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 March 31, 1995
Commission File Number 0-14959
NATIONWIDE CELLULAR SERVICE, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2692099
(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
7,926,499 Common Shares were outstanding as of May 11, 1995.
<PAGE>
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
Three Months Ended March 31, 1995 and 1994 3
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 4- 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7- 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
PART I. FINANCIAL INFORMATION
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended March 31,
1995 1994
(Dollar amounts in thousands,
except per share data)
REVENUES
Cellular service $ 51,669 $ 45,555
Equipment sales 3,479 2,188
Other income 75 75
Total revenues 55,223 47,818
COSTS AND EXPENSES
Cost of cellular service 33,151 31,605
Cost of equipment sold 7,306 4,448
General and administrative expense 6,224 4,932
Selling and distribution expense 8,236 4,538
Amortization of purchased subscriber base 1,345 1,536
Bad debt expense 721 613
Total costs and expenses 56,983 47,672
(Loss) income from operations (1,760) 146
Interest and other income 99 104
Interest expense (309) (57)
Gain on capital transactions of affiliate 67 625
Share of loss from equity investments (26) (206)
(Loss) income before income taxes (1,929) 612
Income tax benefit (provision) 642 (167)
NET (LOSS) INCOME $ (1,287) $ 445
Net (loss) income $ (1,287) $ 445
CVR accretion (200)
Net (loss) income attributable to common
stock $ (1,287) $ 245
Weighted average common shares outstanding
(Note C) 7,820,599 8,599,638
Net (loss) income per share of common stock $ (0.16) $ 0.03
_______________________________________
The accompanying notes are an integral part of these financial statements.
<PAGE>
NATIONWIDE CELLULAR SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
(unaudited) (note)
(Dollar amounts in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 1,904 $ 1,719
Accounts receivable less allowance
of $5,973,000 in 1995 and
$5,463,000 in 1994 40,175 40,730
Inventory 3,032 3,713
Prepaid access and usage charges 2,352 3,326
Other current assets 3,787 3,865
Deferred income taxes 2,660 1,929
Total current assets 53,910 55,282
Fixed assets--at cost
Building 3,631
Furniture and fixtures 3,494 3,324
Equipment 3,517 3,394
Leasehold improvements 774 729
11,416 7,447
Less accumulated depreciation and amortization (4,920) ( 4,593)
Net fixed assets 6,496 2,854
Purchased subscriber base--less accumulated
amortization of $12,352,000 in 1995 and
$11,007,000 in 1994 5,060 7,052
Note receivable 4,277 4,370
Investments in and advances to affiliated companies 4,816 4,727
Other assets 1,411 1,394
Total assets $ 75,970 $ 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
March 31, December 31,
1995 1994
(unaudited) (note)
(Dollar amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Due to cellular carriers $ 17,696 $ 18,681
Accounts payable and accrued expenses 6,810 8,548
Deferred access income 7,982 7,531
Federal excise, state and local taxes 4,045 4,312
Contingent value rights 3,280
Total current liabilities 36,533 42,352
Other liabilities 1,095 1,316
Notes payable 15,489 8,393
Deferred income taxes 2,554 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 7,925,699 in
1995 and 7,488,299 in 1994 79 75
Additional paid-in capital 33,051 30,241
Accumulated deficit (15,809) (14,522)
17,321 15,794
Less cost of 32,000 shares held in treasury (77) (77)
Other reductions (545) (610)
Total stockholders' equity 16,699 15,107
Total liabilities and stockholders' equity $ 75,970 $ 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)
Three Months Ended
March 31,
1995 1994
(Dollar amounts in thousands)
OPERATING ACTIVITIES
Net (loss) income $ (1,287) $ 445
Adjustments to reconcile net (loss) income
to cash used in operating activities:
Depreciation and amortization 1,796 1,943
Share of loss from equity investments 26 206
Gain on capital transaction of affiliate (67) (625)
Accrued interest income (80) (99)
Deferred taxes (688) 44
Changes in operating assets and liabilities,
net of effects from acquisitions:
Decrease (increase) in accounts receivable, net 555 (908)
Decrease (increase) in inventory 681 (45)
Decrease (increase) in prepaid access, usage,
and other current and long-term assets 1,655 (335)
Decrease in due to cellular carriers,
accounts payable and accrued expenses,
deferred access income and taxes payable (2,696) (902)
NET CASH USED IN OPERATING ACTIVITIES (105) (276)
INVESTING ACTIVITIES
Purchase of fixed assets (3,971) (148)
Investments in and advances to affiliated companies (56)
Purchase of subscribers and related assets (4,314)
Payment of notes receivable 1,000
Other investing activities 181 43
NET CASH USED IN INVESTING ACTIVITIES (3,846) (3,419)
FINANCING ACTIVITIES
Proceeds received from customer security deposits 107 106
Repayments of customer security deposits (130) (84)
Proceeds received from notes payable 18,846 16,545
Repayments of notes payable (11,750) (12,150)
Cash received from exercise of stock options
and warrants, net 368 196
Payment of contingent value rights obligation (3,280)
Other financing activities (25) (68)
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,136 4,545
INCREASE IN CASH AND CASH EQUIVALENTS 185 850
Cash and cash equivalents at beginning of period 1,719 639
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,904 $ 1,489
______________________________________
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 month period 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 months ended March 31, 1995, the modified treasury stock
method yields antidilutive results, 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 three months ended March 31, 1994, the adjusted
weighted average shares outstanding is computed using the modified treasury
stock method as detailed below:
Three Months Ended
March 31, 1994
Weighted Average Shares Outstanding 7,407,132
Common Stock Equivalents 400,000
Net Additional Shares Issuable
From Assumed Exercise of
Stock Options and Warrants 792,506
8,599,638
NOTE D - RECLASSIFICATION
The consolidated statement of cash flows for the three months ended
March 31, 1994 has been reclassified to conform to current year's
presentation.
NOTE E - FIXED ASSETS
On January 25, 1995, the Company purchased a 55,000 square foot office
building to be used as its corporate headquarters for $3,600,000.
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 second quarter of 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1995 compared
to three months ended March 31, 1994
The Company recorded a net loss of ($1,287,000) or ($.16) per share in
1995 as compared to net income of $445,000 or $.03 per share in 1994.
The loss from operations was ($1,760,000) in 1995 as compared to income
from operations of $146,000 in 1994. The decline in both net income and
income from operations is attributable to increased selling and
distribution expenses, including the loss on equipment sales resulting from
the growth in the Company's customer base. During the quarter, on a gross
basis, 30,300 new customers were added in 1995 as compared to 16,900 in 1994.
Of the customers added in 1995, 6,200 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 14,900 in 1995 as compared to 7,700 in 1994. In
addition, in the three months ended March 31, 1995, the Company recorded
income of $145,000, including gains on capital transactions, resulting from
its investment in Cellular Technical Services Company, Inc. ("CTS") and a loss
of ($104,000) resulting from the Company's investment in Mobile Datacom
Corporation, which at March 31, 1995 were 33.6% and 25.0%, respectively, owned
by the Company. Included in the 1994 results is income of $419,000, including
gains on capital transactions, resulting from its investment in CTS.
Cellular service revenues increased 13% to $51,669,000 in 1995 as compared to
$45,555,000 in 1994. This growth in revenue is primarily the result of the
increase in the Company's customer base to 265,000 customers on March 31, 1995
from 184,000 on March 31, 1994, and was achieved despite the decline in average
monthly revenue per subscriber to $67 in 1995 as compared to $84 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 or 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 the sale of several value-added services
such as paging and other messaging services. The Company's gross profit
margin on cellular service revenues increased to 35.8% or $18,518,000 in 1995
as compared to 30.6% or $13,950,000 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 26% to $6,224,000 in
1995 as compared to $4,932,000 in 1994 while the Company's customer
base increased 44% to 265,000 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 $694,000 or approximately 54% 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 $8.08 per month in 1995
as compared to $9.12 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 $3,827,000 on equipment sales
of $3,479,000 in 1995 as compared to a loss of $2,260,000 on equipment sales
of $2,188,000 in 1994. Included in the sales amount in 1995 was $1,309,000
sold at cost to the direct marketing firm described above. The increased
loss was due to the increased unit volume and an increased loss per unit on
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 81% to $8,236,000 in 1995
as compared to $4,538,000 in 1994 as new subscriber activations increased
80% to 30,300 over the same period in 1994. Since April 1, 1994,
the Company opened nine additional retail locations, expanded its direct
sales force and, in late 1994, added direct marketing as a distribution
channel. Accordingly, direct payroll and personnel related costs increased
by $704,000, commissions paid to sales personnel increased by $219,000,
dealer commissions increased by $332,000, $2,445,000 of commissions
were paid to the direct marketing firm and facility related costs
increased by $192,000. These increases were partially offset by a
reduction in promotion expenses of $137,000 and increased advertising
allowances and promotions offered by cellular carriers which resulted
in a reduction in net advertising expenses of $136,000.
Amortization of purchased subscriber base decreased 12% to $1,345,000 in
1995 as compared to $1,536,000 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 $721,000 and $613,000 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 tighter credit controls,
careful monitoring of its accounts receivable and closer contact with its
customer base.
Interest expense increased significantly to $309,000 in 1995 as compared to
$57,000 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.
The Company recorded an income tax credit of $642,000 for the three months
ended March 31, 1995 which represents the tax benefit of losses which the
Company believes will more likely than not be recognized. The Company
recorded income tax expense of $167,000 as a result of the income earned
for the first quarter of 1994.
<PAGE>
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 ("CVRs") as described
above, which amount was financed from the Company's credit facility
described below.
On January 25, 1995, the Company purchased a 55,000 square foot office
building to be used as its corporate headquarters for $3,600,000.
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 second
quarter of 1995.
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 March 31, 1995,
$15,489,000 was outstanding under this agreement and the Company had
cash on hand totaling $1,904,000.
The Company has no significant fixed commitments for capital expenditures
or for investments. 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. The Company's cash flow from
operations is expected to be positive during fiscal 1995. 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.
Net cash used in operating activities amounted to $105,000 in 1995
as compared to $276,000 in 1994. The net loss of the Company, adjusted
for non-cash items, was $300,000 in 1995 as compared to income of
$1,914,000 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 a decrease
in due to cellular carriers, accounts payable and accrued expenses and
deferred access income and taxes payable of $2,696,000. These amounts
were offset by a decrease in accounts receivable of $555,000, a decrease
in inventory of $681,000 and a decrease in prepaid access, usage, and other
current and long-term assets of $1,655,000. In 1994, net cash used in
operating activities was augmented by an increase in accounts receivable
of $908,000, an increase in prepaid access, usage and other current and
long-term assets of $335,000 and a decrease in due to cellular carriers
and other liabilities of $902,000.
Included in net cash used in investing activities in 1995 is the purchase of
fixed assets for $3,971,000 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
$4,314,000 partially offset by proceeds received from a note receivable of
$1,000,000.
Cash provided by financing activities amounted to $4,136,000 and $4,545,000 in
1995 and 1994, respectively. The net proceeds from borrowings under the credit
facility of $7,096,000 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. In 1994, net proceeds from borrowings under the
credit facility of $4,395,000 were primarily utilized for the purchase of
subscribers and related assets.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
<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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q/A for the quarter ended March 31, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
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<NAME> NATIONWIDE CELLULAR SERVICE, INC.
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