UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended March 31, 1994
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-556
ROSEVILLE TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
California 94-0817190
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
211 Lincoln Street, Roseville, California 95678
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 786-6161
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Without Par Value
(Title of class)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of April 30, 1994, 13,399,194 shares of the registrant's Common Stock were
outstanding.
ROSEVILLE TELEPHONE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. General
The condensed consolidated financial statements of Roseville Telephone Company
(the "Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the results for the interim periods
shown. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations and generally accepted accounting principles applicable for interim
periods. Management believes that the disclosures made are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1993 Annual Report to
Shareholders.
2. Cash Equivalents and Short-Term Investments
The Company invests its excess cash in high-quality debt instruments and certain
other investments. The Company considers highly liquid investments with
maturities of three months or less from the acquisition date of the instrument
to be cash equivalents. Short-term investments consist primarily of
certificates of deposit and commercial paper with maturities greater than 90
days; however, none of the Company's investments have maturities greater than
one year. The Company has no investments in equity securities.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities"("SFAS No. 115"). Under SFAS No. 115, management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. At March 31, 1994
and January 1, 1994, all debt securities are designated as held-to-maturity as
management believes it has the positive intent and ability to hold the
securities until maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization, as well as any interest on the securities, is
included in interest income.
The adoption of SFAS No. 115 had no effect on the Company's current or prior
period financial statements. Following is a summary of the Company's
investments by major security type at amortized cost which approximates fair
value (in thousands):
January 1, March 31,
1994 1994
Corporate debt securities $ 12,876 $ 15,835
Certificate of deposit $ 3,008 $ -
U.S. Government agency note $ 983 $ 983
Amounts included in cash and cash equivalents $ 7,947 $ 6,944
Amounts included in short-term investments 8,920 9,874
$ 16,867 $ 16,818
ROSEVILLE TELEPHONE COMPANY
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operating Revenues:
Operating revenues increased approximately $1.4 million, or 6% for the three
months ended March 31, 1994 compared to the same period in 1993. The increase in
operating revenues was principally due to 1) growth in access lines of 4.4%, 2)
higher settlements from the National Exchange Carrier Association for recovery
of increased costs and investment, and 3) higher intrastate access revenues
resulting from increased message volumes.
Operating Expenses:
Operating expenses for the three months ended March 31, 1994 increased
approximately $2.0 million, or 14% compared to the same period in 1993. The
increase was due primarily to a combination of 1) software purchases and
improvements in the Company's data systems to implement movement from a
mainframe platform to a client/server platform and to implement a wide area
network, 2) normal inflationary factors, and 3) increased costs associated with
serving a larger number of access lines. In addition, Depreciation expense
increased $1.3 million to $4.4 million for the three months ended March 31,
1994, attributable to the growth in property, plant and equipment and
anticipated increases in depreciation rates.
Other Income (Expense), Net:
Other income (expense), net, increased $280,000 for the three months ended March
31, 1994 compared to the same period in 1993. The net change was due to an
increase of $600,000 in the Company's income attributable to its interest in
Sacramento-Valley Limited Partnership, offset by increased interest on long-term
debt due to larger borrowings and a decrease in the allowance for funds used
during construction.
Income Taxes:
Income tax expense for the three months ended March 31, 1994 decreased $65,000
compared to the same period in 1993, due to the decrease in income subject to
income tax. The effective federal and state income tax rate was approximately
40% for the three months ended March 31, 1994 and 1993.
Liquidity and Capital Resources:
As reflected in the Consolidated Statements of Cash Flows, cash and cash
equivalents increased approximately $2.6 million for the three months ended
March 31, 1994. Capital expenditures of $3.5 million were due to on-going plant
construction projects. Cash flows to meet the remaining 1994 budgeted capital
expenditures of approximately $17.7 million are anticipated to be met from both
positive net cash generated from operations and existing cash, cash equivalents
and short-term investments.
Competition:
The Company believes it meets the criteria of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
("SFAS No. 71"), which requires the Company to give effect in its financial
statements to certain actions of regulators. Accordingly, the Company's
consolidated financial statements have been prepared on that basis. As a result
of increasing competition and rapid changes in the telecommunications industry,
the Company periodically monitors whether it continues to meet the criteria
which require the use of SFAS No. 71. In the future, should the Company
determine it no longer meets the SFAS No. 71 criteria, a material,
extraordinary, noncash charge would result.
PART II
Item 1. Regulatory and Legal Proceedings
Except for the proceedings described below the Company is not aware of any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which it is a party or to which any of its
property is subject.
The Company is subject to regulation by the Federal Communications Commission
(the "F.C.C.") and the Public Utilities Commission of the State of California
(the "P.U.C."). In the past, there have been various proceedings before these
agencies to which the Company has been a party. The regulatory proceedings
discussed below relate to matters which may effect the Company prospectively and
are not expected to effect the Company's interim financial statements at March
31, 1994.
In March 1985, the P.U.C. commenced an investigation into the "rates, tolls,
rules, charges, operations, costs, separations, intercompany settlements,
contracts, service and facilities of the operations of independent telephone
companies" (I. 85-03-078), and consolidated this investigation with Application
No. 85-01-034 of Pacific Bell. In connection with the application, the P.U.C.
issued an interim rate design effective in 1988 for Pacific Bell which resulted
in a local rate increase for the Company and a decrease in settled toll
revenues. The P.U.C. has stated that it will order a final rate design during
1994, in conjunction with I. 87-11-033 discussed below, which could have a
material impact on the sources and amount of the Company's revenues.
The P.U.C. has instituted an investigation (I. 87-11-033) into the manner in
which it regulates local exchange carriers, including the Company. In the
course of this investigation, it will consider whether certain services
presently provided solely by the Company within its LATA should be open to
competition. In the course of this current proceeding the Company has proposed
adjustments to its rates that would maintain revenues at their present level,
while the P.U.C. staff has proposed a revenue reduction of approximately $6
million. A July 1991 decision of the P.U.C. ordered a phase-down of settlement
pool payments after January 1, 1993. The Company completed negotiations and has
entered into new agreements with Pacific Bell to replace these settlement
procedures effective as of January 1, 1992. In addition, the July 1991 decision
expressed the Commission's expectation that the Company will file a general rate
proceeding, including a request for regulation under the new incentive-based
regulatory framework. As a result of delays in issuing a final order, the
Company expects to submit a test year 1995 general rate case application during
calendar year 1994.
In April 1993, the P.U.C. opened an investigation and rulemaking proceeding (R.
93-04-003) to establish rules that will provide non-discriminatory access by
competing service providers to the network capabilities of local exchange
carriers. The P.U.C. proposed applying these rules to the five largest local
exchange carriers in California, including the Company. In connection with this
proceeding, the P.U.C. issued a further order in August 1993 proposing
additional rules to allow broader competition in the provision of specific
special access and switched transport services. The Company has filed comments
and expects a decision during 1994.
In November 1993, the P.U.C. issued a report to the Governor of the State of
California in which it proposed opening all markets to competition by January 1,
1997. Specifically, the P.U.C. proposed streamlining regulation and eliminating
all remaining legal barriers to competition for telecommunications services in
order to accelerate the pace of innovation in the California telecommunications
marketplace.
There are a number of regulatory proceedings occurring at the federal level that
may have a material impact on the Company. These regulatory proceedings
include, but are not limited to, implementation of revised separations
procedures that shift revenue requirements and costs between interstate and
intrastate jurisdictions and implementation of revised procedures to allocate
costs between regulated and non-regulated operations. In addition, the F.C.C.
periodically establishes the authorized rate of return for interstate access
services, which in 1994 will remain at the 1993 rate of 11.25%.
In September 1992, the F.C.C. issued an order, which is currently under appeal,
granting to competitors expanded interconnection rights to the facilities of
local exchange carriers with annual revenues from regulated operations in excess
of $100 million. While not yet applicable to the Company, this order will
permit competitors to terminate their own facilities in telephone company
central offices to which the order applies. In addition, the F.C.C. initiated a
separate notice of proposed rulemaking establishing a two-phased proceeding to
modify interstate access rate structures to further competition in the provision
of interstate services. These two proceedings may broaden the scope of
competition in the provision of interstate services, the effects of which on the
Company cannot yet be determined.
The Company is subject to certain legal proceedings and claims arising in the
ordinary course of its business. In the opinion of management, any liability
which may ultimately be incurred with respect to these matters will not
materially affect the consolidated financial position or results of operations
of the Company.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter Ended Quarter Ended
March 31, 1993 March 31, 1994
=============== ===============
Operating Revenues $24,016,000 $25,460,000
Operating Expenses 14,353,000 16,373,000
--------------- ---------------
Income From Operations 9,663,000 9,087,000
Other Income (Expense), Net (204,000) 76,000
--------------- ---------------
Income Before Income Taxes 9,459,000 9,163,000
Income Taxes 3,742,000 3,677,000
--------------- ---------------
NET INCOME $5,717,000 $5,486,000
=============== ===============
Per Share of Common Stock
Net Income $0.43 $0.41
Cash Dividends $0.14 $0.15
Shares of common stock used to
calculate per share data 1/ 13,399,194 13,399,194
1/ Shares used in the computation of net income and cash dividends per
share of common stock are based on the weighted average number of shares
outstanding after giving retroactive effect to a 5% stock dividend
issued in December 1993.
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1993 March 31, 1994
----------------- --------------
ASSETS (UNAUDITED)
Current Assets:
Cash and Cash Equivalents $9,847,000 $12,426,000
Short-term Investments 8,920,000 9,874,000
Accounts Receivable, Net 16,109,000 13,520,000
Inventories 1,115,000 1,227,000
Prepaid Expenses and Other Current Assets 2,507,000 1,793,000
----------------- ---------------
Total Current Assets 38,498,000 38,840,000
Property, Plant and Equipment, Net 168,571,000 167,746,000
Investments and Other Assets:
Cellular Partnership 17,327,000 19,481,000
Deferred Charges and Other Assets 2,063,000 2,057,000
----------------- ---------------
Total Investments and Other Assets 19,390,000 21,538,000
----------------- ---------------
$226,459,000 $228,124,000
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $19,143,000 $16,935,000
Long-term Debt 40,000,000 40,000,000
Deferred Credits 24,395,000 24,792,000
Shareholders' Equity:
Common Stock, without par value; 20,000,000
shares authorized, 13,399,194 shares
issued and outstanding 130,287,000 130,287,000
Retained Earnings 12,634,000 16,110,000
----------------- ---------------
Total Shareholders' Equity 142,921,000 146,397,000
$226,459,000 $228,124,000
================= ===============
<TABLE>
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(UNAUDITED)
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1993 March 31, 1994
------------------ ------------------
<S> <C> <C>
Net cash provided by operating activities: $11,071,000 $10,482,000
Cash flows from investing activities:
Purchases of short-term investments - (3,962,000)
Maturities of short-term investments - 3,008,000
Capital expenditures for property, plant
and equipment (3,755,000) (3,535,000)
Investment in cellular partnership (1,387,000) (1,410,000)
Changes in deferred charges and other assets (93,000) 6,000
------------------- -------------------
Net cash used in investing activities (5,235,000) (5,893,000)
Cash flows from financing activities:
Dividends paid (1,915,000) (2,010,000)
------------------- -------------------
Net cash used in financing activities (1,915,000) (2,010,000)
------------------- -------------------
Net increase in cash and cash equivalents 3,921,000 2,579,000
Cash and cash equivalents at beginning of
period 11,200,000 9,847,000
------------------- -------------------
Cash and cash equivalents at end of
period $15,121,000 $12,426,000
=================== ===================
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a) None.
b) No reports on Form 8-K were filed during the first quarter of
1994.
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.
ROSEVILLE TELEPHONE COMPANY
(Registrant)
Date: May 12, 1994 By:
Brian H. Strom,
President and Chief
Executive Officer
Date: May 12, 1994 By:
Michael D. Campbell,
Vice-President and Chief
Financial Officer
