UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates (and on the
assumption that all shares held by registrant's employee benefit plan, directors
and officers may be deemed shares held by affiliates), was $299,453,040 as of
February 28, 1995. As of February 28, 1995, 14,484,953 shares of the
registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into Part III hereof are portions of the registrant's
definitive proxy statement issued in connection with the annual meeting of
registrant's shareholders to be held June 16, 1995.
TABLE OF CONTENTS
ITEM NO. PAGE
PART I
1.Business 3
2.Properties 5
3.Legal Proceedings 5
4.Submission of Matters to a Vote of Security Holders 7
PART II
5.Market for Registrant's Common Equity and Related Stockholder
Matters 8
6.Selected Financial Data 8
7.Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
8.Financial Statements and Supplementary Data 13
9.Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 31
PART III
10.Directors and Executive Officers of the Registrant 31
11.Executive Compensation 31
12.Security Ownership of Certain Beneficial Owners and
Management 31
13.Certain Relationships and Related Transactions 31
PART IV
14.Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 31
PART I
Item 1. Business.
Roseville Telephone Company (the "Company"), incorporated under the laws of the
State of California in 1914, is engaged in the business of furnishing
communications services, mainly local and toll telephone service and network
access services, in a territory covering approximately 83 square miles in Placer
and Sacramento Counties, California. Toll service to points outside the
Company's own area is furnished through connection at Roseville with facilities
of Pacific Bell, AT&T, and other interexchange carriers. The City of Roseville,
which is centrally located in the Company's service area, is 18 miles northeast
of Sacramento.
During recent years, including the year ended December 31, 1994, the area served
by the Company has experienced both land subdividing activity for home building
purposes and significant commercial and industrial development. The Company
continues to be engaged in the expansion of its facilities and operations to
meet current and anticipated service demand increases and to maintain modern and
efficient service.
Currently, no other telephone company operates in the area served by the
Company. However, the Company's future operations may be impacted by several
proceedings pending before the Public Utilities Commission of the State of
California (the "P.U.C.") which are considering the manner in which certain
local exchange services presently provided solely by the Company should be
opened to competition. See "Item 3 - Legal Proceedings" and "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
The Company, with a 23.5% equity interest, is one of four limited partners of
Sacramento-Valley Limited Partnership (the "Partnership"), a California limited
partnership formed for the construction and operation of a cellular mobile
radiotelephone system, which now operates in the following Standard Metropolitan
Statistical Areas ("SMSA"):
Sacramento Reno
Stockton Yuba City - Marysville
Modesto Redding - Chico
In addition, the Partnership also operates in the Tehama, Sierra and Storey
(Carson City) Rural Statistical Areas ("RSA").
AirTouch Cellular is the sole general partner of the Partnership and responsible
for the construction, operation, maintenance and marketing of the cellular
mobile radiotelephone system.
In each SMSA and RSA, the Federal Communications Commission (the "F.C.C.") has
granted one license to provide cellular services to a wireline carrier and one
license to a non-wireline carrier. The Partnership is the wireline carrier
licensee for each SMSA and RSA in which it operates and competes with the non-
wireline licensee in each of those areas.
The table that follows reflects the percentage of operating revenues of the
Company contributed by various services, excluding income from the Partnership.
Network Access and
Local Telephone Long Distance
Year Service Service Miscellaneous
---- ------- ------- -------------
1994 35.6% 49.5% 14.9%
1993 38.1% 46.8% 15.1%
1992 35.9% 49.1% 15.0%
1991 33.0% 53.3% 13.7%
1990 34.5% 51.7% 13.8%
As indicated above, revenues from local, network access and long distance
services constituted approximately 85% of the Company's total operating revenues
in 1994. Miscellaneous operating revenues include primarily revenues from
billing and collection services and directory advertising services, in addition
to revenues from nonregulated activities. Nonregulated revenues are derived
from the sale, lease and maintenance of telecommunications equipment, and the
provision of alarm monitoring and paging services.
Revenues from telephone service are affected by rates authorized by various
regulatory agencies. The Company's intrastate service rates are subject to
regulation by the P.U.C. As discussed in "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations", the Company
completed agreements with Pacific Bell concerning new compensation arrangements,
which were effective commencing in 1992, that affected extended area service
settlements and a significant portion of network access and long distance
revenues. With respect to intrastate toll calls, interexchange carriers are
assessed access charges based on tariffs filed by Pacific Bell. With respect to
interstate services, the Company has filed its own tariff with the F.C.C. for
all elements of access services except carrier common line charges, for which
the Company concurs with tariffs filed by the National Exchange Carrier
Association. Extensive cost separation studies are utilized to determine both
the final settlements and access charges.
Substantially all of the Company's revenues were from communications and related
services. As discussed in "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations", approximately 34%, 36% and 34%
of the Company's consolidated operating revenues in 1994, 1993 and 1992,
respectively, were derived from access charges and charges for other services
to, and transition contract payments from Pacific Bell pursuant to certain
agreements. Approximately 10% of the Company's consolidated operating revenues
in 1994, 1993 and 1992 were derived from the provision of services to AT&T. The
revenues from services provided to AT&T were received primarily from access
charges, but also included revenues from the provision of operator, billing and
collection, and other interexchange services. No other customers accounted for
more than 10% of consolidated operating revenues.
In addition to its regulatory authority with respect to rates, the P.U.C. also
has the power, among other things, to establish the terms and conditions of
service, to regulate securities issues, to prescribe uniform systems of accounts
to be kept by public utilities and to regulate the mortgaging or disposition of
public utility properties.
The Company uses public streets and highways in the conduct of its public
utility telephone business under a non-exclusive perpetual franchise granted by
Section 7901 of the California Public Utilities Code.
At December 31, 1994, the Company employed 501 persons, none of whom is
represented by any union.
Item 2. Properties.
The Company owns central office buildings and related equipment in Roseville,
Citrus Heights, Granite Bay, and other locations in Placer County, and completed
construction of a 135,000 square foot operations facility in November 1993. The
Company's 68,000 square foot principal business office and administrative
headquarters is located in Roseville. Other land is held for future expansion.
The Company has appropriate easements, rights of way and other arrangements for
the accommodation of its pole lines and underground conduits and for its aerial
and underground cables and wires.
In addition to land and structures, the Company's property consists of equipment
required in providing telephone service. This includes central office
equipment, customer premises equipment and connections, radio antennas, pole
lines, aerial and underground cable and wire facilities, vehicles, furniture and
fixtures and other equipment. The Company also owns certain other
communications equipment held as inventory for sale or lease.
In addition to plant and equipment that the Company wholly owns, the Company
utilizes poles and conduit systems wholly owned by, or jointly owned with, other
utilities and leases space on facilities wholly or jointly owned by the Company
to other utilities. These arrangements are in accordance with written
agreements customary in the industry.
The Partnership owns certain equipment used in the provision of cellular mobile
radiotelephone services.
Item 3. 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.
As appears in Item 1, above, the Company is subject to regulation by the F.C.C.
and P.U.C. In the past, there have been various proceedings before these
agencies to which the Company has been a party. Reference is made to Item 1 for
further information regarding the nature of the jurisdiction of the F.C.C. and
P.U.C. over the business and operations of the Company. The regulatory
proceedings discussed below relate to matters which may effect the Company
prospectively and are not expected to affect the Company's 1994 financial
statements.
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. It has
announced that in the course of this investigation it will consider the manner
in which certain services presently provided solely by the Company within its
local exchange area should be opened to competition.
On July 24, 1991, the Commission adopted Decision No. 91-07-044 in this
proceeding which ordered a phasedown of settlements pool payments after January
1, 1993 unless the Company reaches an agreement on a transition plan with
Pacific Bell to end their toll, access, and private line settlements procedures
before that date. Effective on a retroactive basis to January 1, 1992, the
Company executed new agreements in February 1994 with Pacific Bell, which
replaced the previous settlements agreements.
On September 15, 1994, the P.U.C. adopted Decision 94-09-065, its opinion in
this matter with respect to competition within each Local Access and Transport
Area ("LATA") and rate design issues. The order revised basic exchange, toll,
access, private line, and service connection rates and authorized competition
for toll and toll-like services within the Company's LATA effective January 1,
1995. Based on calculations by the P.U.C., the rates adopted in the order will
result in an annual revenue reduction to the Company of approximately $5.3
million beginning in 1995. In addition, the order as amended requires the
Company to submit an application for a general rate case and proposal for a new
regulatory framework by May 15, 1995.
On April 7, 1993, the P.U.C. opened an investigation and rulemaking proceeding
(R. 93-04-003) to establish rules necessary to provide nondiscriminatory access
by competing service providers to the network capabilities of local exchange
carriers necessary to ensure fair competition in accordance with the mandate of
Public Utilities Code Section 2282.5. In connection with this proceeding, the
P.U.C. issued a further order on August 5, 1993 proposing additional rules for
implementation of the open access principles proposed in its open access
proceeding. These two proceedings may broaden the scope of competition in the
provision of intrastate services. The Company anticipates a decision in this
matter during 1995.
In November 1993, the P.U.C. issued a report to the Governor of the State of
California entitled "Enhancing California's Competitive Strength: A Strategy
For Telecommunications Infrastructure" in which it proposes to open all markets
to competition and aggressively streamline regulation to accelerate the pace of
innovation in the telecommunications marketplace. In connection with this
report, on December 21, 1994, the P.U.C. adopted Decision 94-12-053, an initial
procedural plan to facilitate opening local exchange telecommunications markets
to competition by January 1, 1997. In this decision, the Commission expressed
its intent to implement local exchange competition, intraLATA presubscription,
open access to local exchange carrier networks based on an unbundled basis, and
reform of the new regulatory framework for local exchange carriers. In
conjunction with these proceedings, the P.U.C. adopted Rulemaking 95-01-020 and
Investigation 95-01-021 on January 24, 1995, an order instituting investigation
and rulemaking to consider the goals of and definition of universal telephone
service in a changing telecommunications environment, including examination of
subsidy support mechanisms and issues of "carrier of last resort" and
"franchise" obligations. After reviewing comments to be submitted on March 10,
1995, the Commission anticipates issuing further orders in this proceeding
during 1995 and 1996.
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, consideration of changes to the interstate
universal service fund and the regulation of local exchange carriers. In
addition, the F.C.C. periodically establishes the authorized rate of return for
interstate access services. Since January 1, 1991, the F.C.C. has established
an 11.25% rate of return for interstate access services.
In addition, in September 1992, the F.C.C. issued an order granting to
competitors expanded interconnection rights to the facilities of local exchange
carriers with annual revenues from regulated operations in excess of $100
million. These rules were overturned by the United States Court of Appeals. In
1994, the F.C.C. issued new rules to comply with the decision of the Court of
Appeals. While not yet applicable to the Company, these rules will permit
competitors to terminate facilities on terms and conditions equivalent to those
which would apply if they were permitted to terminate their facilities in
telephone company central offices.
In addition, the F.C.C. initiated a separate notice of proposed rulemaking
establishing a two-phase proceeding to modify interstate access rate structures
to further competition in the provision of interstate services. An interim rate
structure has been implemented pursuant to this notice of proposed rulemaking.
The United States Telephone Association ("USTA") filed an action in the United
States District Court in Washington, D.C. on behalf of its members, including
the Company, alleging that current federal law prohibiting local telephone
companies from owning or operating cable television systems in their telephone
service territories is an unconstitutional infringement of their First Amendment
rights. The court entered an order enjoining enforcement of the prohibition.
The defendants, the United States Department of Justice and F.C.C., have
declared their intention to appeal the court's decision as they have appealed
similar decisions in favor of other telephone companies. The decision, if
affirmed, will permit the Company to provide cable television in its telephone
service area.
In addition, the F.C.C. is currently proceeding with a rulemaking to consider
how telephone companies may offer "video dialtone" services in their telephone
service areas, including how common costs and plant are to be allocated between
telephone and video service for accounting and ratemaking purposes. Video
dialtone involves the provision of common carrier video transport for other
video programmers. The outcome of the F.C.C. proceeding will determine, in
part, whether the Company may profitably offer video dialtone service in its
telephone service area. The proceeding will also consider how telephone
companies provide cable television in their telephone service areas.
The Company will be submitting a proposal to stockholders to approve the
creation of a holding company. The decision to propose the holding company
structure was determined independently from and not as a result of any the
proceedings described above. In addition, it is not anticipated that the
holding company structure would have any impact upon any such proceedings.
The eventual impact on the Company of the effect of all the proceedings
described above cannot presently be determined.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock of the Company trades principally in local transactions without
the benefit of an established public trading market. As a result of the minimal
number of stock transactions, the Company's information with respect to price
per share is derived from reports provided by the Company's Retirement
Supplement Plan and disclosure, in limited circumstances, of third party
transactions. Retirement Supplement Plan transactions in the Company's Common
Stock were effected at approximately $22 per share in January 1993,
approximately $23 per share from the balance of the first quarter through the
beginning of the fourth quarter of 1993, and approximately $24 per share
thereafter.
As of February 28, 1995, the approximate number of holders of the Company's
Common Stock was 9,600.
The Company pays quarterly cash dividends on its Common Stock. The Company paid
cash dividends of $.15 per share for each quarter during 1993 and 1994.
Item 6. Selected Financial Data.
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Total operating
revenues $ 102,963 $ 96,780 $ 92,280 $ 88,461 $ 73,629
Net income $ 20,355 $ 22,518 $ 21,816 $ 19,940 $ 16,830
Net income per share
of common stock (1) $ 1.43 $ 1.60 $ 1.55 $ 1.42 $ 1.19
Cash dividends per
share of common
stock (2) $ .57 $ .54 $ .52 $ .49 $ .47
Property, plant and
equipment, at cost $ 243,774 $ 228,927 $ 203,379 $ 181,552 $159,880
Total assets $ 246,808 $ 226,459 $ 190,760 $ 165,380 $143,264
Long-term debt $ 37,321 $ 40,000 $ 25,000 $ 13,270 $ 5,590
Shares of common stock
used to calculate
net income per
share (1) 14,184,953 14,084,953 14,084,953 14,084,953 14,084,953
(1)Shares used in the computation of net income per share of common stock are
based on the weighted average number of shares outstanding in each period
after giving retroactive effect to 5% stock dividends issued in 1994, 1993,
1992 and 1991.
(2)Cash dividends per share of common stock are based on the actual dividends
per share, as declared by the Company's Board of Directors, after giving
retroactive effect to stock dividends.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
1994 versus 1993
Operating Revenues:
As of January 1, 1992, the Company exited revenue sharing arrangements with
Pacific Bell applicable to certain network access, long distance and local
service revenues. Also effective on that date, the Company began billing
Pacific Bell various charges in connection with the provision of services by the
Company pursuant to certain tentative agreements with Pacific Bell that were
completed in February 1994 (the "Pacific Bell Agreements"). The implementation
of the Pacific Bell Agreements had no significant effect on revenues previously
recorded in 1993 and 1992. Of the Company's total revenues in 1994, 1993 and
1992, 34%, 36% and 34%, respectively, were recorded under the Pacific Bell
Agreements. Included in such amounts were transition revenues of $16.5 million,
$16.5 million and $15 million in 1994, 1993 and 1992, respectively. The
transition revenues will be reduced to approximately $8.2 million in 1995.
Beginning in 1997 such revenues will be reduced by approximately $2 million per
year until ultimately eliminated.
In September 1994, the P.U.C. issued an Implementation Rate Design Decision (the
"IRD Decision") which authorized toll competition within each Local Access
Transport Area ("LATA") commencing January 1, 1995. The IRD Decision ordered
decreases in the Company's access rates beginning on January 1, 1995. Such
decreases and the reduction in transition revenues discussed above will be
partially offset by ordered increases in basic exchange rates and revenues from
other sources. Based on calculations by the Public Utilities Commission of the
State of California ("P.U.C."), these ordered changes are expected to result in
a $5.3 million net reduction in the Company's 1995 revenues and negatively
impacting future results of operations.
Local service revenues decreased slightly to $36.7 million in 1994 due to
positive settlement adjustments recorded in 1993 for extended area service
revenues, which did not reoccur in 1994. This decrease was largely offset by
the effects of 5% growth in access lines in 1994.
Network access and long distance revenues result from charges assessed to
carriers and end users for use of the local exchange network and from transition
revenues described above. Network access revenues increased $5.7 million or 15%
over 1993, primarily due to growth in minutes of use volumes and higher
interstate settlements from the National Exchange Carrier Association,
which contributed approximately equally to such revenue growth. Long
distance revenues, comprised largely of transition revenues from Pacific
Bell, remained at essentially the same level in 1994 and 1993.
Operating Expenses:
Operating expenses in 1994 increased approximately $9.1 million or 15% compared
to 1993. Depreciation expense increased approximately $5.7 million in 1994, of
which $3.7 million was attributable to depreciation rate changes authorized by
the P.U.C. and the balance was related to larger average plant levels.
Customer Operations Expenses increased by $1.0 million and General and
Administrative Expense increased by $2.4 million, primarily due to normal
inflationary factors combined with a larger workforce to serve the Company's
increasing customer base. In addition, the increase in General and
Administrative Expense was partially a result of the Company's increased
involvement in numerous federal and state regulatory proceedings and efforts
to enhance the Company's existing information systems.
Other Income (Expense):
Other income, which consists primarily of income attributable to the Company's
interest in Sacramento-Valley Limited Partnership, interest income from cash
equivalents and short-term investments and allowance for funds used during
construction ("AFUDC"), increased $75,000 over 1993. Increased interest income
due to larger invested balances and rising market interest rates was offset by
reductions in AFUDC due to the completed construction of an operations facility
in the fourth quarter of 1993. Other expense consists primarily of interest
expense on long-term debt, which increased $852,000 over 1993 due to increased
average borrowings.
Income Taxes:
Income taxes in 1994 decreased approximately $1.5 million compared to 1993 due
to the decrease in income subject to tax. The effective federal and state
income tax rate was 40.5% compared to 40.6% in 1993.
1993 versus 1992
Operating Revenues:
Local service revenues increased approximately $3.8 million, or 11% over 1992.
Of the total increase, approximately $2.3 million was related to an increase in
extended area service revenues recognized under the Pacific Bell Agreements
discussed above. In addition, local service revenues were positively affected
by a 5% growth in access lines and increased revenues associated with custom
calling and enhanced network services.
In 1993, network access revenues increased slightly to $37.5 million, reflecting
growth in minutes of use volumes and higher interstate settlements from the
National Exchange Carrier Association. Positive settlement adjustments which
were recorded in 1992 and did not reoccur in 1993 reduced the effect of this
increase and also caused a decrease in long distance revenues. Long distance
revenues, comprised largely of transition revenues from Pacific Bell, decreased
$727,000 to $7.8 million.
Operating Expenses:
Operating expenses in 1993 increased approximately $5.1 million or 9% compared
to 1992. The increase in operating expenses 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) higher costs associated with the Company's
numerous regulatory proceedings, 3) higher pension costs resulting from changes
in actuarial assumptions, 4) normal inflationary factors, and 5) increased costs
associated with serving a larger number of access lines. Depreciation expense
increased as a result of increased plant levels.
Other Income (Expense):
Other income increased $2.4 million over 1992, due primarily to improved results
of operations of the partnership and a significant increase in AFUDC due to the
construction of the Company's Industrial Avenue facility. Other expense
consists primarily of interest expense arising from the $25 million long-term
debt facility obtained in March 1992 and the $15 million facility obtained in
November 1993. Total interest expense was approximately $2.2 million compared
to $2.1 million in 1992 resulting from a combination of slightly increased
average borrowings offset by lower interest rates.
Income Taxes:
Income taxes in 1993 increased approximately $932,000 due to the increase in
income subject to tax and an increase in the effective tax rate resulting from
the implementation of the Revenue Reconciliation Act of 1993 which retroactively
increased the corporate federal income tax rate to 35% beginning January 1,
1993. The effective federal and state income tax rate was 40.6% compared to
39.9% in 1992.
Liquidity and Capital Resources
As reflected in the Consolidated Statements of Cash Flows, the Company's
operations continue to provide positive cash flows. Net cash provided by
operating activities amounted to $36.7 million, $36.6 million and $31.4 million
in 1994, 1993 and 1992, respectively. The Company realized proceeds of $9.6
million from the issuance of 400,000 shares of common stock to its Retirement
Supplement Plan in September 1994. These proceeds will be used for future
capital expenditures, participation in wireless technologies, and general
corporate purposes. During 1994, the Company utilized cash flows from
operations and existing cash, cash equivalents and short-term investments to
fund capital expenditures in the amount of $22.8 million and cash dividends of
$8.2 million.
The Company's most significant use of funds in 1995 is expected to be for
budgeted capital expenditures of approximately $24.2 million for central office
equipment, cable and wire facilities, and general purpose assets. The Company
periodically contributes capital to the Sacramento-Valley Limited Partnership to
maintain its existing partnership interest. As of December 31, 1994, known
commitments for capital funding to the partnership were $2.4 million. It is
anticipated that the Company's capital requirements in 1995 will be met from
cash flows from operations and existing cash, cash equivalents and short-term
investments.
Inflation
While the Company is not immune from increased costs brought on by inflation and
regulatory requirements, the impact of such items on the Company's operations
and financial condition depends partly on results of future rate cases and the
extent to which increased rates can be translated into improved earnings.
Regulatory Matters
The Company's financial condition and results of operations continues to be
affected by recent and future proceedings by the P.U.C. The P.U.C. authorized
competition for intraLATA toll service effective January 1, 1995, accompanied
with rate changes affecting the Company's toll, access, private line and basic
exchange revenue. Pending before the P.U.C. are proceedings which are
considering:
- The opening of all markets to competition by January 1, 1997 and
aggressively streamlining regulation to accelerate the pace of
innovation in the California telecommunications marketplace
- Rules that will provide non-discriminatory access by competing service
providers to the network capabilities of local exchange carriers
- Rules that will allow non-discriminatory open access to the local
exchange company's central office and authorize broader competition for
intrastate switched transport services
The P.U.C. has ordered the Company to file an application for a general rate
proceeding and proposal for a new regulatory framework by May 15, 1995.
The Company believes it continues to meet 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.
For example, amounts charged to operations for depreciation expense reflect
estimated lives and methods prescribed by regulators rather than those
consisting of useful and economic lives that might otherwise apply to
nonregulated enterprises. 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. The
approximate amount of the Company's net regulatory asset at December 31, 1994
was between $5 million and $12 million, consisting principally of property,
plant and equipment. The estimate for property, plant and equipment was
calculated based upon a projection of useful lives which may be affected by
the increasing competition and rapid changes in the telecommunications industry
referred to above.
Item 8. Financial Statements and Supplementary Data.
Page
Report of independent auditors 14
Consolidated balance sheets as of December 31, 1994 and 1993 15
Consolidated statements of income for each of the three years in
the period ended December 31, 1994 17
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1994 18
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1994 19
Notes to consolidated financial statements 21
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Roseville Telephone Company
We have audited the accompanying consolidated balance sheets of Roseville
Telephone Company as of December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roseville
Telephone Company at December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
Sacramento, California
February 23, 1995
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
ASSETS 1994 1993
------ ----- -----
Current assets:
Cash and cash equivalents $21,282,000 $ 9,847,000
Short-term investments 13,689,000 8,920,000
Accounts receivable (less allowances of $66,000
and $47,000, respectively) 15,565,000 16,109,000
Refundable income taxes - 944,000
Inventories 1,302,000 1,115,000
Deferred income tax asset 1,106,000 1,129,000
Prepaid expenses and other current assets 435,000 434,000
----------- -----------
Total current assets 53,379,000 38,498,000
Property, plant and equipment:
In service 239,380,000 226,170,000
Under construction 4,394,000 2,757,000
----------- -----------
243,774,000 228,927,000
Less accumulated depreciation 70,415,000 60,356,000
----------- -----------
173,359,000 168,571,000
Investments and other assets:
Cellular partnership 18,447,000 17,327,000
Deferred charges and other assets 1,623,000 2,063,000
----------- -----------
20,070,000 19,390,000
----------- -----------
$246,808,000 $226,459,000
=========== ===========
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1994 and 1993
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
------------------------------------ ---- ----
Current liabilities:
Current portion of long-term debt $ 2,679,000 $ -
Accounts payable and other accrued liabilities 3,863,000 7,908,000
Net payables to telecommunications entities 6,880,000 6,569,000
Advance billings and customer deposits 1,860,000 1,375,000
Accrued income taxes 345,000 -
Accrued pension cost 1,815,000 603,000
Accrued compensation 2,880,000 2,688,000
----------- -----------
Total current liabilities 20,322,000 19,143,000
Long-term debt 37,321,000 40,000,000
Deferred income taxes 21,010,000 20,956,000
Other liabilities and deferred credits 3,480,000 3,439,000
Commitments and contingencies (Notes 1 and 6)
Shareholders' equity:
Common stock, without par value; 20,000,000
shares authorized, 14,484,953 shares issued and
outstanding (13,399,194 shares in 1993) 156,345,000 130,287,000
Retained earnings 8,330,000 12,634,000
----------- -----------
Total shareholders' equity 164,675,000 142,921,000
----------- -----------
$246,808,000 $226,459,000
=========== ===========
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
---- ---- ----
Operating revenues:
Local service $36,679,000 $36,883,000 $33,108,000
Network access service 43,197,000 37,466,000 36,807,000
Long distance service 7,749,000 7,781,000 8,508,000
Directory advertising 6,059,000 6,085,000 5,592,000
Other 9,279,000 8,565,000 8,265,000
----------- ----------- -----------
Total operating revenues 102,963,000 96,780,000 92,280,000
Operating expenses:
Cost of services and products 22,941,000 23,138,000 21,454,000
Depreciation 18,121,000 12,453,000 12,249,000
Customer operations 11,718,000 10,717,000 9,533,000
General and administrative 14,363,000 11,951,000 9,947,000
Other 1,760,000 1,571,000 1,575,000
----------- ----------- -----------
Total operating expenses 68,903,000 59,830,000 54,758,000
----------- ---------- -----------
Income from operations 34,060,000 36,950,000 37,522,000
Other income (expense):
Interest income 1,208,000 285,000 403,000
Interest expense (3,072,000) (2,220,000) (2,056,000)
Equity in earnings of cellular
partnership 1,662,000 1,579,000 66,000
Allowance for funds used during
construction 425,000 1,356,000 393,000
Other, net (62,000) (48,000) (60,000)
----------- ----------- -----------
Total other income (expense), net 161,000 952,000 (1,254,000)
----------- ----------- -----------
Income before income taxes 34,221,000 37,902,000 36,268,000
Income taxes 13,866,000 15,384,000 14,452,000
----------- ------------ -----------
Net income $20,355,000 $22,518,000 $21,816,000
=========== =========== ===========
Per share of common stock:
Net income $1.43 $1.60 $1.55
===== ===== =====
Cash dividends $ .57 $ .54 $ .52
===== ===== =====
Shares of common stock used to
calculate net income per share 14,184,953 14,084,953 14,084,953
============ ============ ============
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1994, 1993 and 1992
Common Stock
-------------------------
Number of Retained
Shares Amount earnings Total
------------ ------------ ------------ ------------
Balance at December 31,
1991 $12,161,251 $102,418,000 $11,312,000 $113,730,000
5% stock dividend, at
fair value:
Shares 603,890 13,286,000 (13,286,000) -
Cash in lieu of
fractional shares - - (91,000) (91,000)
Cash dividends - - (7,296,000) (7,296,000)
Net income - - 21,816,000 21,816,000
----------- ----------- ------------ ------------
Balance at December 31,
1992 12,765,141 115,704,000 12,455,000 128,159,000
5% stock dividend, at
fair value:
Shares 634,053 14,583,000 (14,583,000) -
Cash in lieu of
fractional shares - - (97,000) (97,000)
Cash dividends - - (7,659,000) (7,659,000)
Net income - - 22,518,000 22,518,000
----------- ----------- ----------- -----------
Balance at December 31,
1993 13,399,194 130,287,000 12,634,000 142,921,000
Sale of common stock to
Retirement Supplement
Plan 400,000 9,600,000 - 9,600,000
5% stock dividend, at
fair value:
Shares 685,759 16,458,000 (16,458,000) -
Cash in lieu of
fractional shares - - (101,000) (101,000)
Cash dividends - - (8,100,000) (8,100,000)
Net income - - 20,355,000 20,355,000
----------- ----------- ----------- -----------
Balance at December 31,
1994 $14,484,953 $156,345,000 $8,330,000 $164,675,000
============ ============ ============ ===========
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1993 and 1992
Increase (Decrease) in Cash and Cash Equivalents
1994 1993 1992
---- ---- ----
Cash flows from operating
activities:
Net income $20,355,000 $22,518,000 $21,816,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 18,121,000 12,453,000 12,249,000
Equity component of allowance for
funds used during construction (322,000) (976,000) (322,000)
Provision (benefit) for deferred
income taxes (12,000) 2,525,000 2,695,000
Equity in earnings of cellular
partnership (1,662,000) (1,579,000) (66,000)
Provision for doubtful accounts 283,000 106,000 87,000
Other, net 176,000 121,000 105,000
Net changes in:
Accounts receivable 261,000 (1,198,000) (2,488,000)
Refundable income taxes 944,000 (944,000) -
Inventories, prepaid expenses and
other current assets (188,000) 591,000 756,000
Payables, accrued liabilities and
other deferred credits (1,570,000) 3,082,000 (2,320,000)
Accrued income taxes 345,000 (52,000) (1,134,000)
----------- ----------- -----------
Net cash provided by operating
activities 36,731,000 36,647,000 31,378,000
Cash flows from investing
activities:
Capital expenditures for property,
plant and equipment (22,763,000) (35,484,000) (22,588,000)
Purchases of short-term investments (44,333,000) (8,920,000) -
Maturities of short-term
investments 39,564,000 - -
Investment in cellular partnership (1,678,000) (1,387,000) (1,721,000)
Return of investment in cellular
partnership 2,220,000 1,410,000 -
Other, net 295,000 (863,000) (402,000)
----------- ----------- -----------
Net cash used in investing
activities (26,695,000) (45,244,000) (24,711,000)
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1994, 1993 and 1992
Increase (Decrease) in Cash and Cash Equivalents
1994 1993 1992
---- ---- ----
Cash flows from financing
activities:
Proceeds of long-term debt $ - $15,000,000 $ 25,000,000
Principal payments of long-term
debt - - (13,270,000)
Dividends paid and fractional share
amounts (8,201,000) (7,756,000) (7,387,000)
Sale of common stock 9,600,000 - -
----------- ----------- -----------
Net cash provided by financing
activities 1,399,000 7,244,000 4,343,000
----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents 11,435,000 (1,353,000) 11,010,000
Cash and cash equivalents at
beginning of year 9,847,000 11,200,000 190,000
----------- ----------- -----------
Cash and cash equivalents at end of
year $21,282,000 $ 9,847,000 $11,200,000
=========== =========== ===========
See accompanying notes.
ROSEVILLE TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and basis of accounting
Roseville Telephone Company (the "Company") is engaged in the business of
furnishing communications and related services principally within its
service area in Northern California. The Company maintains its accounts in
accordance with the Uniform System of Accounts prescribed for telephone
companies by the Federal Communications Commission (the "F.C.C.").
The Company believes it continues to meet 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. For example, amounts charged to operations for
depreciation expense reflect estimated lives and methods prescribed by
regulators rather than those consisting of useful and economic lives that
might otherwise apply to nonregulated enterprises. 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. The approximate
amount of the Company's net regulatory asset at December 31, 1994 was
between $5 million and $12 million, consisting principally of property,
plant and equipment. The estimate for property, plant and equipment was
calculated based upon a projection of useful lives which may be affected
by the increasing competition and rapid changes in the telecommunications
industry referred to above.
The Company engages in nonregulated activities through its RCC
Communications division ("RCC"). Products and services provided by RCC
include the sale, lease and maintenance of telecommunications equipment,
and the provision of alarm monitoring and paging services.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany transactions
have been eliminated. The Company's 23.5% interest in the Sacramento-
Valley Limited Partnership, which operates in the cellular telephone
industry principally within California, is accounted for using the equity
method. The Company's portion of undistributed earnings of this
partnership included in the Company's consolidated retained earnings at
December 31, 1994 amounted to approximately $4,067,000.
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 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair values of financial instruments
As of December 31, 1994 and 1993, the Company's financial instruments
consist of cash, cash equivalents, short-term investments and long-term
debt. Management believes that the carrying values of cash equivalents and
short-term investments at December 31, 1994 and 1993, which are at
amortized cost, and long-term debt at December 31, 1993, approximated their
fair values at such dates. The aggregate fair value of the Company's long-
term debt (including current maturities) was approximately $38,400,000 at
December 31, 1994. Fair values for cash equivalents and short-term
investments were determined by quoted market prices and for long-term debt
by a discounted cash flow analysis based on the Company's current
incremental borrowing rates for similar instruments.
Inventories
Telephone construction inventories consist of materials and supplies, which
are stated at average cost. Equipment and other nonregulated inventory
held for resale are stated at the lower of average cost or market.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Retirements and other
reductions of regulated telephone plant and equipment with a cost of
approximately $8,093,000, $9,886,000, and $947,000 in 1994, 1993 and 1992,
respectively, were charged against accumulated depreciation with no gain or
loss recognized. When property applicable to nonregulated operations is
sold or retired, the asset and related accumulated depreciation are removed
from the accounts and the associated gain or loss is recognized. The cost
of maintenance and repairs is charged to operating expense when incurred.
Revenues
The Company is subject to regulation by the F.C.C. and the Public Utilities
Commission of the State of California (the "P.U.C."). Pending and future
regulatory actions may have a significant impact on the Company's future
operations and financial condition.
As of January 1, 1992, the Company exited revenue sharing arrangements with
Pacific Bell applicable to certain network access, long distance and local
service revenues. Also effective on that date, the Company began billing
Pacific Bell various charges in connection with the provision of services
by the Company pursuant to certain tentative agreements with Pacific Bell
that were completed in February 1994 (the "Pacific Bell Agreements"). The
implementation of the Pacific Bell Agreements had no significant effect on
revenues previously recorded in 1993 and 1992. Of the Company's total
revenues in 1994, 1993 and 1992, 34%, 36% and 34%, respectively, were
recorded under the Pacific Bell Agreements. Included in such amounts were
transition revenues of $16,500,000, $16,500,000 and $15,000,000 in 1994,
1993 and 1992, respectively. The transition revenues will be reduced to
approximately $8,200,000 in 1995. Beginning in 1997 such revenues will be
reduced by approximately $2,000,000 per year until ultimately eliminated.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In September 1994, the P.U.C. issued an Implementation Rate Design Decision
(the "IRD Decision") which authorized toll competition within each Local
Access Transport Area commencing January 1, 1995. The IRD Decision ordered
decreases in the Company's access rates beginning on January 1, 1995. Such
decreases and the reduction in transition revenues discussed above will be
partially offset by ordered increases in basic exchange rates and revenues
from other sources. Based on calculations by the P.U.C., these ordered
changes are expected to result in a $5.3 million net reduction in the
Company's 1995 revenues, and negatively impact future results of
operations.
Depreciation
Depreciation of regulated telephone plant and equipment is computed on a
straight-line basis using rates approved by the P.U.C. Average annual
composite depreciation rates were 7.99%, 6.56% and 6.75% in 1994, 1993 and
1992, respectively. Depreciation rate increases authorized by the P.U.C.
in 1994 resulted in additional depreciation expense of approximately
$3,700,000 for 1994.
The cost of property, plant and equipment used in nonregulated activities
is depreciated over their estimated useful lives, which range from 3 to 5
years, on a straight-line basis.
Allowance for funds used during construction
The F.C.C. and the P.U.C. allow the Company to capitalize an allowance for
funds used during construction, which includes both an interest and return
on equity component. Such amounts are reflected as a cost of constructing
certain plant assets and as an element of "Other income."
Income taxes
Effective January 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109") and, accordingly, the Company's prior consolidated
financial statements were not restated. SFAS No. 109 requires companies to
record deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
and tax returns. Additionally, SFAS No. 109 requires adjustments of
deferred tax assets and liabilities for changes in tax laws or rates (such
as the Revenue Reconciliation Act of 1993), and requires recognition of a
regulatory asset or liability when it is probable that deferred taxes would
be reflected in future rates of regulated companies. The adoption of SFAS
No. 109 and the implementation of the Revenue Reconciliation Act of 1993
did not have a material effect on the Company's consolidated financial
position or results of operations.
Prior to January 1, 1993, deferred income taxes were provided in accordance
with Accounting Principles Board Opinion No. 11 ("APB No. 11")for the tax
effect of all timing differences between financial statement income and
taxable income, except for items that were not allowable by the P.U.C. as
deferred tax expense for rate-making purposes.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Per share amounts
Net income per share of common stock is based on the weighted average
number of shares outstanding each year after giving retroactive effect to
stock dividends. Cash dividends per share is based on the actual dividends
per share, as declared by the Company's board of directors, after giving
retroactive effect to stock dividends.
Statements of cash flows information
During 1994, 1993 and 1992, the Company made payments for interest and
income taxes as follows (in thousands):
1994 1993 1992
---- ---- ----
Interest (net of amounts capitalized) $3,606 $1,747 $ 1,497
Income taxes $12,589 $13,855 $12,891
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
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 securities at the time of
purchase and reevaluates such designation as of each balance sheet date.
At December 31, 1994, all 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 and accretion, as well as any
interest on the securities, is included in interest income.
The adoption of SFAS No. 115 had no significant effect on the Company's
prior period financial statements. Accordingly, under provisions of SFAS
No. 115, prior period financial statements were not restated. Following is
a summary of the Company's investments by major security type at amortized
cost which approximates fair value (in thousands):
December 31,
1994
------------
Commercial paper $ 23,612
Other unsecured corporate notes 4,360
Repurchase agreements 1,657
-----------
$ 29,629
===========
Amounts included in cash and cash equivalents
$ 15,940
Amounts included in short-term investments 13,689
-----------
$ $29,629
===========
3. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1994 and 1993 consisted of
the following:
$25,000,000 under an unsecured, long-term credit arrangement with a
bank, with interest payable quarterly at rates increasing from 8.16%
to 8.46% during the period of the loan. Principal payments are due in
equal quarterly installments of $893,000, commencing in June 1995, and
ending in April 2002.
$15,000,000 under an unsecured, long-term credit arrangement with a
bank, with interest payable quarterly at a fixed rate of 6.22%.
Principal payments are due in equal quarterly installments of
$536,000, commencing in March 1997, and ending in December 2003.
At December 31, 1994, the aggregate maturity requirements on all long-term
debt are $2,679,000, $3,572,000, $5,716,000, $5,716,000 and $5,716,000 in
1995, 1996, 1997, 1998 and 1999, respectively.
The aforementioned credit arrangements contain various positive and
negative covenants with respect to cash flow coverage, tangible net worth
and leverage ratio. These provisions could restrict the payment of
dividends in certain circumstances; however, the entire amount of retained
earnings at December 31, 1994 was unrestricted.
4. INCOME TAXES
The income tax provisions consist of the following components (in
thousands):
1994 1993 1992
----- ---- ----
Current expense:
Federal $ 10,718 $ 9,633 $ 8,730
State 3,160 3,226 3,027
------- ------- -------
13,878 12,859 11,757
Deferred expense (benefit):
Federal (80) 2,266 2,335
State 68 259 360
------ ------ -------
(12) 2,525 2,695
------- -------- -------
$ 13,866 $ 15,384 $ 14,452
========= ========= =========
The income tax provisions differ from those computed by using the statutory
federal rate (35% in 1994 and 1993, and 34% in 1992) for the following
reasons (in thousands):
1994 1993 1992
---- ---- ----
Computed at statutory rates $ 11,977 $ 13,266 $ 12,331
Increase (decrease):
State taxes, net of federal benefit 2,098 2,265 2,235
Other, net (209) (147) (114)
------- ------- -------
Income tax provision $ 13,866 $ 15,384 $ 14,452
========= ========= =========
Effective federal and state rate 40.5% 40.6% 39.9%
===== ===== =====
4. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31, 1994 and 1993 (in thousands):
Deferred Income Taxes
----------------------
1994 1993
---- ----
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Property, plant and equipment -
primarily due to depreciation
differences
$ - $ 21,869 $ - $21,614
Differences in the timing of
recognition of revenues 2,850 2,871 -
Cellular partnership - 3,088 - 2,708
State franchise taxes 1,106 - 1,129 -
Other, net 1,820 723 1,380 885
--------- --------- -------- --------
Total 5,776 25,680 5,380 25,207
Less current portion 1,106 - 1,129 -
--------- --------- -------- --------
4,670 25,680 4,251 25,207
========= ========= ========= =========
Net long-term deferred income
tax liability $ 21,010 $ 20,956
========= =========
As of December 31, 1994 and 1993, there was no valuation allowance for
deferred tax assets.
During 1992, in accordance with APB No. 11, the deferred income tax
provision resulted from differences in the timing of recognizing certain
revenues and expenses for financial reporting and income tax purposes. For
1992, the principal components of the deferred income tax provision were
$1,759,000 for tax depreciation in excess of book depreciation and $736,000
for differences between the book and taxable income attributable to the
Company's investment in a cellular partnership.
5. PENSION, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company sponsors a noncontributory defined benefit pension plan
covering substantially all employees. Benefits are based on years of
service and the employee's average compensation during the five highest
consecutive years of the last ten years of credited service. The Company's
funding policy is to contribute annually an actuarially determined amount
consistent with applicable federal income tax regulations. Contributions
are intended to provide for benefits attributed to service to date. Plan
assets are primarily invested in collective trust accounts, government and
government agency obligations, publicly traded stocks and bonds and
mortgage-related securities.
Net periodic pension cost for the years ended December 31, 1994, 1993 and
1992 includes the following components (in thousands):
1994 1993 1992
---- ---- ----
Service cost-benefits earned during the period $2,376 $2,149 $1,544
Interest cost on projected benefit obligation 3,493 3,131 2,727
Actual loss (return) on plan assets 600 (2,313) (1,592)
Net amortization and deferral (2,311) 910 (80)
------ ------ ------
Net pension cost $4,158 $3,877 $2,599
====== ====== ======
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the consolidated balance sheets as of December 31,
1994 and 1993 (in thousands):
1994 1993
---- ----
Actuarial present value of benefit obligations:
Vested benefit obligation $26,085 $24,463
Nonvested benefit obligation 6,315 5,900
------- -------
Accumulated benefit obligation $32,400 $30,363
======= =======
Plan assets at fair value $32,549 $31,369
Less projected benefit obligation (49,345) (47,383)
------- -------
Projected benefit obligation in excess of plan assets (16,796) (16,014)
Unrecognized net loss 12,002 12,164
Unrecognized transition obligation 2,979 3,247
------- ------
Accrued pension cost $(1,815) $(603)
======= =======
5. PENSION, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS (CONTINUED)
The discount rates used in determining the projected benefit obligation at
December 31, 1994 and 1993 were 7.5% and 7%, respectively. The assumed
rate of increase in future compensation levels used to measure the
projected benefit obligation was 6% at December 31, 1994 and 1993. The
expected long-term rate of return on plan assets used in determining net
pension cost was 8% in 1994 and 1993 and 8.5% in 1992. Changes in the
discount rate and expected long-term rate of return on plan assets
increased pension cost $1,054,000 in 1993. The vested and nonvested
benefit obligations for 1993 have been restated for the change in the
manner used to determine such amounts in 1994.
The Company also maintains a retirement supplement plan providing both a
retirement and savings feature for substantially all employees. The
retirement feature allows for tax deferred contributions by employees under
Section 401(k) of the Internal Revenue Code. Subject to certain
limitations, one-half of all employee contributions made to the retirement
supplement plan are matched by the Company. Such matching contributions,
as defined in the plan, amounted to approximately $1,043,000, $903,000 and
$731,000 in 1994, 1993 and 1992, respectively. At December 31, 1994, 9% of
the Company's outstanding shares of common stock were held by the
retirement supplement plan.
Effective January 1, 1993, the Company adopted Statements of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS No. 106") and No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS No. 112"). SFAS No. 106
requires accrual of the expected ultimate cost of providing benefits during
the years that the employee renders the necessary service. Prior to the
Company's adoption of SFAS No. 106, the cost of postretirement benefits was
generally recognized as paid. Presently, the Company provides certain
postretirement benefits other than pensions to substantially all employees,
including life insurance benefits and a stated reimbursement for Medicare
supplemental insurance. SFAS No. 112 establishes certain requirements for
accounting for benefits provided to former or inactive employees after
employment but before retirement. The adoption of SFAS No. 106 and No. 112
did not have a material effect on the Company's consolidated financial
position or results of operations.
6. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain facilities and equipment used in its operations
and reflects lease payments as rental expense for the periods to which they
relate. Total rental expense amounted to $387,000, $1,137,000 and $936,000
in 1994, 1993 and 1992, respectively.
At December 31, 1994, the aggregate minimum rental commitments under
noncancellable operating lease obligations are not significant.
Other commitments
The Company's budgeted capital expenditures for the year ending
December 31, 1995 approximate $24.2 million. Binding commitments for such
planned expenditures at December 31, 1994 were approximately $8 million.
The Company periodically contributes capital to the Sacramento-Valley
Limited Partnership to maintain its existing partnership interest. As of
December 31, 1994, known commitments for capital funding to the partnership
were $2.4 million.
Litigation
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.
7. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Substantially all of the Company's revenues were from communications and
related services provided in the Northern California area. The Company
performs ongoing credit evaluations of its customers' financial condition
and management believes that an adequate allowance for doubtful accounts
has been provided.
As discussed more fully in Note 1 - Revenues, approximately 34%, 36% and
34% of the Company's consolidated operating revenues in 1994, 1993, and
1992 respectively, were derived from access charges and other charges to,
and transition contract payments from Pacific Bell pursuant to the Pacific
Bell Agreements. Approximately 10% of the Company's consolidated operating
revenues in 1994, 1993 and 1992 were derived from the provision of services
to AT&T. The revenues from services provided to AT&T were received
primarily from access charges, but also included revenues from the
provision of operator, billing and collection, and other interexchange
services. No other customers accounted for more than 10% of consolidated
operating revenues.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
For information regarding the executive officers of the Company, see "Executive
Officers of the Registrant" at the end of Part I of this report. Other
information required by this item is incorporated herein by reference from the
proxy statement for the annual meeting of the Company's shareholders to be held
on June 16, 1995.
Item 11. Executive Compensation.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 16, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 16, 1995.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) 1 and 2. Financial Statements
The financial statements listed in the accompanying
Index to Financial Statements are filed as part of this
annual report.
3. Exhibits
The exhibits listed on the accompanying Index to
Exhibits are filed as part of this annual report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth
quarter of 1994.
ROSEVILLE TELEPHONE COMPANY
INDEX TO FINANCIAL STATEMENTS
(Item 14(a) 1 and 2)
PAGE
Report of independent auditors 14
Consolidated balance sheets as of December 31, 1994 and 1993 15
Consolidated statements of income for each of the three years in
the period ended December 31, 1994 17
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1994 18
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1994 19
Notes to consolidated financial statements 21
All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
ROSEVILLE TELEPHONE COMPANY
INDEX TO EXHIBITS
(Item 14(a) 3)
Method
Exhibit No. Description of Filing Page
----------- ----------- --------- ----
3(a) Restated Articles of Incorporation of the Incorporated -
Company (Filed as Exhibit I to Form 10-Q by reference
Quarterly Report for the quarter ended June
30, 1980), together with Certificate of
Amendment amending such Restated Articles
of Incorporation (as filed with Exhibit
3(a) to Form 10-K Annual Report for the
year ended December 31, 1982), and
Certificate of Amendment further amending
such Restated Articles of Incorporation, as
amended (Filed as Exhibit 3A to Form 10-K
Annual Report for the year ended December
31, 1983)
3(b) Certificate of Amendment of Articles of Incorporated -
Incorporation (Filed as Exhibit 3(b) to by reference
Form 10-K Annual Report for the year ended
December 31, 1988)
3(c) Bylaws of the Company, as amended to date Incorporated -
(Filed as Exhibit 3(c)to Form 10-K Annual by reference
Report for the year ended December 31,
1988)
10(a) Sacramento-Valley Limited Partnership Incorporated -
Agreement, dated April 4, 1984 (Filed as by reference
Exhibit I to Form 10-Q Quarterly Report for
the quarter ended March 31, 1984)
10(b) Credit Agreement with Bank of America Incorporated -
National Trust and Savings Association, by reference
dated March 27, 1992, with respect to
$25,000,000 term loan. (Filed as Exhibit
10(a) to Form 10-Q Quarterly Report for the
quarter ended March 31, 1992)
10(c) Credit Agreement with Bank of America Incorporated -
National Trust and Savings Association, by reference
dated January 4, 1994, with respect to
$15,000,000 term loan (Filed as Exhibit
10(c) to Form 10-K Annual Report for the
year ended December 31, 1993)
21(a) List of subsidiaries (Filed as Exhibit Incorporated -
22(a) to Form 10-K Annual Report for the by reference
year ended December 31, 1981)
27 Financial Data Schedule Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 27, 1995 By: /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer
Date: April 27, 1995 By: /s/Michael D. Campbell
Michael D. Campbell,
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: April 27, 1995 /s/ Robert L. Doyle
Robert L. Doyle,
Chairman of the Board
Date: April 27, 1995 /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: April 27, 1995 /s/ Michael D. Campbell
Michael D. Campbell,
Vice President and Chief
Financial Officer
Date: April 27, 1995 /s/ Thomas E. Doyle
Thomas E. Doyle,
Director
Date: April 27, 1995 /s/ Ralph E. Hoeper
Ralph E. Hoeper,
Director
Date: April 27, 1995 /s/ John R. Roberts III
John R. Roberts III,
Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 27, 1995 By:
Brian H. Strom,
President and Chief
Executive Officer
Date: April 27, 1995 By:
Michael D. Campbell,
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: April 27, 1995
Robert L. Doyle,
Chairman of the Board
Date: April 27, 1995
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: April 27, 1995
Michael D. Campbell,
Vice President and Chief
Financial Officer
Date: April 27, 1995
Thomas E. Doyle,
Director
Date: April 27, 1995
Ralph E. Hoeper,
Director
Date: April 27, 1995
John R. Roberts III,
Director
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