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.
<TABLE>
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
<S> <C> <C>
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
</TABLE>
<TABLE>
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
<S> <C> <C> <C> <C> <C>
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
</TABLE
</TABLE>
<TABLE>
ACC CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in 000's)
FOR THE THREE MONTHS ENDED
MARCH 31,
1995 1994
<S> <C> <C>
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
</TABLE>
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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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
</LEGEND>
<CIK> 0000783233
<NAME> ACC CORP.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 81
<SECURITIES> 0
<RECEIVABLES> 24,112
<ALLOWANCES> 1,707
<INVENTORY> 228
<CURRENT-ASSETS> 35,470
<PP&E> 64,723
<DEPRECIATION> 20,376
<TOTAL-ASSETS> 91,958
<CURRENT-LIABILITIES> 30,416
<BONDS> 31,214
<COMMON> 123
0
0
<OTHER-SE> 25,025
<TOTAL-LIABILITY-AND-EQUITY> 91,958
<SALES> 37,366
<TOTAL-REVENUES> 39,708
<CGS> 24,745
<TOTAL-COSTS> 40,154
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 721
<INTEREST-EXPENSE> 941
<INCOME-PRETAX> (1,394)
<INCOME-TAX> 270
<INCOME-CONTINUING> (1,654)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,654)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
</TABLE>
