UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the period ended March 31, 1994
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: 0-1245
CONTEL OF CALIFORNIA, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1789511
(State or other jurisdiction of
(I.R.S. Employer
Incorporation or organization)
Identification No.)
16071 Mojave Drive, Victorville, California
92392
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 619-245-
0511
(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
The Company had 2,503,667 shares of $5 par value common stock
outstanding at April 30, 1994.
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION PAGE
Condensed Consolidated Statements of Income. . . . . . . . .
. . . . 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . .
. . . 2
Condensed Consolidated Balance Sheets - Assets . . . . . . .
. . . . 4
Condensed Consolidated Balance Sheets - Liabilities and
Shareholders' Equity. . . . . . . . . . . . . . . . . . . .
. . . 5
Condensed Consolidated Statements of Cash Flows. . . . . . .
. . . . 6
Notes to Condensed Consolidated Financial Statements . . . .
. . . . 7
PART II. OTHER INFORMATION
Items 1 through 6. . . . . . . . . . . . . . . . . . . . . .
. . . . 8
Signature. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 9
PART I. FINANCIAL INFORMATION
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
OPERATING REVENUES:
Local network services $ 24,177 $ 23,431
Network access services 35,089 37,396
Long distance services 24,192 30,744
Equipment sales and services 3,251 1,978
Other 1,892 1,886
88,601 95,435
OPERATING EXPENSES:
Cost of sales and services 21,000 19,063
Depreciation and amortization 16,118 13,683
Marketing, selling, general and administrative 27,144
22,264
64,262 55,010
Net operating income 24,339 40,425
OTHER (INCOME) DEDUCTIONS:
Interest expense 3,017 3,236
Other - net (70)
(445)
INCOME BEFORE INCOME TAXES 21,392 37,634
INCOME TAXES 8,748 15,231
NET INCOME $ 12,644 $ 22,403
Per share data is omitted since the Company's common stock is
100% owned by Contel Corporation (a wholly-owned subsidiary of
GTE Corporation).
See Notes to Condensed Consolidated Financial Statements.
1
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Net income decreased 44% or $9.8 million for the three months
ended March 31, 1994 compared to the same period in 1993
attributable to higher operating expenses and lower operating
revenues.
Operating Revenues
Operating revenues decreased 7% or $6.8 million for the three
months ended March 31, 1994 compared to the same period in 1993.
Local network service revenues increased 3% or $0.7 million for
the three months ended March 31, 1994 compared to the same period
in 1993 primarily due to continued customer growth, as
experienced through an increase in access lines.
Network access service revenues decreased 6% or $2.3 million for
the three months ended March 31, 1994 compared to the same period
in 1993. The decrease is primarily due to lower settlements with
Pacific Bell as a result of the Company's exit from the toll
pool.
Long distance service revenues decreased 21% or $6.5 million for
the three months ended March 31, 1994 compared to the same period
in 1993 primarily due to lower settlements with Pacific Bell
during 1994 as a result of the Company's exit from the toll pool.
The Company is currently recording revenues on a bill and keep
basis.
Equipment sales and services revenues increased 64% or $1.3
million for the three months ended March 31, 1994 compared to the
same period in 1993 due to increased revenue from billing and
collection services.
Operating Expenses
Operating expenses increased 17% or $9.3 million for the three
months ended March 31, 1994 compared to the same period in 1993.
The increase is primarily due to higher depreciation and
amortization expense due to a rate increase in 1994 and higher
expenses for billing and collection services and higher data
programming and processing costs.
Other Expenses
Income taxes decreased 43% or $6.5 million compared to the same
period in 1993 primarily due to a decrease in pretax income.
2
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary source of funds during the first three
months of 1994 was cash flow from operating activities of $37.3
million compared to $44.6 million for the same period in 1993.
Capital expenditures represent a significant use of funds during
1994 and 1993 reflecting the Company's continued growth in access
lines, modernization of current facilities and introduction of
new products and services. The Company's capital expenditures
during the first three months of 1994 were $12.8 million compared
to $19.1 million during the same period in 1993. The Company's
anticipated construction costs for 1994 are approximately $60
million.
Cash used for financing activities was $24.1 million in 1994
compared to $25.5 million in 1993. This included dividend
payments of $42.2 million in 1994 compared to $27.1 million in
1993. External financing included short-term borrowings of $22.9
million in 1994 compared to $1.6 million in 1993. The Company
retired $4.8 million of long-term debt and preferred stock in
1994, including the retirement of 8.75% Debentures and all
outstanding issues of preferred stock.
During the first quarter of 1994, the Company began
implementation of its re-engineering plan. This plan will allow
the Company to continue to respond aggressively to competitive
and regulatory developments through reduced costs, improved
service quality, competitive prices and new product offerings.
Moreover, implementation of this program over the next three
years will position the Company to accelerate delivery of a full
array of voice, video and data services.
Management believes that the Company has adequate internal and
external resources available to meet ongoing operating
requirements for construction of new plant, modernization of
facilities and payment of dividends. The Company generally funds
its construction programs from operations, although external
financing is available. Short-term borrowings can be obtained
through commercial paper borrowings or borrowings from GTE. In
addition, a $3.9 billion line of credit is available to the
Company through shared lines of credit with GTE and other
affiliates to support short-term financing needs.
3
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT ASSETS:
Cash $ 413 $
68
Accounts and notes receivables, less allowances
of $5,480 and $3,592 respectively 72,983 82,092
Materials and supplies, at average cost 2,726 2,566
Deferred income tax benefits 8,147 7,783
Prepayments and other 698 450
Total current assets 84,967 92,959
PROPERTY, PLANT AND EQUIPMENT:
Original cost 887,173 876,420
Accumulated depreciation (356,942)
(343,195)
Net property, plant and equipment 530,231 533,225
OTHER ASSETS 30,587 32,898
TOTAL ASSETS $ 645,785 $ 659,082
See Notes to Condensed Consolidated Financial Statements.
4
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
December 31,
1994 1993
(Thousands of Dollars)
CURRENT LIABILITIES:
Notes payable to affiliates $ 91,783 $ 68,873
Accounts payable 40,572 59,317
Accrued taxes 41,386 34,726
Accrued dividends 5,000 42,152
Accrued payroll and vacations 8,593 8,177
Accrued restructuring costs and other 44,530 43,468
Total current liabilities 231,864 256,713
LONG-TERM DEBT 92,800 95,800
DEFERRED CREDITS, primarily deferred
income taxes and investment tax credits 127,535 118,852
PREFERRED STOCK, subject to mandatory redemption --
1,710
SHAREHOLDER'S EQUITY:
Common stock 12,518 12,518
Other capital 78,917 78,917
Reinvested earnings 102,151 94,572
Total shareholder's equity 193,586 186,007
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 645,785 $
659,082
See Notes to Condensed Consolidated Financial Statements.
5
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1994 1993
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,644 $ 22,403
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 16,118 13,683
Deferred income taxes and investment
tax credits 1,388 (112)
Provision for uncollectible accounts 2,167
1,664
Changes in current assets and
current liabilities (3,974)
3,661
Other - net 9,001 3,265
Net cash from operating activities 37,344 44,564
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,768)
(19,133)
Other - net (114)
(218)
Net cash used in investing activities (12,882)
(19,351)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt and preferred stock retired (4,810)
- - --
Dividends paid to shareholders (42,217)
(27,101)
Net change in affiliate notes 22,910 1,620
Net cash used in financing activities (24,117)
(25,481)
Increase (decrease) in cash 345 (268)
Cash at beginning of period 68 1,477
Cash at end of period $ 413 $ 1,209
See Notes to Condensed Consolidated Financial Statements.
6
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The condensed consolidated financial statements 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. However, in the
opinion of management of the Company, the condensed consolidated
financial statements include all adjustments, which consist only
of normal recurring accruals, necessary to present fairly the
financial information for such periods. These condensed
consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in
the Company's 1993 Annual Report to Shareholders incorporated by
reference in the Annual Report on Form 10-K.
(2) On April 20, 1994, the California Public Utilities
Commission (CPUC) issued a decision giving final approval to the
merger of the Company into GTE California. The decision also
would require the merging companies to flow through to their
ratepayers all of the estimated savings that will be produced
from the merger. This flow through requirement is based on the
CPUC's interpretation of certain statutory requirements. The
CPUC, however, provided the parties with the opportunity to
supplement the evidentiary record to show why the estimated
merger savings should be apportioned between ratepayers and
shareholders. That filing was made on April 29, 1994. By making
the filing, the effective date of the Decision approving the
mergers has been delayed until such time as the Commission has
the opportunity to review and issue a new decision based on the
new evidence.
In addition to approving the merger, the decision established a
third phase in the proceeding in which the CPUC will consider the
issues of a start-up revenue requirement for the Company's
premerger operations and the integration of the Company's tariff
rates with those of GTE California.
Applications are also pending before the Arizona Corporation
Commission and the Nevada Public Service Commission to approve
the merger of the Company and GTE California. Final decisions in
both of those proceedings are expected in 1994.
(3) Reclassifications of prior year data have been made in the
financial statements where appropriate to conform to the 1994
presentation.
7
CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable for the quarter ended March
31, 1994.
Item 6. Exhibits and Reports on Form 8-K.
Contel of California, Inc. filed a report on Form 8-K dated
January 13, 1994 on January 14, 1994, under Item 5, "Other
Events." No financial statements were filed with this report.
8
SIGNATURE
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.
CONTEL OF
CALIFORNIA, INC.
(Registrant)
Date: May 12, 1994 MICHAEL W. BOLLINGER
MICHAEL W. BOLLINGER
Assistant Vice President -
Controller
(Principal Financial and
Accounting Officer)
9
