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
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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
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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
</TABLE>
<TABLE>
ACC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000's except share data)
June 30, December 31,
1995 1994
(Unaudited) (Audited)
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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
</TABLE>
<TABLE>
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
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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
</TABLE>
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:
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For the Six Months For the Three
Ended June 30: Months Ended June 30:
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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
</TABLE>
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)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL IINFORMATION EXTRACTED FROM THE
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TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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