the Company's shareholders, which was received at their annual meeting on July 19, 1995. The Series A preferred shares will have a liquidation value of $1,000 per share, will accrue cumulative dividends of 12% annually, and will be convertible into Common Stock at an initial conversion price of $16 per share, or 625,000 shares, subject to certain adjustments. All of the outstanding Series A preferred shares will be repaid in cash, or partly in cash and partly in Common Stock, on the seventh anniversary of the closing at the greater of i) the principal amount plus all accrued and unpaid interest and dividends or ii) the fair market value of the underlying Common Stock into which the preferred shares are convertible. The preferred shares are automatically converted to Common Stock if certain conditions are met. The Company used the proceeds from the two private placements mentioned above to reduce its previously existing lines of credit. The Company also discontinued paying regular dividends as part of its plan to retain funds to support its growth and operations. The third phase of the Company's financing plan was to restructure existing debt. On June 7, 1995, the Company entered into a commitment for a $35 million five year senior credit facility with two leading telecommunications lending financial institutions. On July 21, 1995, the transaction was closed and $15 million was borrowed under the new agreement which was used to pay down and terminate the Company's previously existing lines of credit and to pay fees related to the transaction. The agreement contains certain financial covenants, one of which limits the amount that may be borrowed against this facility, based on the Company's operating cash flow. The facility will be reduced in quarterly increments commencing 24 months after closing. At August 11, 1995, the available facility was approximately $30 million, of which $12 million was unused. Borrowings bear interest based on either LIBOR or prime interest rates, with additional percentage points added based on a ratio of debt to operating cash flow, as defined in the loan agreement. The Company is obligated to pay the lenders a contingent interest payment based on the appreciation in value of 140,000 shares of the Company's Common Stock. The payment will range from $750,000 to $2,100,000 and is due upon the earlier of i) 18 months following the closing date, ii) any subsequent refinancing of the facility, iii) the signing of a letter of intent to sell the Company or any material subsidiary, or iv) the cessation of active trading of the Company's Common Stock on other than a temporary basis. The Company believes that it will have adequate cash flow from operations or available bank lines to make this payment and will accrue the expenditure over the next 18 months. In addition to paying off the Company's previously existing lines of credit, proceeds from the facility will be used to finance capital expenditures and provide working capital for all business segments. At June 30, 1995, the Company had a working capital deficit of approximately $1.5 million. This deficit position was eliminated shortly after quarter-end with the first borrowing under the Company's new credit facility. The Company believes its cash flow from operations, vendor financing agreements and its new credit facility are sufficient to meet the cash requirements of its current operations for the foreseeable future. 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, pursuant to a stipulation filed by ACC and Yankee in which each waived all further claims against the other, the court entered 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 have terminated this merger agreement. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. See Exhibit Index. (b) Reports on Form 8-K. (1) On April 13, 1995, the Company filed a Report on Form 8-K to report, under the heading of Item 5, Other Events, on the completion of an offshore offering of its Common Stock made pursuant to SEC Regulation S. The Company filed this Form 8-K pursuant to Securities Act Rule 135c to avail itself of the "safe harbor" provided by Rule 902(b)(7) of Regulation S. (2) On June 22, 1995, the Company filed a Report on Form 8-K to report, under the heading of Item 5, Other Events, on the May 22, 1995 closing of a $10,000,000 investment in the Company by an investment group led by Fleet Equity Partners and the election of Robert M. Van Degna to the Company's Board of Directors as the representative of the Fleet Equity investors. 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: August 14, 1995 /s/ Michael R. Daley Michael R. Daley, Executive Vice President & Chief Financial Officer Dated: August 14, 1995 /s/ Sharon L. Barnes Sharon L. Barnes Controller EXHIBIT INDEX Exhibit No. Description Location 11 Statement regarding computation See Note 3 to the of per share earnings. Notes 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 IINFORMATION EXTRACTED FROM THE COMPANY'S JUNE 30, 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000783233 ACC CORP. 1,000 U.S.DOLLARS 6-MOS DEC-31-1995 JAN-1-1995 JUN-30-1995 1 215 0 28,119 2,136 242 32,550 70,497 22,482 93,324 34,061 27,781 118 0 0 26,336 93,324 76,948 81,335 51,060 82,646 0 1,486 2,416 (3,733) 290 (3,916) 0 0 0 (3,916) (0.52) 0