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 September 30, 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 October 31, 1994, 13,799,194 shares of the registrant's Common Stock were
outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter Nine Months Quarter Nine Months
Ended Ended Ended Ended
Sep 30, 1993 Sep 30, 1993Sep 30, 1994 Sep 30, 1994
------------ ------------------------ ------------
Operating revenues $23,905,000 $71,762,000 $25,752,000 $76,580,000
Operating expenses 14,545,000 42,664,000 17,320,000 50,427,000
----------- ----------- ----------- -----------
Income from operations 9,360,000 29,098,000 8,432,000 26,153,000
Other income, net 479,000 758,000 132,000 663,000
----------- ----------- ----------- -----------
Income before income taxes 9,839,000 29,856,000 8,564,000 26,816,000
Income taxes 4,194,000 12,094,000 3,443,000 10,807,000
----------- ----------- ----------- -----------
Net income $5,645,000 $17,762,000 $5,121,000 $16,009,000
=========== =========== =========== ===========
Per share of common stock
Net income $0.40 $1.26 $0.36 $1.14
Cash dividends $0.14 $0.41 $0.14 $0.43
Shares of common stock used
to calculate per share
data 1/ 14,069,154 14,069,154 14,103,936 14,080,875
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 declared in June 1994
to be issued in December 1994. Additionally, weighted average number of
shares outstanding for 1994 reflect the sale of 400,000 shares to the
employee retirement plan in September 1994.
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
Dec 31, 1993 Sep 30, 1994
ASSETS ------------ ------------
------ (UNAUDITED)
Current assets:
Cash and cash equivalents $9,847,000 $17,906,000
Short-term investments 8,920,000 22,589,000
Accounts receivable, net 16,109,000 13,775,000
Inventories 1,115,000 2,216,000
Prepaid expenses and other current assets 2,507,000 1,476,000
------------ ------------
Total current assets 38,498,000 57,962,000
Property, plant and equipment, net 168,571,000 166,879,000
Investments and other assets:
Cellular partnership 17,327,000 18,911,000
Deferred charges and other assets 2,063,000 2,050,000
------------ ------------
Total investments and other assets 19,390,000 20,961,000
------------ ------------
$226,459,000 $245,802,000
============ ============
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
Dec 31, 1993 Sep 30, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY ------------ ------------
------------------------------------ (UNAUDITED)
Current liabilities:
Accounts payable and accrued liabilities $19,143,000 $18,198,000
Current portion of long-term debt - 1,786,000
------------ ------------
Total current liabilities 19,143,000 19,984,000
Long-term debt 40,000,000 38,214,000
Deferred credits 24,395,000 25,104,000
Shareholders' equity:
Common Stock, without par value; 20,000,000
shares authorized, 13,799,194 shares
issued and outstanding 130,287,000 139,887,000
Stock dividend distributable,
669,960 shares at $24 per share - 16,079,000
Retained earnings 12,634,000 6,534,000
------------ ------------
Total shareholders' equity 142,921,000 162,500,000
------------ ------------
$226,459,000 $245,802,000
============ ============
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
Sep 30, 1993 Sep 30, 1994
------------ ------------
Net cash provided by operating activities $27,089,000 $28,892,000
Cash flows from investing activities:
Purchases of short-term investments - (40,388,000)
Maturities of short-term investments - 26,719,000
Capital expenditures for property, plant and
equipment (27,326,000) (11,557,000)
Investment in cellular partnership (1,387,000) (1,410,000)
Return of investment in cellular partnership 486,000 2,220,000
Changes in deferred charges and other assets (20,000) 13,000
------------ -----------
Net cash used in investing activities (28,247,000) (24,403,000)
Cash flows from financing activities:
Dividends paid (5,744,000) (6,030,000)
Sale of common stock to employee retirement plan - 9,600,000
------------ -----------
Net cash provided by (used in) financing
activities (5,744,000) 3,570,000
------------ -----------
Net increase (decrease) in cash and cash equivalents (6,902,000) 8,059,000
Cash and cash equivalents at beginning of
period 11,200,000 9,847,000
------------ -----------
Cash and cash equivalents at end of
period $4,298,000 $17,906,000
============ ===========
See accompanying notes.
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. Stock Dividend Payable and Stock Sale
On June 29, 1994, the Board of Directors of the Company adopted a resolution,
which was approved by the Public Utilities Commission of the State of California
(the "P.U.C.") on September 15, 1994, declaring a stock dividend of five percent
(5%) on the common stock of the Company, payable as soon as practicable after
December 1, 1994 to stockholders of record of the Company at the close of
business on such date. Accordingly, 669,960 shares estimated to be
distributable have been reflected on the accompanying condensed consolidated
balance sheet at September 30, 1994, and have been included in the computation
of net income and cash dividends per share for all periods presented.
On September 23, 1994 the Company issued 400,000 shares of its common stock to
the Roseville Telephone Company Retirement Supplement Plan, which resulted in
proceeds of approximately $9.6 million to the Company.
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 $1.8 million, or 8% for the three
months ended September 30, 1994 compared to the same period in 1993. For the
nine months ended September 30, 1994, operating revenues increased approximately
$4.8 million or 7%, compared to the same period in 1993. The increases in
operating revenues were due primarily to the combined effects of 1) growth in
access lines of 4.7% over the last twelve months, 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.
In September 1994, the P.U.C. issued an Implementation Rate Design Decision (the
"Decision") which authorizes toll competition within the Company's Local Access
Transport Area("LATA") commencing January 1, 1995. The Decision will also
result in decreases in the Company's access rates and other charges to
interexchange carriers, which will be partially offset by increases in basic
exchange rates and other revenue sources. Furthermore, the Decision will
require the Company to file a rate case by April 1, 1995. Based on calculations
by the P.U.C., the Decision is expected to result in a $5.3 million reduction in
the Company's annual revenues commencing January 1, 1995. To avoid potential
adverse effects on future results of operations, the Company must either obtain
other sources of revenues, increase productivity or both. The Company is in
disagreement with certain aspects of the Decision and has filed a petition for
rehearing in an effort to obtain certain revisions to the Decision.
Operating Expenses:
Operating expenses for the three months ended September 30, 1994 increased
approximately $2.8 million, or 19% compared to the same period in 1993. For the
nine months ended September 30, 1994, operating expenses increased approximately
$7.8 million or 18%, compared to the same period in 1993. Depreciation expense
increased approximately $1.6 million for the quarter and $4.2 million for the
nine months ended September 30, 1994, compared to the same period last year.
The increase in depreciation was attributable to increased average property,
plant and equipment in service and anticipated increases in depreciation rates.
The remaining increases were due primarily to normal inflationary factors
combined with a larger work force, and increased costs associated with serving a
larger number of access lines.
Other Income, Net:
Other income, net, decreased approximately $347,000 for the three months ended
September 30, 1994, compared to the same period in 1993. For the nine months
ended September 30, 1994, other income, net, decreased approximately $95,000
compared to the same period in 1993. The net year to date decrease was due
primarily to an increase of $724,000 in interest expense on long-term debt due
to larger borrowings and a decrease of $617,000 in the allowance for funds used
during construction, partially offset by an increase of $903,000 in the
Company's income attributable to its interest in Sacramento-Valley Limited
Partnership.
Income Taxes:
Income tax expense for the three months ended September 30, 1994 decreased
$751,000 or 18%, compared to the same period in 1993. For the nine months ended
September 30, 1994, income tax expense decreased $1.3 million or 11%, compared
to the same period in 1993. The net decrease was due to a decrease in income
subject to income tax. The effective federal and state income tax rate was
approximately 40% for the nine months ended September 30, 1994 and 1993.
Liquidity and Capital Resources:
As reflected in the accompanying Condensed Consolidated Statements of Cash
Flows, net cash provided by operating activities amounted to $28.9 million for
the nine months ended September 30, 1994. The increase in 1994 is due to a
reduction in accounts receivable as a result of completion of certain contracts
with Pacific Bell, offset by a reduction in accounts payable due to the
completion of a large capital project. During the nine months ended September
30, 1994, the Company used cash flows from operations and existing cash and cash
equivalents to fund capital expenditures of $12 million pertaining to on-going
plant construction projects. Cash flows to meet the remaining 1994 budgeted
capital expenditures of approximately $7 million are anticipated to be met from
both positive net cash generated from operations and existing cash and cash
equivalents.
The Company filed an application with the P.U.C. to obtain approval for the
issuance of up to 400,000 shares of its common stock to the Roseville Telephone
Company Retirement Supplement Plan (the "Plan"). The application was approved,
and all shares for which approvals had been sought have been issued and sold.
Proceeds of $9.6 million from the issuance of common stock to the Plan were
received in September 1994. These proceeds will be used for future capital
expenditures, participation in wireless technologies, and general corporate
purposes.
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 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 affect the Company
prospectively and are not expected to affect the Company's interim financial
statements at and for the nine months ended September 30, 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 ordered a final rate design, in conjunction with
I. 87-11-033 discussed below, which could have a material future 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 has considered whether certain services
presently provided solely by the Company within its LATA should be open to
competition. In September 1994, the P.U.C. issued its' Decision in this
investigation. The Decision allows intraLATA toll competition (using 10xxx
dialing) as of January 1, 1995 and decreases the Company's total revenues to the
extent necessary for the Company to earn up to its last P.U.C authorized
intrastate rate of return. See "Part I, Item 2 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations".
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 1995.
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 and legislative initiatives
occurring at the federal level that may have a material impact on the Company.
These proceedings include implementation of revised separations procedures,
notice of inquiry in the provision of high cost assistance, modification of
interstate access rate structures, and expanded interconnection through physical
or virtual collocation. These proceedings, as well as others aimed at
increasing competition within various telecommunication markets, including cable
television, may broaden the scope of competition in the provision of interstate
services, the effects of which 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.
Item 6. Exhibits and Reports on Form 8-K
a) None.
b) No reports on Form 8-K were filed during the third 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: November 10, 1994 By: /s/Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer
Date: November 10, 1994 By: /s/Michael D. Campbell
Michael D. Campbell,
Vice-President and Chief
Financial Officer
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