SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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
Commission File Number 0-14959
NATIONWIDE CELLULAR SERVICE, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2692099
(State of incorporation or organization) (Identification No.)
20 East Sunrise Highway, Valley Stream, New York 11581-1252
(Address of Principal Executive Offices) (Zip Code)
(516) 568-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
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
8,202,349 Common Shares were outstanding as of August 11, 1995.
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NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations 3
Six Months Ended June 30, 1995 and 1994
Three Months Ended June 30, 1995 and 1994
Consolidated Balance Sheets 4 - 5
June 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows 6
Six Months Ended June 30, 1995 and 1994
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9 - 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30, Three Months Ended June 30,
1995 1994 1995 1994
(Dollar amounts in thousands, except per share data)
Revenues
Cellular service $ 108,839 $ 96,900 $ 57,170 $ 51,345
Equipment sales 8,457 4,345 4,979 2,157
Other income 150 150 75 75
117,446 101,395 62,224 53,577
Costs and expenses
Cost of cellular service 70,435 66,992 37,284 35,386
Cost of equipment sold 15,989 10,125 8,683 5,678
General and administrative
expense 12,382 10,217 6,158 5,285
Selling and distribution
expense 18,430 8,594 10,193 4,056
Amortization of purchased
subscriber base 2,688 3,290 1,343 1,754
Bad debt expense 1,509 1,311 789 697
121,433 100,529 64,450 52,856
(Loss) income from
operations (3,987) 866 (2,226) 721
Interest and other income 202 217 103 112
Interest expense (496) (147) (187) (90)
Gain on capital transactions
of affiliate 108 637 41 13
Share of gain (loss) from
equity investments 111 (466) 136 (261)
(Loss) income before income
taxes (4,062) 1,107 (2,133) 495
Income tax benefit (provision) 80 (275) (562) (108)
Net (loss) income $ (3,982) $ 832 $ (2,695) $ 387
Net (loss) income $ (3,982) $ 832 $ (2,695) $ 387
CVR accretion (400) (200)
Net (loss) income attributable to
common stock $ (3,982) $ 432 $ (2,695) $ 187
Weighted average common shares
outstanding (Note C) 7,901,991 8,530,157 7,983,382 7,814,974
Net (loss) income per share
of common stock $ (0.50) $ 0.05 $ (0.34) $ 0.02
The accompanying notes are an integral part of these financial statements.
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
(Dollar amounts in thousands)
ASSETS (unaudited) (note)
Current assets:
Cash and cash equivalents $ 1,794 $ 1,719
Accounts receivable less allowance
of $5,465,000 in 1995 and
$5,463,000 in 1994 44,267 40,730
Inventory 2,360 3,713
Prepaid access and usage charges 2,440 3,326
Other current assets 4,975 3,865
Deferred income taxes 2,052 1,929
Total current assets 57,888 55,282
Fixed Assets -- at cost:
Building 3,847
Furniture and fixtures 3,741 3,324
Equipment 3,566 3,394
Leasehold improvements 926 729
12,080 7,447
Less accumulated depreciation and amortization (5,266) (4,593)
Net fixed assets 6,814 2,854
Purchased subscriber base, less accumulated
amortization of $13,695,000 in 1995 and
$11,007,000 in 1994 3,732 7,052
Note receivable 4,278 4,370
Investments in and advances to affiliated companies 4,993 4,727
Other assets 1,536 1,394
Total assets $ 79,241 $ 75,679
note: The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying notes are an integral part of these financial statements.
<PAGE>
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
(Dollar amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) (note)
Current liabilities:
Due to cellular carriers $ 21,148 $ 18,681
Accounts payable and accrued expenses 8,299 8,548
Deferred access income 8,665 7,531
Federal excise, state and local taxes 4,558 4,312
Note payable 13,089
Contingent value rights 3,280
Total current liabilities 55,759 42,352
Other liabilities 1,071 1,316
Note payable 8,393
Deferred income taxes 2,548 2,511
Redeemable warrant 3,600
Convertible preferred stock, Series A, subject to
repurchase, $.01 par value, carried at redemption
value; 800,000 shares authorized, 400,000 shares
issued and outstanding in 1994 6,000
Stockholders' equity:
Common Stock, $.01 par value per share,
20,000,000 shares authorized in 1995 and
1994; issued and outstanding 8,185,999 in
1995 and 7,488,299 in 1994 82 75
Additional paid-in capital 35,243 30,241
Accumulated deficit (18,504) (14,522)
16,821 15,794
Less cost of 32,000 shares of
common stock held in treasury (77) (77)
Other reductions (481) (610)
Total stockholders' equity 16,263 15,107
Total liabilities and stockholders'
equity $ 79,241 $ 75,679
note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part of these financial statements.
<PAGE>
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Six Months Ended June 30,
1995 1994
(Dollar amounts in thousands)
OPERATING ACTIVITIES
Net (loss) income $ (3,982) $ 832
Adjustments to reconcile net (loss) income to
cash (used in) provided by operating activities:
Depreciation and amortization 3,619 4,302
Share of (gain) loss from equity investments (111) 466
Gain on capital transactions of affiliate (108) (637)
Accrued interest income (170) (199)
Deferred taxes (86) (35)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase in accounts receivable, net (3,537) (5,751)
Decrease (increase) in inventory 1,353 (330)
Decrease (increase) in prepaid access, usage and
other current and long-term assets 177 (1,395)
(Decrease) increase in due to cellular carriers,
accounts payable, accrued expenses, deferred
access income and taxes payable (38) 2,852
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (2,883) 105
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (4,443) (411)
Investments in and advances to affiliates (56) (748)
Purchase of subscribers (5,137)
Proceeds received from note receivable 1,000
Other investing activities 270 43
NET CASH USED IN INVESTING ACTIVITIES (4,229) (5,253)
FINANCING ACTIVITIES
Proceeds received from customer
security deposits 184 217
Repayments of customer security deposits (212) (195)
Proceeds received from notes payable 32,146 29,301
Repayments of notes payable (27,450) (23,625)
Cash received from exercise of stock options
and warrants, net 2,609 109
Other financing activities (90) (238)
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,187 5,569
INCREASE IN CASH AND CASH EQUIVALENTS 75 421
Cash and cash equivalents at beginning of period 1,719 639
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,794 $ 1,060
The accompanying notes are an integral part of these financial statements.
<PAGE>
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The operating results for the three and six month periods are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
NOTE B - CONVERTIBLE PREFERRED STOCK AND CONTINGENT VALUE RIGHTS
Pursuant to a Securities Purchase and Stockholder Agreement dated January 11,
1990 (the "Agreement") between the Company and a private investor, the investor
acquired 400,000 shares of the Company's Cumulative Convertible Preferred Stock,
Series A ("Preferred Stock"), a Warrant to purchase up to 850,000 shares of the
Company's Common Stock at an exercise price of $11.00 per share and 400,000
Contingent Value Rights ("CVRs"). Each CVR entitled its holder to receive a
cash payment equal to the amount, if any, by which $26.00 exceeded the fair
market value on January 12, 1995 of a share of the Company's Common Stock, but
in no event more than a total payment of $11.00 per CVR.
The Preferred Stock which was outstanding on December 31, 1994 converted
into shares of the Company's Common Stock on a one-for-one basis on January
12, 1995, and the Company paid the investor $3,280,000 extinguishing its
liability for the CVRs. Pursuant to a letter agreement dated January 6, 1995,
the Warrant was amended to extend its expiration date to January 11, 1996 and
the Agreement was amended to terminate certain of the investor's substantive
rights. In the event an entity acquires all or substantially all of the
outstanding Common Stock of the Company, the holder of the Warrant can require
the Company to repurchase the Warrant for an amount equal to the difference
between the consideration received for a share of Common Stock by the
shareholders of the Company and the exercise price of the Warrant.
NOTE C - NET (LOSS) INCOME PER SHARE OF COMMON STOCK
Net (loss) income per share of Common Stock is computed using the modified
treasury stock method which assumes the exercise of all outstanding options
and warrants and the use of the proceeds thereof to acquire up to 20% of the
outstanding Common Stock of the Company. When applied to earnings per share
for the three and six months ended June 30, 1995 and the three months ended
June 30, 1994, the modified treasury stock method yields antidilutive results,
and therefore the calculation utilizes the weighted average shares outstanding.
Primary and fully diluted earnings per common share are the same amounts for
each of the periods presented.
<PAGE>
For earnings per share for the six months ended June 30, 1994, the adjusted
weighted average shares outstanding is computed using the modified treasury
stock method as detailed below:
Six Months Ended
June 30, 1994
Weighted Average Shares Outstanding 7,411,053
Common Stock Equivalents 400,000
Net Additional Shares Issuable on
Conversion of Stock Options and
Warrants, Net of 20% Repurchase
Limitation 719,104
8,530,157
NOTE D - RECLASSIFICATION
The consolidated statement of cash flows for the six months ended June 30,
1994 has been reclassified to conform to current year's presentation.
NOTE E - FIXED ASSETS
On January 25, 1995, the Company purchased, for $3,600,000, a 55,000 square
foot office building to be used as its corporate headquarters. The Nassau
County Industrial Development Agency has approved the issuance of taxable
bonds in an amount up to $8,000,000 to finance substantially all of the costs
of the building, related improvements and equipment. The Company anticipates
that these bonds will be issued in the third quarter of 1995.
NOTE F - NOTE PAYABLE
The Company's credit facility with CoreStates Bank, N.A. is due to expire on
April 1, 1996, and as of June 30, 1995 the amount is classified as a current
liability. The Company has not negotiated an extension of its credit facility
pending the consummation of the merger described below.
NOTE G - OTHER EVENTS
On May 22, 1995, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with MCI Communications Corporation ("MCI") and NTS
Acquisition Corp. ("NTS"), pursuant to which NTS, an indirect wholly-owned
subsidiary of MCI, will be merged into the Company and each outstanding share
of Common Stock of the Company will be cancelled and the holders thereof will be
entitled to receive $18.50 per share in cash (the "Merger"). The Merger
Agreement provides that prior to the effectiveness of the Merger, the Company
will exercise its option to purchase 640,000 shares of Cellular Technical
Services Company, Inc. ("CTS") for $1,600,000 and make a distribution of the
shares of common stock of CTS then owned by the Company. Consummation of the
Merger is subject to Company stockholder and certain regulatory approvals.
The Company anticipates the transaction will close in September.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended June 30,1995 compared
to three months ended June 30, 1994
The Company recorded a net loss of ($2,695,000) or ($.34) per share in 1995
as compared to net income of $387,000 or $.02 per share in 1994. The loss from
operations was ($2,226,000) in 1995 as compared to income from operations of
$721,000 in 1994. The decline in both net income and income from operations is,
to a large degree, attributable to increased selling and distribution
expenses, as well as the loss on equipment sales resulting from the growth in
the Company's customer base. During the quarter, on a gross basis, 39,600
new customers were added in 1995 as compared to 24,000 in 1994. Of the
customers added in 1995, 12,300 were acquired through direct marketing as a
result of an agreement entered into in late 1994 with a direct marketing firm
working exclusively for the Company. Subscriber activations, net of
deactivations, increased to 26,200 in 1995 as compared to 13,900 in 1994. In
addition, in the three months ended June 30, 1995, the Company recorded pre-
tax income of $204,000, including gains on capital transactions, resulting
from its investment in Cellular Technical Services Company, Inc. ("CTS") and
a pre-tax loss of ($27,000) resulting from the Company's investment in Mobile
Datacom Corporation ("MDC"), which at June 30, 1995 were 33.5% and 25.0%,
respectively, owned by the Company. Included in the 1994 results is a pre-tax
loss of ($169,000) resulting from its investment in CTS and a pre-tax loss of
($79,000) resulting from the Company's investment in MDC.
Cellular service revenues increased 11% to $57,170,000 in 1995 as compared to
$51,345,000 in 1994. This growth in revenue is primarily the result of the
increase in the Company's customer base to 292,000 customers on June 30, 1995
from 212,000 on June 30, 1994, and was achieved despite the decline in average
monthly revenue per subscriber to $62 in 1995 as compared to $76 in 1994.
Declining revenue per subscriber is prevalent throughout the cellular industry
as the customer base broadens to include more casual and personal users, and as
discounts are offered as incentives to attract customers to sign one and two
year contracts, as well as competitive pressures to reduce retail pricing. This
trend is expected to continue in future periods. In an effort to offset this
trend, the Company is expanding its marketing efforts in connection with several
value-added services such as paging and other messaging services. The Company's
gross profit margin on cellular service revenues increased to 34.8% or
$19,886,000 in 1995 as compared to 31.1% or $15,959,000 in 1994 primarily due to
volume discounts received from cellular carriers and discounts based on the
level of the Company's net customer activations.
General and administrative expenses increased 17% to $6,158,000 in 1995 as
compared to $5,285,000 in 1994 while the Company's customer base increased 38%
to 292,000 in 1995. Increased payroll and related personnel costs associated
with the expansion of the Company's customer support groups to meet the current
and planned growth in the customer base accounted for $530,000 or approximately
61% of the increase. The balance is due to increased operational costs
consistent with the expansion of the Company's business. The Company continues
to achieve operational economies of scale as a result of the growth of its
customer base, reducing per subscriber servicing costs to $7.39 per month in
1995 as compared to $8.65 in 1994.
Since inception, the Company has aggressively sought to increase its customer
base. Significant up front expenses are incurred relating to the addition of
new customers acquired through the Company's retail network. A large portion of
these expenses is the loss on cellular telephone equipment sales the Company
incurs in response to competitive pressures to attract new customers. The
Company lost $3,704,000 on equipment sales of $4,979,000 in 1995 as compared to
a loss of $3,521,000 on equipment sales of $2,157,000 in 1994. Included in the
sales amount in 1995 was $2,638,000 sold at cost to the direct marketing firm
referred to above. The increased loss was due to the increased unit volume of
equipment sold through the Company's retail stores. While the Company views
the loss on equipment as a necessary part of its selling and distribution
strategy for the acquisition of new customers, emphasis is being placed on the
profitable sale of cellular accessories as a means of reducing the loss incurred
on telephone sales.
Selling and distribution expenses increased 151% to $10,193,000 in 1995 as
compared to $4,056,000 in 1994 as new subscriber activations increased 65% to
39,600 over the same period in 1994. Of this increase in cost, $4,846,000 is
attributable to commissions paid to the Company's outside telemarketer who
began acting as a distribution channel for the Company in December 1994. The
Company incurs no loss on equipment on activations through this telemarketing
channel. Since July 1, 1994, the Company opened eight additional retail
locations and expanded its direct sales force. Accordingly, direct payroll
and personnel related costs increased by $298,000, net advertising and
promotion expense increased by $400,000 and facility related costs increased
by $200,000. Dealer commissions increased by $318,000 as a result of increased
activations through agents in certain areas that the Company does business.
Amortization of purchased subscriber base decreased 23% to $1,343,000 in 1995 as
compared to $1,754,000 in 1994 as the cost of certain acquired subscriber bases
became fully amortized. This reduction was partially offset by the additional
amortization of the cost of approximately 15,000 subscribers acquired in
purchase transactions in 1994.
Bad debt expense was $789,000 and $697,000 in 1995 and 1994, respectively, or
1.3% of cellular service revenues and equipment sales in both periods. The
Company attributes such results to its credit controls, careful monitoring of
its accounts receivable and close contact with its customer base.
Interest expense increased to $187,000 in 1995 as compared to $90,000 in 1994
as a result of an increase in the Company's effective interest rate as well as
the amount outstanding under the Company's credit facility. The Company
utilized this facility to purchase its new corporate headquarters and to satisfy
its obligation to the holder of 400,000 Contingent Value Rights.
<PAGE>
Six months ended June 30, 1995 compared
to six months ended June 30, 1994
The Company recorded a net loss of ($3,982,000) or ($.50) per share in 1995
as compared to net income of $832,000 or $.05 per share in 1994. The loss from
operations was ($3,987,000) in 1995 as compared to income from operations of
$866,000 in 1994. The decline in both net income and income from operations is
primarily attributable to increased selling and distribution expenses, including
the loss on equipment sales, related to the addition of 69,900 new customers, on
a gross basis, in 1995 as compared to 40,800 in 1994. Of the customers added in
1995, 18,432 were acquired through the direct marketing channel as previously
described. Subscriber activations, net of deactivations, increased to 41,100 in
1995 as compared to 21,600 in 1994. In addition, the Company recorded pre-tax
income of $245,000, including gains on capital transactions, resulting from the
Company's investment in CTS and a loss of ($26,000) resulting from the Company's
investment in MDC, which at June 30, 1995 were 33.5% and 25.0%, respectively,
owned by the Company. Included in the 1994 results is pre-tax income of
$250,000, including gains on capital transactions, resulting from the Company's
investment in CTS and a pre-tax loss of ($79,000) resulting from the
Company's investment in MDC.
Cellular service revenues increased 12% to $108,839,000 in 1995 as compared
to $96,900,000 in 1994. This growth in revenue is attributable to the increase
in the Company's customer base as previously described in Results of Operations
for the three months ended June 30, 1995. This growth in revenue was achieved
despite the decline in average monthly revenue per subscriber to $68 in 1995 as
compared to $84 in 1994. The Company's gross profit margin on cellular service
revenues increased to 35.3% or $38,404,000 in 1995 as compared to 30.9% or
$29,908,000 in 1994, which is primarily attributable to discounts received from
cellular carriers based on volume and the level of the Company's net customer
activations.
General and administrative expenses increased 21% to $12,382,000 in 1995 as
compared to $10,217,000 in 1994, while the Company's customer base increased
38% to 292,000 in 1995. Increased payroll and related personnel costs
associated with the expansion of the Company's customer support groups to meet
the current and planned growth in the customer base accounted for $1,224,000
or approximately 57% of the increase. The balance is due to increased
operational costs consistent with the expansion of the Company's business. The
Company continues to achieve operational economies of scale as a result of the
growth of its customer base, reducing per subscriber servicing costs to $7.72
per month in 1995 as compared to $8.87 in 1994.
As previously discussed, the Company aggressively seeks to increase its
customer base and, in doing so, incurs significant up front expenses relating
to the addition of new customers acquired through the Company's retail network.
A large portion of these expenses is the loss on cellular telephone equipment
sales the Company incurs in response to competitive pressures to attract new
customers. The Company lost $7,532,000 on equipment sales of $8,457,000 in 1995
as compared to a loss of $5,780,000 on equipment sales of $4,345,000 in 1994.
Included in the sales amount in 1995 was $3,947,000 sold at cost to the direct
marketing firm described above. The increased loss was due to the increased
unit volume of equipment sold through the Company's retail stores. While the
Company views the loss on equipment as a necessary part of its selling and
distribution strategy for the acquisition of new customers, emphasis is being
placed on the profitable sale of cellular accessories as a means of offsetting
the loss incurred on telephone sales.
Selling and distribution expenses increased 114% to $18,430,000 in 1995 as
compared to $8,594,000 in 1994 as new subscriber activations increased 71% to
69,900 over the same period in 1994. As previously discussed, the Company
expanded its distribution channel in late 1994 to include direct marketing
and paid $7,291,000 in commissions in 1995. As a result of the growth in gross
subscriber additions and the opening of eight new retail facilities, direct
payroll and personnel related costs increased by $1,000,000, commissions paid
to sales personnel increased by $198,000, dealer commissions increased by
$650,000, net advertising and promotion expense increased by $128,000 and
facility related costs increased by $427,000.
Amortization of purchased subscriber base decreased 18% to $2,688,000 in 1995 as
compared to $3,290,000 in 1994 as the cost of certain acquired subscriber bases
became fully amortized. This reduction was partially offset by the additional
amortization of the cost of approximately 15,000 subscribers acquired in
purchase transactions in 1994.
Bad debt expense was $1,509,000 and $1,311,000 in 1995 and 1994, respectively,
or 1.3% of cellular service revenues and equipment sales in both periods. The
Company attributes such results to its credit controls, careful monitoring of
its accounts receivable and close contact with its customer base.
Interest expense increased significantly to $496,000 in 1995 as compared to
$147,000 in 1994. This is a result of an increase in the Company's effective
interest rate as well as the amount outstanding under the Company's credit
facility. The Company utilized this facility to purchase its new corporate
headquarters and to satisfy the Contingent Value Rights obligation described
above.
LIQUIDITY AND CAPITAL RESOURCES
On January 12, 1995, the Company paid $3,280,000 to satisfy its obligation to
the holder of 400,000 Contingent Value Rights, which amount was financed from
the Company's credit facility described below.
On January 25, 1995, the Company purchased, for $3,600,000, a 55,000 square
foot office building to be used as its corporate headquarters. The Nassau
County Industrial Development Agency has approved the issuance of up to
$8,000,000 of taxable bonds to finance substantially all of the costs of the
building, related improvements and equipment. The Company anticipates that
these bonds will be issued in the third quarter of 1995.
<PAGE>
The Company has no significant fixed commitments for capital expenditures or
investments other than for the exercise of the CTS option described below. Its
capital requirements consist primarily of those necessary to continue to expand
its customer base and, to a lesser degree, interest payments on the Company's
indebtedness. Historically, the Company has met its capital requirements
through the sale of securities and through both institutional and vendor
financing. Accordingly, the Company believes that its available resources,
including its credit facility, should be sufficient to meet its obligations
as they become due and permit continuation of its expansion efforts throughout
1995 and beyond.
On February 6, 1995, the Company amended its credit facility with CoreStates
Bank, N.A. which now provides for borrowings up to a maximum of $25,000,000 at
an interest rate of 1% above prime. This agreement, which expires on April 1,
1996, requires the Company to maintain a specified consolidated net worth,
limits intercompany indebtedness, and contains various negative covenants which
include the prohibition of the payment of dividends by the Company. As of June
30, 1995, $13,089,000 was outstanding under this agreement and the Company
had cash on hand totaling $1,794,000.
The Company's working capital decreased as of June 30, 1995 due to the
classification of the amount outstanding under the Company's credit facility as
a current liability.
Net cash used in operating activities amounted to $2,883,000 in 1995 while in
1994 the Company had net cash provided by operating activities of $105,000. The
net loss of the Company, adjusted for non-cash items, amounted to a loss of
$837,000 in 1995 as compared to income of $4,729,000 in 1994. This decrease
relates principally to increased selling and distribution expenses, including
the loss on equipment sales resulting from the significant growth in the
Company's customer base. In 1995 net cash used in operating activities was
augmented by an increase in accounts receivable of $3,537,000, which was
partially offset by a decrease in inventory of $1,353,000. In 1994, net cash
provided by operating activities was offset by increases in accounts
receivable of $5,751,000 and increases in prepaid access, usage and other
current and long-term assets of $1,395,000. Additionally, net cash provided
by operating activities in 1994 was augmented by an increase in due to
cellular carriers, accounts payable and accrued expenses, deferred access
income and taxes payable of $2,852,000.
Included in net cash used in investing activities in 1995 is the purchase of
fixed assets for $4,443,000 consisting mainly of the purchase of a building
to be used as corporate headquarters. Included in net cash used in investing
activities in 1994 is the purchase of subscribers and related assets for
$5,137,000 partially offset by proceeds received from a note receivable of
$1,000,000.
Cash provided by financing activities amounted to $7,187,000 and $5,569,000
in 1995 and 1994, respectively. The net proceeds from borrowings under the
credit facility of $4,696,000 in 1995 were utilized to purchase the office
building and satisfy the CVR obligation as previously described, as well as
to expand the Company's subscriber base. Such amounts were partially offset
by cash received from the exercise of stock options and warrants of $2,609,000.
In 1994, net proceeds from borrowings under the credit facility of $5,676,000
were primarily utilized for the purchase of subscribers and related assets.
On May 22, 1995, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with MCI Communications Corporation ("MCI") and NTS
Acquisition Corp. ("NTS"), pursuant to which NTS, an indirect wholly-owned
subsidiary of MCI, will be merged into the Company and each outstanding share
of Common Stock of the Company will be cancelled and the holders thereof will
be entitled to receive $18.50 per share in cash (the "Merger"). The Merger
Agreement provides that prior to the effectiveness of the Merger, the Company
will exercise its option to purchase 640,000 shares of Cellular Technical
Services Company, Inc. ("CTS") for $1,600,000 and make a distribution of the
shares of common stock of CTS then owned by the Company. Consummation of the
Merger is subject to Company stockholder and certain regulatory approvals.
The Company anticipates the transaction will close in September.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 29, 1995, Michael Kong and Magnum Autobody, Inc., individually and on
behalf of all others similarly situated, commenced a class-action lawsuit in
the Circuit Court of Cook County, Illinois County Department, Chancery Division
against Nova Cellular Co., a wholly-owned subsidiary of the Company ("Nova"),
and the Company. In the complaint, the plaintiffs have alledged that Nova and
the Company overcharge customers when billing for long distance calls. The
plaintiffs are seeking an order certifying the action as a class-action,
permanently enjoining Nova and the Company from billing customers additional
undisclosed charges along with long distance charges and concealing their
billing mark-up procedure. They are also seeking damages in an unspecified
amount, attorney's fees and costs. Nova and the Company believe that the
allegations are without merit and intend to vigorously defend against such
claims.
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) On May 22, 1995, the Company filed a current report on Form
8-K dated the same date with respect to Item 5, reporting that the Company
entered into an Agreement and Plan of Merger with MCI Communications
Corporation ("MCI") and NTS Acquisition Corp. ("NTS"), pursuant to which
NTS, an indirect wholly-owned subsidiary of MCI, will be merged into the
Company. No financial statements were included with this report.
<PAGE>
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.
NATIONWIDE CELLULAR SERVICE, INC.
Dated: August 18, 1995 By: s/ Edward Seidenberg
Edward Seidenberg
Vice President & Chief Financial
Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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This schedule contains summary financial information extracted from the
Form 10-Q/A for the quarter ended June 30, 1995 and is qualified in its entirety
by reference to such financial statements.
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<NAME> NATIONWIDE CELLULAR SERVICE, INC.
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