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, 1996
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-556
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
(Exact name of registrant as specified in its charter)
California 68-0365195
(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) 786-6141
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 $323,423,675 as of
February 28, 1997. As of February 28, 1997, 15,358,720 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 20, 1997.
TABLE OF CONTENTS
ITEM NO. PAGE
PART I
1.Business 3
2.Properties 6
3.Legal Proceedings 7
4.Submission of Matters to a Vote of Security Holders 11
PART II
5.Market for Registrant's Common Equity and Related Stockholder
Matters 12
6.Selected Financial Data 12
7.Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
8.Financial Statements and Supplementary Data 21
9.Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 44
PART III
10.Directors and Executive Officers of the Registrant 44
11.Executive Compensation 44
12.Security Ownership of Certain Beneficial Owners and
Management 44
13.Certain Relationships and Related Transactions 44
PART IV
14.Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 44
PART I
Item 1. Business.
In June 1995, the shareholders of Roseville Telephone Company ("Roseville
Telephone") approved an Agreement and Plan of Reorganization (the
"Reorganization") to create a holding company. In July 1996, the Public
Utilities Commission of the State of California (the "P.U.C.") approved the
Reorganization, which became effective on October 1, 1996. Under the terms of
the Reorganization, a new holding company, Roseville Communications Company (the
"Company"), was created as the publicly-held parent company of Roseville
Telephone and other recently formed subsidiaries to participate in other
businesses described below. The Company was incorporated under the laws of the
State of California in 1995.
The table that follows reflects the percentage of total operating revenues of
the Company contributed by various sources.
% of Total Operating Revenues
Revenues 1996 1995 1994
------------------------ ---- ---- ----
Rate regulated revenues 85% 82% 85%
Other revenues 15% 18% 15%
---- ---- ----
Total operating revenues 100% 100% 100%
The Company has recently formed various subsidiaries for the purposes of
pursuing new businesses in the communications industry. The Company expects
that its proportionate share of revenues from nonregulated businesses may be
significantly greater in future years as a result of its entry into these
businesses.
New Businesses
Roseville Telephone's wholly-owned subsidiary, Roseville PCS, Inc., is the
manager of and has an approximate 89% interest in West Coast PCS LLC ("West
Coast"), which was formed together with an unrelated entity for the purpose of
providing personal communications services ("PCS"). In January 1997, West Coast
was the successful bidder for Block E licenses to offer PCS services in four
Basic Trading Areas located in central California including Sacramento,
Stockton, Modesto and Yuba City. Each Block E license represents 10 megahertz
of broadband spectrum which offers digital wireless technology capable of
providing both voice and data transmission. West Coast has applied to the
Federal Communications Commission (the "F.C.C.") for authority to offer PCS and
will be required to meet certain criteria in order to purchase the licenses.
West Coast is currently evaluating the various commercial applications of PCS
and will likely compete with companies awarded other licenses for PCS.
As discussed in Note 9 to the Consolidated Financial Statements, "Pending
Acquisition", the Company recently formed a wholly-owned subsidiary, Roseville
Cable Company ("Roseville Cable"), for the purpose of acquiring and operating a
cable television system currently serving approximately 18,000 subscribers in
the City of Roseville and certain unincorporated areas of Placer County,
California. The consummation of the acquisition is subject to regulatory
waivers and approvals which have not yet been granted.
In February 1997, Roseville Directory Company ("Roseville Directory"), a wholly-
owned subsidiary of the Company, commenced operations to produce, publish and
distribute Roseville Telephone's directory including the sale of yellow pages
advertising previously provided by an unaffiliated company.
In January 1997, the Company formed a wholly-owned subsidiary, Roseville Long
Distance Company ("Roseville Long Distance"), for the purposes of providing long
distance services. Roseville Long Distance has filed an application with the
P.U.C. requesting authority to provide long distance services. This application
is currently under review by the P.U.C. and the Company anticipates an order
granting authority in 1997.
West Coast, Roseville Cable, Roseville Directory and Roseville Long Distance
have not generated any revenues or incurred any significant costs and expenses
for the period from their inception to December 31, 1996.
Investment in Sacramento-Valley Limited Partnership
Roseville Telephone, with an approximate 23.5% equity interest, is a limited
partner of Sacramento-Valley Limited Partnership ("SVLP"), a California limited
partnership formed for the construction and operation of a cellular mobile
radiotelephone system. AirTouch Cellular is the sole general partner of SVLP
and responsible for the construction, operation, maintenance and marketing of
the cellular mobile radiotelephone system. SVLP currently operates in the
following Standard Metropolitan Statistical Areas ("SMSA"):
Sacramento Reno
Stockton Yuba City - Marysville
Modesto Redding - Chico
In addition, SVLP also operates in the Tehama, Sierra and Storey (Carson City)
Rural Statistical Areas ("RSA").
In each SMSA and RSA, the F.C.C. has granted one license to provide cellular
services to a wireline carrier and one license to a non-wireline carrier. SVLP
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 Company's equity in the earnings of SVLP constituted approximately 27% of
income before income taxes for 1996, as compared to slightly less than 20% in
1995.
Telephone Operations
The Company's principal operating subsidiary, Roseville Telephone, 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 Roseville Telephone's own area is furnished
through connection in Roseville with facilities of Pacific Bell, AT&T and other
interexchange carriers. The City of Roseville, which is centrally located in
Roseville Telephone's service area, is 18 miles northeast of Sacramento.
During recent years, including the year ended December 31, 1996, the area served
by Roseville Telephone has experienced significant residential, commercial and
industrial development. Roseville Telephone 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 local exchange telephone company operates in the area served
by Roseville Telephone. However, Roseville Telephone's future operations may be
impacted by several proceedings pending before the P.U.C. which are considering
the manner in which certain local exchange services presently provided solely by
Roseville Telephone 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" for further discussion regarding the
competitive environment in which Roseville Telephone operates.
Revenues from rate regulated services, which include local service, network
access service and long distance service revenues, constituted approximately 85%
of Roseville Telephone's total operating revenues in 1996. Other revenues
consist primarily of directory advertising services, billing and collection
services, nonregulated services and other miscellaneous revenues. Nonregulated
revenues are derived from the sale, lease and maintenance of telecommunications
equipment, and the provision of alarm monitoring services.
Substantially all of Roseville Telephone's revenues are from communications and
related services. Approximately 23%, 24% and 34% of Roseville Telephone's total
operating revenues in 1996, 1995 and 1994, respectively, were derived from
access charges and charges for other services to, and transition contract
payments from Pacific Bell pursuant to certain agreements. Approximately 8%, 7%
and 10% of Roseville Telephone's total operating revenues in 1996, 1995 and 1994
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.
Total rate regulated revenues from telephone services are affected by rates
authorized by various regulatory agencies. Intrastate service rates are subject
to regulation by the P.U.C. Roseville Telephone has agreements with Pacific
Bell relating to 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, Roseville Telephone has
filed its own tariff with the F.C.C. for all elements of access services except
carrier common line charges, for which Roseville Telephone 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.
Additionally, as discussed in "Item 3 - Legal Proceedings", on December 20,
1996, the P.U.C. issued Decision 96-12-074 (the "Decision") authorizing an
annual revenue increase of $470,000. The Decision also ordered the
implementation of a new regulatory framework for services furnished within the
State of California and restructured Roseville Telephone's rates in a
comprehensive manner. For further discussion regarding Roseville Telephone's
rate regulated revenues, see "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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.
Roseville Telephone 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.
Recent Developments
In February 1996, Congress passed the Telecommunications Act of 1996 (the "Act")
which significantly changed the regulatory environment for telecommunications
companies. During 1996, the F.C.C. adopted orders implementing the Act's
provisions to open local exchange service markets to competition. The F.C.C.
rules outline pricing methodologies for the states to follow when setting rates
for resale, interconnection and unbundled network elements. On October 15,
1996, the United States Court of Appeals for the Eighth Circuit issued a stay
pending appeal of portions of the F.C.C. Orders. Further legal proceedings
considering the validity of the F.C.C. Orders are anticipated to continue for
some time. In addition, the F.C.C. must still promulgate rules and regulations
on access charge reform and a new universal service program. Under the Act, the
F.C.C. must complete its universal service proceeding by May 1997 and the
Company expects the F.C.C. to complete its access charge reform in a similar
time frame. Given the Act's recent enactment, the pending appeals of the
current rules adopted by the F.C.C. and the further proceedings required by the
F.C.C. to promulgate rules and regulations thereunder, it is not yet possible to
determine fully the impact of the Act on the Company's operations.
Employees
At December 31, 1996, the Company had 518 employees, 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 Sacramento and Placer
Counties. The Company's 68,000 square foot principal business office and
administrative headquarters and 128,000 square foot operations facility are
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.
SVLP 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, Roseville Telephone 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 Roseville Telephone 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 Roseville Telephone.
The P.U.C. has instituted an investigation (I.87-11-033) into the manner in
which it regulates local exchange carriers, including Roseville Telephone. It
has announced that in the course of this investigation it will consider the
manner in which certain services presently provided solely by Roseville
Telephone within its local exchange area should be opened to competition. 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 Roseville Telephone's LATA effective
January 1, 1995. In addition, the Order as amended required Roseville Telephone
to submit an application for a general rate case and proposal for a new
regulatory framework.
Accordingly, on May 15, 1995, Roseville Telephone filed a rate case with the
P.U.C. requesting authority to restructure and increase rates for certain
telephone services and decrease rates for others. Roseville Telephone requested
a revenue increase of approximately $11 million. In February, 1996, evidentiary
hearings on the issues commenced, in which the P.U.C.'s Office of Ratepayers
Advocates submitted its testimony and proposed an approximate $12.5 million
reduction in Roseville Telephone's annual rates and charges. On December 20,
1996, the P.U.C. issued Decision 96-12-074 (the "Decision") granting an annual
revenue increase of $470,000. The P.U.C. also authorized Roseville Telephone to
implement a new regulatory framework for services furnished within the State of
California in order to accommodate market and regulatory movement toward
competition and greater pricing flexibility. Additionally, the P.U.C. ordered
the elimination of various sources of revenues including the California High
Cost Fund draw, certain settlement contract revenues with Pacific Bell and a
previously mandated billing surcharge. Based on calculations by the P.U.C., the
elimination of these sources of revenues are expected to be offset by ordered
increases in Roseville Telephone's local exchange and switched access rates.
This rate restructure became effective on February 1, 1997.
Roseville Telephone believes that the Decision contains various miscalculations
as well as legal and factual errors which will not result in Roseville Telephone
realizing the ordered annual increase in revenues of $470,000. The Company
believes that the miscalculations and errors contained in the Decision could
instead result in an annual revenue reduction of up to $1.3 million as opposed
to the $470,000 annual revenue increase ordered in the Decision. Accordingly,
in January 1997 Roseville Telephone filed a Petition for Modification and
Application for Rehearing with the P.U.C. requesting a reexamination and
correction of the miscalculations and errors. Roseville Telephone anticipates
that the P.U.C. will consider these issues during 1997, the effect of which on
Roseville Telephone cannot yet be determined.
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. On April 26, 1995, the P.U.C. adopted Decision 95-04-073, an
interim opinion governing the provision of expanded interconnection and
restructuring of local transport rates by Pacific Bell and GTE California. On
December 6, 1995, the P.U.C. adopted Decision 95-12-016 which adopted principles
to govern the development of cost studies for the basic network functions of the
local exchange networks of Pacific Bell and GTE California. In this order, the
P.U.C. ordered Roseville Telephone to participate in the process of developing
these cost studies in anticipation of a possible order that Roseville Telephone
designate and be bound for two years by the results of the cost studies for a
comparable Pacific Bell or GTE California wire center and to develop a proposal
for how to account for shared and common costs, including overhead. Also, on
December 6, 1995, the P.U.C. adopted Decision 95-12-020 which modified the rate
structure previously adopted for local transport in order to bring it into
parity with that adopted by the F.C.C. in its own proceedings on local transport
restructuring. These proceedings may broaden the scope of competition in the
provision of intrastate services, the effects of which on Roseville Telephone
cannot presently be determined.
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, the P.U.C. issued Decision
95-07-050 on July 19, 1995 setting forth a set of proposed rules pertaining to
universal service responsibilities in a competitive environment. On October 25,
1996, the P.U.C. adopted Decision 96-10-066 setting forth the rules pertaining
to universal service. In this decision, the P.U.C. adopted a model for
determining universal service funding beginning February 1, 1997. The decision
establishes Roseville Telephone's annual universal service fund draw at
approximately $500,000, subject to offsetting rate reductions. In addition, the
decision allows Roseville Telephone to file its own cost study to determine its
draw from the universal service fund. Roseville Telephone is reviewing this
option. In December 1996, a number of parties filed Applications for Rehearing,
including Roseville Telephone, on various issues which may result in changes to
the rules and amount of funds Roseville Telephone is entitled to receive.
Roseville Telephone anticipates that these issues will be resolved in 1997, the
effects of which on Roseville Telephone cannot yet be determined.
On April 26, 1995, the P.U.C. adopted Rulemaking 95-04-043 and Investigation 95-
04-044, an order instituting investigation and rulemaking to develop and adopt
rules for local exchange competition. On July 24, 1995, the P.U.C. issued
Decision 95-07-054 opening Pacific Bell and GTE California territories to
competition under interim rules by facilities-based competitors on January 1,
1996 and by resale competitors on March 31, 1996. Additional interim rules
governing interconnection and related matters were adopted on December 20, 1995
in Decision 95-12-057 approving the applications of an initial group of
facilities-based local service competitors. On February 23, 1996, the P.U.C.
adopted Decision 96-02-072 approving the applications of an initial group of
resale competitors. A companion decision establishing the rates to be paid by
resale competitors for interconnection and related services was adopted on March
13, 1996 to be effective March 31, 1996. While the orders issued to date on
local service competition do not apply to Roseville Telephone's territory, the
P.U.C. has expressed its intention to open all telecommunications markets,
including Roseville Telephone's territory, to competition. Comments on the
rules for local service competition in Roseville Telephone's territory were
filed on July 31, 1996. Roseville Telephone anticipates that additional
hearings may be held and an order likely issued during 1997 to finalize rules
for local service competition in its service territory, the effects of which on
Roseville Telephone cannot yet be determined.
On January 23, 1997, Roseville Long Distance filed an application with the
P.U.C. requesting a Certificate of Public Convenience and Necessity for
authority to provide interLATA and intraLATA long distance services. This
application is currently under review by the P.U.C. and the Company anticipates
an order granting authority in 1997.
There are a number of regulatory proceedings occurring at the federal level that
may have a material impact on Roseville Telephone. These regulatory proceedings
include, but are not limited to, consideration of changes to the interstate
universal service fund, access charge reform 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.
Roseville Telephone's operations may also be impacted by the recently enacted
Telecommunications Act of 1996 (the "Act"). During 1996, the F.C.C. adopted
orders implementing the Act's provisions to open local exchange service markets
to competition. The F.C.C. rules outline pricing methodologies for the states
to follow when setting rates for resale, interconnection and unbundled network
elements. On October 15, 1996, the United States Court of Appeals for the
Eighth Circuit issued a stay pending appeal of portions of the F.C.C. Orders.
Further legal proceedings considering the validity of the F.C.C. Orders are
anticipated to continue for some time. In addition, the F.C.C. must still
promulgate rules and regulations on access charge reform and a new universal
service program. Under the Act, the F.C.C. must complete its universal service
proceeding by May 1997 and the Company expects the F.C.C. to complete its access
charge reform in a similar time frame. Given the Act's recent enactment, the
pending appeals of the current rules adopted by the F.C.C. and the further
proceedings required by the F.C.C. to promulgate rules and regulations
thereunder, it is not yet possible to determine fully the impact of the Act on
Roseville Telephone's operations.
The proceedings described above may broaden the scope of competition in the
provision of regulated services and change the rates and rate structure for
regulated services furnished by Roseville Telephone, the effects of which on
Roseville Telephone cannot yet be determined.
On May 9, 1995, Roseville Telephone filed an application with the P.U.C.
requesting authorization to implement an Agreement and Plan of Reorganization
(the "Reorganization") approved by Roseville Telephone's shareholders on June
16, 1995, which would result in a holding company. On July 17, 1996, the P.U.C.
approved the Reorganization, which became effective October 1, 1996. Under the
terms of the Reorganization, a new holding company, Roseville Communications
Company was created as the publicly-held parent company of Roseville Telephone.
On October 14, 1996, Roseville Cable entered into an Asset Purchase Agreement
(the "Purchase Agreement") with IDS/Jones Growth Partners 87-A, LTD ("Seller")
under which Roseville Cable agreed to purchase a cable television system (the
"System") currently serving approximately 18,000 subscribers in the City of
Roseville, California and certain unincorporated areas of Placer County,
California. The consummation of the transaction contemplated by the Purchase
Agreement is subject to various conditions including 1) approval of the City of
Roseville and Placer County to the transfer of the franchises, 2) satisfaction
of requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
3) a waiver from the F.C.C. of certain provisions of the Telecommunications Act
of 1996 and 4) approval of the Board of Directors of the Company and the limited
partners of the Seller. While certain of these conditions have been satisfied,
there can be no assurance that the remaining waivers and approvals will be
obtained. The Company expects that the closing of the transaction contemplated
by the Purchase Agreement will occur on or before June 30, 1997.
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 1996.
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 $24 per share from the beginning of 1995
through the beginning of the fourth quarter of 1995, and approximately $25 per
share thereafter.
The Company's approximate number of shareholders was 9,500 as of February 28,
1997.
The Company pays quarterly cash dividends on its common stock. The Company paid
cash dividends of $.15 per share for each quarter during 1995 and 1996.
Item 6. Selected Financial Data.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Total operating
revenues $ 105,566 $ 102,661 $ 102,963 $ 96,780 $ 92,280
Net income $ 21,461 $ 18,507 $ 20,355 $ 22,518 $ 21,816
Net income per share
of common stock (1) $ 1.40 $ 1.20 $ 1.35 $ 1.51 $ 1.46
Cash dividends per
share of common
stock (2) $ .58 $ .57 $ .54 $ .51 $ .49
Property, plant and
equipment, at cost $ 275,563 $ 263,210 $ 243,774 $ 228,927 $ 203,379
Total assets $ 267,881 $ 256,889 $ 246,808 $ 226,459 $ 190,760
Long-term debt $ 28,036 $ 33,750 $ 37,321 $ 40,000 $ 25,000
Shares of common stock
used to calculate
net income per
share (1)
15,358,720 15,358,720 15,058,720 14,958,720 14,958,720
(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 stock dividends.
(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
Overview
In June 1995, the shareholders of Roseville Telephone Company ("Roseville
Telephone") approved an Agreement and Plan of Reorganization (the
"Reorganization") to create a holding company. In July 1996, the Public
Utilities Commission of the State of California (the "P.U.C.") approved the
Reorganization, which became effective on October 1, 1996. Under the terms of
the Reorganization, a new holding company, Roseville Communications Company (the
"Company"), was created as the publicly-held parent company of Roseville
Telephone and certain other subsidiaries. The formation of the holding company
had no effect on the Company's consolidated financial position or results of
operations.
The Company is a holding company with subsidiaries operating in the
communications services industry. The Company's principal operating subsidiary,
Roseville Telephone, provides local and toll telephone services, network access
services, billing and collection services, directory advertising services and
certain nonregulated services. Additionally, Roseville Telephone, with an
approximate 23.5% equity interest, is a limited partner of Sacramento-Valley
Limited Partnership ("SVLP"), which provides cellular telephone service
principally in California. Roseville Telephone's wholly-owned subsidiary,
Roseville PCS, Inc., is the manager of and has an approximate 89% interest in
West Coast PCS LLC ("West Coast"), which was formed together with an unrelated
entity for the purpose of providing personal communications services ("PCS").
The Company recently formed a wholly-owned subsidiary, Roseville Cable Company
("Roseville Cable"), for the purpose of acquiring and operating a cable
television system currently serving approximately 18,000 subscribers in the City
of Roseville and certain unincorporated areas of Placer County, California.
During February 1997, Roseville Directory Company ("Roseville Directory"), a
wholly-owned subsidiary of the Company, commenced operations to produce, publish
and distribute Roseville Telephone's directory including the sale of yellow
pages advertising previously provided by an unaffiliated company. In January
1997, the Company formed a wholly-owned subsidiary, Roseville Long Distance
Company ("Roseville Long Distance"), for the purposes of providing long distance
services. West Coast, Roseville Cable, Roseville Directory and Roseville Long
Distance have not generated any revenues or incurred any significant costs and
expenses for the period from their inception to December 31, 1996. However, the
Company expects that the sources of its revenues and its cost structure may be
significantly different in future years as a result of its entry into these
communications markets.
Revenues from rate regulated services, which include local service, network
access service and long distance service revenues, constituted approximately 85%
and 82% of the Company's total operating revenues in 1996 and 1995,
respectively. Rate regulated revenues are derived from various sources,
including billings to business and residential subscribers for basic exchange
services, extended area service charges and transition revenues from Pacific
Bell, P.U.C. mandated surcharges, billings to Pacific Bell, long distance
carriers and subscribers for network access services, interstate settlement
revenues from the National Exchange Carrier Association, and support payments
from the interstate Universal Service Fund and California High Cost Fund. As
discussed below, beginning February 1, 1997 the sources of Roseville Telephone's
revenues will be substantially modified as a result of its recent rate case.
Roseville Telephone bills Pacific Bell various charges for certain local
service, network access service and long distance service revenues pursuant to
agreements (the "Pacific Bell Agreements") that arose as a result of the
termination on January 1, 1992 of previous revenue sharing arrangements with
Pacific Bell. Of the Company's total revenues in 1996, 1995 and 1994, 23%, 24%
and 34%, respectively, were recorded under the Pacific Bell Agreements.
Included in such amounts were transition revenues of $8.2 million, $8.2 million,
and $16.5 million in 1996, 1995 and 1994, respectively, which will be eliminated
effective February 1, 1997 as a result of Roseville Telephone's recent rate
case.
On May 15, 1995, Roseville Telephone filed a rate case with the P.U.C.
requesting authority to restructure and increase rates for certain telephone
services and decrease rates for others. Roseville Telephone requested a revenue
increase of approximately $11 million. In February, 1996, evidentiary hearings
on the issues commenced, in which the P.U.C.'s Office of Ratepayers Advocates
submitted its testimony and proposed an approximate $12.5 million reduction in
Roseville Telephone's annual rates and charges. On December 20, 1996, the
P.U.C. issued Decision 96-12-074 (the "Decision") granting an annual revenue
increase of $470,000. The P.U.C. also authorized Roseville Telephone to
implement a new regulatory framework for services furnished within the State of
California in order to accommodate market and regulatory movement toward
competition and greater pricing flexibility. Additionally, the P.U.C. ordered
the elimination of various sources of revenue including the California High Cost
Fund draw, transition payments from Pacific Bell and a previously mandated
billing surcharge. Based on calculations by the P.U.C., the elimination of
these sources of revenues are expected to be offset by ordered increases in
Roseville Telephone's local exchange and switched access rates. This rate
restructure became effective on February 1, 1997.
Roseville Telephone believes that the Decision contains various miscalculations
as well as legal and factual errors which will not result in Roseville Telephone
realizing the ordered annual increase in revenues of $470,000. The Company
believes the miscalculations and errors contained in the Decision could instead
result in an annual revenue reduction of up to $1.3 million as opposed to the
annual $470,000 increase ordered in the Decision. Accordingly, in January 1997
Roseville Telephone filed a Petition for Modification and Application for
Rehearing with the P.U.C. requesting a reexamination and correction of the
miscalculations and errors. Roseville Telephone anticipates that the P.U.C.
will consider these issues during 1997, the effect of which on Roseville
Telephone cannot yet be determined.
1996 versus 1995
Net income for 1996 was $21.5 million or $1.40 per share, compared with net
income of $18.5 million or $1.20 per share for 1995. The increase in net income
and net income per share from 1995 to 1996 was principally due to the strong
economic growth in the Company's service area and an increase in the earnings
from the Company's investment in SVLP.
Operating Revenues:
Rate regulated revenues increased $5.8 million or 7% compared to 1995. These
increases were due to the combined effects of 1) access line growth of
approximately 8% and increased custom calling, voice mail and enhanced network
service revenues, which increased local service revenues by $1.9 million, and 2)
an increase in network access revenues due to increased minute-of-use volumes
and demand for special access services, and higher settlements from NECA.
Revenues from nonregulated sales and services decreased $2.7 million in 1996 due
principally to the sale of a large telephone system to a commercial customer in
1995, which did not recur in 1996.
Operating Expenses:
Operating expenses in 1996 increased $1.4 million or 2% compared to 1995. Plant
operations increased $2.1 million or 10% during 1996 due to 1) costs associated
with a larger customer base, 2) switching software expenditures and 3) normal
inflationary factors. Depreciation expense declined from 1995 due primarily to
the effect of the retirement in 1996 of certain equipment that was depreciated
over a relatively short life in anticipation of its planned replacement. The
year-to-year reduction in depreciation on the retired equipment of $2.6 million
was largely offset by a $1.8 million increase in depreciation expense resulting
from higher average plant levels in 1996. Customer operations expense increased
$882,000 during 1996 due primarily to a larger customer base. General and
administrative expense increased $1.5 million during 1996 due to costs
associated with improvements to the Company's information systems and increased
labor costs. The cost of nonregulated sales and service decreased $2.2 million
during 1996 due primarily to the sale of a large telephone system to a
commercial customer in 1995 which did not recur in 1996.
Other Income, Net:
Other income, net increased $3.4 million over 1995 which was due primarily to an
increase of $3.4 million in income attributable to the Company's interest in
SVLP. The Company's equity in the earnings of SVLP constituted approximately
27% of income before income taxes for 1996, as compared to slightly less than
20% in 1995. Interest expense decreased by $259,000 due to declining long-term
debt balances. Interest income decreased by $431,000 due to lower average
invested balances.
Income Taxes:
Income taxes in 1996 increased $1.9 million compared to 1995 due to the increase
in income subject to tax. The effective federal and state income tax rate was
40.4% in 1996 compared to 40.6% in 1995.
1995 versus 1994
Net income for 1995 was $18.5 million or $1.20 per share, compared with net
income of $20.4 million or $1.35 per share for 1994. The decline in net income
and net income per share from 1994 to 1995 was principally due to the
Implementation Rate Design Decision ("IRD Decision") as discussed below.
Operating Revenues:
In September 1994, the P.U.C. issued 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 network access
rates and other charges to interexchange carriers beginning January 1, 1995.
Such decreases and a $8.3 million reduction in transition revenues from Pacific
Bell between 1994 and 1995 were intended to 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 were expected to result in a
net reduction in the Company's 1995 rate regulated revenues of $5.3 million.
However, the actual net reduction in revenues for 1995 was $6.7 million.
The ordered changes in the sources of the Company's rate regulated revenues
resulting from the IRD Decision significantly affected the comparability between
1995 and 1994 of the related revenue categories in the Company's consolidated
income statements. Total rate regulated revenues decreased $3.6 million or 4%
from 1994. The decline resulted primarily from a $6.7 million reduction in rate
regulated revenues as a result of the IRD Decision, which exceeded the P.U.C.'s
estimated impact of $5.3 million. The P.U.C. had projected that intraLATA toll
calling volumes, from which the Company derives network access service revenues
from Pacific Bell, would be stimulated by lower intraLATA toll rates ordered in
the IRD Decision for Pacific Bell. However, actual calling volumes in 1995 were
far below the levels forecaster by the P.U.C. and thus below the level necessary
to limit the net reduction in the Company's revenues to $5.3 million.
The $6.7 million reduction in rate regulated revenues resulting from the IRD
Decision was partially offset by the effects of 1) access line growth of
approximately 6% in 1995 and increased custom calling, voice mail and enhanced
network service revenues, which increased revenues by approximately $1.5
million, and 2) an increase of $1.2 million in special access revenues arising
from several new commercial customers.
Nonregulated sales and service revenues increased $3.1 million or 78% over 1994.
This increase was principally due to the sale of a large telephone system to a
commercial customer.
Operating Expenses:
Operating expenses in 1995 increased $7.9 million or 11% compared to 1994.
Plant operations increased $1.7 million during 1995 due to 1) costs associated
with a larger work force, 2) switching software expenditures, 3) maintenance
costs associated with the severe weather and flooding in January 1995, and 4)
normal inflationary factors. Depreciation expense increased approximately $1.5
million during 1995 as a result of higher average plant levels. Customer
operations expense increased $1.1 million during 1995 primarily due to increased
labor costs. General and administrative expense increased $1.3 million during
1995 due to higher costs associated with the Company's involvement in numerous
state and federal regulatory proceedings including the Company's rate
proceeding. Cost of nonregulated sales and service increased $2.3 million
during 1995 due primarily to the sale of a large telephone system to a
commercial customer.
Other Income, Net:
Other income, net increased $5.1 million over 1994. The increase was primarily
due to an increase of $4.5 million in income attributable to the Company's
interest in SVLP and an increase of $617,000 in interest income attributable to
larger average invested balances. Interest expense on long-term debt remained
at essentially the same level in 1995 and 1994.
Income Taxes:
Income taxes in 1995 decreased $1.2 million compared to 1994 due to the decrease
in income subject to tax. The effective federal and state income tax rate was
40.6% in 1995 compared to 40.5% in 1994.
Strategic Developments
On October 14, 1996, Roseville Cable entered into an Asset Purchase Agreement
(the "Purchase Agreement") with IDS/Jones Growth Partners 87-A, LTD ("Seller")
under which Roseville Cable agreed to purchase a cable television system (the
"System") currently serving approximately 18,000 subscribers in the City of
Roseville, California and certain unincorporated areas of Placer County,
California. The consummation of the transaction contemplated by the Purchase
Agreement is subject to various conditions including 1) approval of the City of
Roseville and Placer County to the transfer of the franchises, 2) satisfaction
of requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
3) a waiver from the Federal Communications Commission of certain provisions of
the Telecommunications Act of 1996 and 4) approval of the Board of Directors of
the Company and the limited partners of the Seller.
Upon satisfaction of the terms and conditions of the Purchase Agreement,
Roseville Cable will purchase substantially all of the assets of the System for
a purchase price of $30.9 million in cash. In accordance with the provisions of
the Purchase Agreement, $1.6 million of the consideration was delivered to an
escrow account in December 1996 as a refundable earnest money deposit. While
certain of these conditions have been satisfied, there can be no assurance that
the remaining waivers and approvals will be obtained. The Company expects that
the closing of the transaction contemplated by the Purchase Agreement will occur
on or before June 30, 1997.
At the close of the F.C.C. auctions for Blocks D, E, and F PCS licenses on
January 14, 1997, West Coast was the successful bidder for Block E licenses to
offer PCS services in four Basic Trading Areas located in central California
including Sacramento, Stockton, Modesto and Yuba City. Each Block E license
represents 10 megahertz of broadband spectrum which offers digital wireless
technology capable of providing both voice and data transmission. West Coast
has applied to the F.C.C. for authority to offer PCS and will be required to
meet certain criteria in order to purchase the licenses. The cost of the
licenses will be $9 million. West Coast is currently evaluating the various
commercial applications of PCS and will likely compete with companies awarded
other licenses for PCS.
Liquidity and Capital Resources
As reflected in the Consolidated Statements of Cash Flows, net cash provided by
operating activities was $32.7 million, $32.8 million and $36.7 million in 1996,
1995 and 1994, respectively. The Company used cash flows from operations and
existing cash, cash equivalents and short-term investments to fund 1) capital
expenditures of $25 million pertaining to ongoing plant construction projects,
2) dividends of $9.1 million, and 3) principal payments of $3.6 million to
retire long-term debt.
The Company's most significant use of funds in 1997 is expected to be for 1)
budgeted capital expenditures of approximately $25 million relating to Roseville
Telephone's operations 2) scheduled payments of long-term debt of $5.7 million
3) purchase of a cable television system for $30.9 million, 4) purchase of the
Company's share of the PCS licenses of approximately $7.9 million, 5)
expenditures for start up costs of up to $3 million relating to West Coast and
6) working capital requirements of up to $5 million relating to the initial year
of Roseville Directory's operations.
In addition to net cash provided by operations and existing cash, cash
equivalents and short-term investments, the Company is currently considering
various sources of external financing, including short-term borrowings or long-
term debt, for the purposes of funding capital expenditures, potential
investments and pending acquisitions for 1997 and beyond.
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 current and future rate
cases and the extent to which increased rates can be translated into improved
earnings.
Other Financial Information
The Company's consolidated financial statements have been prepared in accordance
with Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" ("SFAS No. 71"), which require companies
meeting the criteria to give effect in their financial statements to certain
actions of regulators. For example, amounts charged to operations for
depreciation expense reflect estimated lives and methods prescribed by
regulators rather than the economic lives that might otherwise apply to
nonregulated enterprises. A number of telecommunications companies, including
all of the Regional Bell Operating Companies, have determined that they no
longer meet the criteria of SFAS No. 71. However, such telecommunications
companies are significantly different from Roseville Telephone in the level and
nature of competition they experience and in the nature and mix of services they
offer. The Company believes its regulated operations continue to meet the
criteria of SFAS No.71 due to its nature and mix of revenues, the authority of
federal and state regulators to establish rates and monitor Roseville
Telephone's earnings, the P.U.C.'s regulatory authority to set Roseville
Telephone's depreciation lives and recent legal proceedings at the federal level
which prohibit a regulatory agency from setting rates and charges at levels
which do not allow telephone companies to recover their cost of providing
telephone services, including a reasonable profit.
As a result of increasing competition and rapid changes in the
telecommunications industry, the Company periodically monitors whether its
regulated operations continue to meet the criteria which require the use of SFAS
No. 71. If it becomes no longer reasonable to assume that Roseville Telephone
can recover its costs of providing regulated services through rates charged to
customers, whether resulting from the effects of increased competition or
specific regulatory actions, SFAS No. 71 would no longer apply. In the future,
should the Company determine its regulated operations no longer meet the SFAS
No. 71 criteria, a material, extraordinary, noncash charge would result. The
approximate amount of Roseville Telephone's net regulatory asset at December 31,
1996 was between $6 million and $13 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.
Regulatory Matters
In February 1996, Congress passed the Telecommunications Act of 1996 (the "Act")
which significantly changed the regulatory environment for telecommunications
companies. During 1996, the F.C.C. adopted orders implementing the Act's
provisions to open local exchange service markets to competition. The F.C.C.
rules outline pricing methodologies for the states to follow when setting rates
for resale, interconnection and unbundled network elements. On October 15,
1996, the United States Court of Appeals for the Eighth Circuit issued a stay
pending appeal of portions of the F.C.C. Orders. Further legal proceedings
considering the validity of the F.C.C. Orders are anticipated to continue for
some time. In addition, the F.C.C. must still promulgate rules and regulations
on access charge reform and a new universal service program. Under the Act, the
F.C.C. must complete its universal service proceeding by May 1997 and the
Company expects the F.C.C. to complete its access charge reform in a similar
time frame. Given the Act's recent enactment, the pending appeals of the
current rules adopted by the F.C.C. and the further proceedings required by the
F.C.C. to promulgate rules and regulations thereunder, it is not yet possible to
determine fully the impact of the Act on Roseville Telephone's operations.
The Company's financial condition and results of operations continues to be
affected by recent and future proceedings before the P.U.C. and F.C.C. In
addition to the matters described above, pending before the F.C.C. and P.U.C.
are proceedings which are considering:
The rules governing the opening of all markets to competition
The goals and definition of universal telephone service in a
changing environment, including examination of subsidy support
mechanisms for subscribers in high cost areas and issues of "carrier
of last resort" and "franchise" obligations
Rules that will provide non-discriminatory access by competing
service providers to the network capabilities of local exchange
carriers
The eventual impact on the Company of the effect of all the proceedings
described above cannot presently be determined.
Item 8. Financial Statements and Supplementary Data.
Page
Report of independent auditors 22
Consolidated balance sheets as of December 31, 1996 and 1995 23
Consolidated statements of income for each of the three years in
the period ended December 31, 1996 25
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1996 26
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1996 27
Notes to consolidated financial statements 29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Roseville Communications Company
We have audited the accompanying consolidated balance sheets of Roseville
Communications Company (successor to Roseville Telephone Company) as of December
31, 1996 and 1995, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. 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. The consolidated financial statements
for 1996 and 1995 of Sacramento-Valley Limited Partnership (a partnership in
which the Company has an approximate 23.5% interest), have been audited by other
auditors whose report has been furnished to us; insofar as our opinion on the
consolidated financial statements for 1996 and 1995 relates to data included for
Sacramento-Valley Limited Partnership, it is based solely on their report.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and for 1996 and 1995 the report of other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Roseville
Communications Company at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
Sacramento, California
February 26, 1997
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
------ ----- -----
Current assets:
Cash and cash equivalents $24,435,000 $24,854,000
Short-term investments 2,233,000 1,748,000
Refundable deposit - 8,960,000
Accounts receivable (less allowances of $65,000
and $54,000, respectively) 14,720,000 13,687,000
Refundable income taxes - 1,287,000
Inventories 2,895,000 2,189,000
Deferred income tax asset 1,211,000 982,000
Prepaid expenses and other current assets 424,000 419,000
----------- -----------
Total current assets 45,918,000 54,126,000
Property, plant and equipment:
In service 272,642,000 259,201,000
Under construction 2,921,000 4,009,000
----------- -----------
275,563,000 263,210,000
Less accumulated depreciation 91,381,000 84,985,000
----------- -----------
184,182,000 178,225,000
Investments and other assets:
Cellular partnership 26,147,000 23,292,000
PCS license deposit 9,000,000 -
Deferred charges and other assets 2,634,000 1,246,000
----------- -----------
37,781,000 24,538,000
----------- -----------
$267,881,000 $256,889,000
=========== ===========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ ---- ----
Current liabilities:
Current portion of long-term debt $ 5,714,000 $ 3,571,000
Accounts payable and other accrued liabilities 5,053,000 4,220,000
Payables to telecommunications entities 5,692,000 6,011,000
Advance billings and customer deposits 2,195,000 1,809,000
Accrued income taxes 128,000 -
Accrued pension cost 3,873,000 2,916,000
Accrued compensation 3,596,000 3,111,000
----------- -----------
Total current liabilities 26,251,000 21,638,000
Long-term debt 28,036,000 33,750,000
Deferred income taxes 22,391,000 21,857,000
Other liabilities and deferred credits 3,400,000 3,301,000
Commitments and contingencies (Notes 1, 7
and 9)
Minority interest in subsidiary 1,002,000 1,950,000
Shareholders' equity:
Common stock, without par value; 100,000,000
shares authorized, 15,358,720 shares issued and
outstanding (14,915,424 shares in 1995) 177,758,000 166,676,000
Retained earnings 9,043,000 7,717,000
----------- -----------
Total shareholders' equity 186,801,000 174,393,000
----------- -----------
$267,881,000 $256,889,000
=========== ===========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Operating revenues:
Local service $ 49,287,000 $ 47,431,000 $36,679,000
Network access service 36,363,000 32,438,000 43,197,000
Long distance service 4,175,000 4,189,000 7,749,000
----------- ----------- -----------
Total rate regulated revenues 89,825,000 84,058,000 87,625,000
Directory advertising 6,643,000 6,387,000 6,059,000
Nonregulated sales and service 4,258,000 6,987,000 3,925,000
Other 4,840,000 5,229,000 5,354,000
----------- ---------- -----------
Total operating revenues 105,566,000 102,661,000 102,963,000
Operating expenses:
Plant operations 24,114,000 21,984,000 20,263,000
Depreciation 18,793,000 19,574,000 18,121,000
Customer operations 13,673,000 12,791,000 11,718,000
General and administrative 17,119,000 15,656,000 14,363,000
Cost of nonregulated sales and
service 2,767,000 5,007,000 2,678,000
Property and miscellaneous taxes 1,729,000 1,747,000 1,760,000
----------- ----------- -----------
Total operating expenses 78,195,000 76,759,000 68,903,000
----------- ----------- -----------
Income from operations 27,371,000 25,902,000 34,060,000
Other income (expense):
Interest income 1,394,000 1,825,000 1,208,000
Interest expense (2,753,000) (3,072,000) (3,012,000)
Equity in earnings of cellular
partnership 9,604,000 6,183,000 1,662,000
Allowance for funds used during
construction 498,000 399,000 425,000
Other, net (135,000) (156,000) (62,000)
----------- ----------- -----------
Total other income, net 8,608,000 5,239,000 161,000
----------- ----------- -----------
Income before income taxes 35,979,000 31,141,000 34,221,000
Income taxes 14,518,000 12,634,000 13,866,000
----------- ----------- ------------
Net income $ 21,461,000 $ 18,507,000 $ 20,355,000
=========== =========== ============
Per share of common stock:
Net income $1.40 $1.20 $1.35
===== ===== =====
Cash dividends $ .58 $ .57 $ .54
===== ===== =====
Shares of common stock used to
calculate net income per share 15,358,720 15,358,720 15,058,720
=========== =========== ===========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
Common Stock
-------------------------
Number of Retained
Shares Amount earnings Total
------------ ------------ ------------ ------------
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
3% stock dividend, at
fair value:
Shares 430,471 10,331,000 (10,331,000) -
Cash in lieu of
fractional shares - - (98,000) (98,000)
Cash dividends - - (8,691,000) (8,691,000)
Net income - - 18,507,000 18,507,000
----------- ----------- ----------- -----------
Balance at December 31,
1995 14,915,424 166,676,000 7,717,000 174,393,000
3% stock dividend, at
fair value:
Shares 443,296 11,082,000 (11,082,000) -
Cash in lieu of
fractional shares - - (104,000) (104,000)
Cash dividends - - (8,949,000) (8,949,000)
Net income - - 21,461,000 21,461,000
----------- ----------- ----------- -----------
Balance at December 31,
1996 $15,358,720 $177,758,000 $9,043,000 $186,801,000
============ =========== =========== ===========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
1996 1995 1994
---- ---- ----
Cash flows from operating
activities:
Net income $21,461,000 $18,507,000 $20,355,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 18,793,000 19,574,000 18,121,000
Equity component of allowance for
funds used during construction
(409,000) (314,000) (322,000)
Provision (benefit) for deferred
income taxes 158,000 848,000 (12,000)
Equity in earnings of cellular
partnership (9,604,000) (6,183,000) (1,662,000)
Provision for doubtful accounts
185,000 183,000 283,000
Other, net (50,000) 183,000 176,000
Net changes in:
Accounts receivable (1,218,000) 1,695,000 261,000
Refundable income taxes 1,287,000 (1,287,000) 944,000
Inventories, prepaid expenses and
other current assets (711,000) (871,000) (188,000)
Payables, accrued liabilities and
other deferred credits 2,643,000 795,000 (1,570,000)
Accrued income taxes 128,000 (345,000) 345,000
----------- ----------- -----------
Net cash provided by operating
activities 32,663,000 32,785,000 36,731,000
Cash flows from investing
activities:
Capital expenditures for property,
plant and equipment (24,983,000) (24,309,000) (22,763,000)
Purchases of held-to-maturity
investments (2,735,000) (5,672,000) (44,333,000)
Maturities of held-to-maturity
investments 2,250,000 17,613,000 39,564,000
Investment in cellular partnership
(366,000) (2,402,000) (1,678,000)
Return of investment in cellular
partnership 7,115,000 3,740,000 2,220,000
Return of refundable deposit 8,960,000 - -
PCS license deposit (9,000,000) (8,960,000) -
Cable acquisition deposit (1,550,000) - -
Other, net 749,000 295,000 295,000
----------- ----------- -----------
Net cash used in investing
activities (19,560,000) (19,695,000) (26,695,000)
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
1996 1995 1994
---- ---- ----
Cash flows from financing
activities:
Principal payments of long-term
debt $ (3,571,000) $ (2,679,000) $ -
Dividends paid and fractional share
amounts (9,053,000) (8,789,000) (8,201,000)
Sale of common stock - - 9,600,000
Return of minority partners'
investment in subsidiary (1,898,000) - -
Investment in subsidiary by
minority partners 1,000,000 1,950,000 -
----------- ----------- -----------
Net cash provided by (used in)
financing activities (13,522,000) (9,518,000) 1,399,000
----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents (419,000) 3,572,000 11,435,000
Cash and cash equivalents at
beginning of year 24,854,000 21,282,000 9,847,000
----------- ----------- -----------
Cash and cash equivalents at
end of year $24,435,000 $24,854,000 $21,282,000
=========== =========== ===========
See accompanying notes.
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and basis of accounting
In June 1995, the shareholders of Roseville Telephone Company ("Roseville
Telephone") approved an Agreement and Plan of Reorganization (the
"Reorganization") to create a holding company. In July 1996, the Public
Utilities Commission of the State of California (the "P.U.C.") approved the
Reorganization, which became effective on October 1, 1996. Under the terms
of the Reorganization, a new holding company, Roseville Communications
Company (the "Company"), was created as the publicly-held parent company of
Roseville Telephone and certain other subsidiaries. Each share of
Roseville Telephone common stock issued and outstanding immediately prior
to the Reorganization was automatically converted into one share of the
Company's common stock. The formation of the holding company had no effect
on the Company's consolidated financial position or results of operations.
The Company's principal operating subsidiary, Roseville Telephone, provides
local and toll telephone services, network access services, billing and
collection services, directory advertising services and certain
nonregulated services including the sale, lease and maintenance of
telecommunications equipment, and the provision of alarm monitoring
services. Additionally, Roseville Telephone, with an approximate 23.5%
equity interest, is a limited partner of Sacramento-Valley Limited
Partnership ("SVLP"), a limited partnership formed for the construction and
operation of a cellular mobile radiotelephone system. Roseville
Telephone's wholly-owned subsidiary, Roseville PCS, Inc., is the manager of
and has an approximate 89% interest in West Coast PCS LLC ("West Coast"),
which was formed together with an unrelated entity for the purpose of
providing personal communications services ("PCS"). The minority interest
of approximately $1.0 million at December 31, 1996 represents an 11%
interest of the minority partner in the net assets of West Coast.
Additionally, as discussed in Note 9, "Pending Acquisition", the Company
recently formed a wholly-owned subsidiary, Roseville Cable Company
("Roseville Cable"), for the purpose of acquiring and operating a cable
television system in the City of Roseville and certain unincorporated areas
of Placer County, California. During February 1997, Roseville Directory
Company ("Roseville Directory"), a wholly-owned subsidiary of the Company,
commenced operations to produce, publish and distribute Roseville
Telephone's directory including the sale of yellow pages advertising
previously provided by an unaffiliated company. In January 1997, the
Company formed a wholly-owned subsidiary, Roseville Long Distance Company
("Roseville Long Distance"), for the purposes of providing long distance
services. West Coast, Roseville Cable, Roseville Directory, and Roseville
Long Distance have not generated any revenues or incurred any significant
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
costs and expenses for the period from their inception to December 31,
1996.
The Company maintains the accounts of Roseville Telephone in accordance
with the Uniform System of Accounts prescribed for telephone companies by
the Federal Communications Commission (the "F.C.C."). The consolidated
financial statements were prepared in accordance with generally accepted
accounting principles which require management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
The Company's consolidated financial statements have been prepared in
accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS No.
71"), which require companies meeting the criteria to give effect in their
financial statements to certain actions of regulators. For example,
amounts charged to operations for depreciation expense reflect estimated
lives and methods prescribed by regulators rather than the economic lives
that might otherwise apply to nonregulated enterprises. A number of
telecommunications companies, including all of the Regional Bell Operating
Companies, have determined that they no longer meet the criteria of SFAS
No. 71. However, such telecommunications companies are significantly
different from Roseville Telephone in the level and nature of competition
they experience and in the nature and mix of services they offer. The
Company believes its regulated operations continue to meet the criteria of
SFAS No.71 due to its nature and mix of revenues, the authority of federal
and state regulators to establish rates and monitor Roseville Telephone's
earnings, the P.U.C.'s regulatory authority to set Roseville Telephone's
depreciation lives and recent legal proceedings at the federal level which
prohibit a regulatory agency from setting rates and charges at levels which
do not allow telephone companies to recover their cost of providing
telephone services, including a reasonable profit.
As a result of increasing competition and rapid changes in the
telecommunications industry, the Company periodically monitors whether its
regulated operations continue to meet the criteria which require the use of
SFAS No. 71. If it becomes no longer reasonable to assume that Roseville
Telephone can recover its costs of providing regulated services through
rates charged to customers, whether resulting from the effects of increased
competition or specific regulatory actions, SFAS No. 71 would no longer
apply. In the future, should the Company determine its regulated
operations no longer meet the SFAS No. 71 criteria, a material,
extraordinary, noncash charge would result. The approximate amount of
Roseville Telephone's net regulatory asset at December 31, 1996 was between
$6 million and $13 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and a majority-owned limited liability
company. All significant intercompany transactions have been eliminated.
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 at December 31,
1996 consist of high grade 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.
Fair values of financial instruments
As of December 31, 1996 and 1995, 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, 1996 and 1995, which are at
amortized cost, approximated their fair values at such dates. The
aggregate fair value of the Company's long-term debt (including current
maturities) was approximately $34,000,000 and $39,000,000 at December 31,
1996 and 1995, respectively. 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 $12,787,000, $4,958,000 and $8,093,000 in 1996, 1995 and
1994, 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
Under SFAS No. 121, companies are required to recognize impairment losses
on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount
of those assets. SFAS No. 121 requires the impairment loss to be
recognized to the extent the carrying amount of the assets exceeds the fair
value of the assets. The adoption of SFAS No. 121 had no effect on the
Company's consolidated financial position or results of operations for
1996.
Revenues
Certain of the Company's operations are subject to regulation by the F.C.C.
and the P.U.C. Pending and future regulatory actions may have a
significant impact on the Company's future operations and financial
position.
Roseville Telephone bills Pacific Bell various charges for certain local
service, network access service and long distance service revenues pursuant
to agreements (the "Pacific Bell Agreements") that arose as a result of the
termination on January 1, 1992 of previous revenue sharing arrangements
with Pacific Bell. Of the Company's total revenues in 1996, 1995 and 1994,
23%, 24% and 34%, respectively, were recorded under the Pacific Bell
Agreements. Included in such amounts were transition revenues of
$8,200,000, $8,200,000, and $16,500,000 in 1996, 1995 and 1994,
respectively, which will be eliminated effective February 1, 1997 as a
result of Roseville Telephone's recent rate case.
On May 15, 1995, Roseville Telephone filed a rate case with the P.U.C.
requesting authority to restructure and increase rates for certain
telephone services and decrease rates for others. On December 20, 1996,
the P.U.C. issued Decision 96-12-074 (the "Decision") with respect to
Roseville Telephone's application granting an annual revenue increase of
$470,000. The P.U.C. also authorized Roseville Telephone to implement a
new regulatory framework for services furnished within the State of
California in order to accommodate market and regulatory movement toward
competition and greater pricing flexibility. Additionally, the P.U.C.
ordered the elimination of various sources of revenue including the
California High Cost Fund draw, transition payments from Pacific Bell and a
previously mandated billing surcharge. Based on calculations by the
P.U.C., the elimination of these sources of revenues are expected to be
offset by ordered increases in Roseville Telephone's local exchange and
switched access rates. This rate restructure became effective on
February 1, 1997.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Roseville Telephone believes that the Decision contains various
miscalculations as well as legal and factual errors which will not result
in Roseville Telephone realizing the ordered annual increase in revenues of
$470,000. The Company believes the miscalculations and errors contained in
the Decision could instead result in an annual revenue reduction of up to
$1.3 million as opposed to the $470,000 annual increase ordered in the
Decision. Accordingly, in January, 1997 Roseville Telephone filed a
Petition for Modification and Application for Rehearing with the P.U.C.
requesting a reexamination and correction of the miscalculations and
errors. Roseville Telephone anticipates that hearings will be held during
1997 to address these legal and factual errors within the Decision.
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 6.98%, 8.07% and 7.99% in 1996, 1995 and
1994, respectively.
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.
Advertising Costs
The costs of advertising are expensed as incurred. Advertising costs were
$697,000 in 1996. The Company did not incur significant advertising costs
in 1995 and 1994.
Allowance for funds used during construction
The F.C.C. and the P.U.C. allow Roseville Telephone 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
The Company accounts for income taxes using the liability method, which
requires deferred tax assets and liabilities to be recorded for the
expected future tax consequences of events that have been included in the
financial statements and tax returns. Additionally, the liability method
requires adjustments of deferred tax assets and liabilities for changes in
tax laws or rates 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.
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 1996, 1995 and 1994, the Company made payments for interest and
income taxes as follows (in thousands):
1996 1995 1994
---- ---- ----
Interest (net of amounts capitalized) $2,654 $2,915 $3,606
Income taxes $12,945 $13,441 $12,589
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
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, 1996 and 1995, 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 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.
Following is a summary of the Company's investments (included in cash and
cash equivalents and short-term investments) as of December 31, 1996 and
1995 at amortized cost, which approximates fair value (in thousands):
1996 1995
---- ----
Commercial paper $ 23,261 $ 19,970
Repurchase agreements 900 1,501
U.S. government and agency securities - 1,748
Other unsecured corporate notes 801 502
--------- ---------
$ 24,962 $ 23,721
========= =========
3. INVESTMENT IN SVLP
The Company has an approximate 23.5% interest in SVLP, which is accounted
for using the equity method. SVLP operates a cellular mobile
radiotelephone system principally in California. The Company's portion of
undistributed earnings of SVLP included in consolidated shareholders'
equity at December 31, 1996 amounted to $13,429,000.
Summarized financial information for SVLP is as follows (in thousands):
Balance sheet information as of December 31,
1996 and 1995:
1996 1995
---- ----
Current assets $ 34,943 $ 31,035
Noncurrent assets, primarily cellular plant $ 122,419 $ 100,371
Current liabilities $ 44,861 $ 31,180
Noncurrent liabilities $ 962 $ 861
Income statement information for the years
ended December 31, 1996, 1995 and 1994:
1994
1996 1995 (Unaudited)
---- ---- ----
Net revenues $ 141,125 $ 124,393 $ 87,894
Costs and expenses 100,212 98,048 80,812
--------- --------- ---------
Net income $ 40,913 $ 26,345 $ 7,082
========= ========= =========
4. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1996 and 1995 consisted of
the following:
(In thousands)
1996 1995
---- ----
Unsecured term loan with a bank, with interest
payable quarterly at rates increasing from 8.26%
to 8.46% during the remaining period of the loan;
principal payments are due in equal quarterly
installments of approximately $893,000 through
April 2002. $ 18,750 $22,321
Unsecured term loan with a bank, with interest
payable quarterly at a fixed rate of 6.22%;
principal payments are due in equal quarterly
installments of approximately $536,000,
commencing in March 1997, and ending in December
2003. 15,000 15,000
-------- --------
33,750 37,321
Less current portion 5,714 3,571
-------- --------
$ 28,036 $ 33,750
======== ========
At December 31, 1996, the aggregate maturity requirements for the next five
years on all long-term debt are $5,714,000 in each year.
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, 1996 was unrestricted.
5. INCOME TAXES
The income tax provisions consist of the following components (in
thousands):
1996 1995 1994
---- ----- -----
Current expense:
Federal $ 10,900 $ 8,979 $ 10,718
State 3,460 2,807 3,160
--------- --------- ---------
14,360 11,786 13,878
Deferred expense (benefit):
Federal 319 792 (80)
State (161) 56 68
--------- --------- ---------
158 848 (12)
--------- --------- ---------
$ 14,518 $ 12,634 $ 13,866
========== ========= =========
The income tax provisions differ from those computed by using the statutory
federal tax rate (35% in all years presented) for the following reasons (in
thousands):
1996 1995 1994
---- ---- ----
Computed at statutory rates $ 12,593 $ 10,899 $ 11,977
Increase (decrease):
State taxes, net of federal benefit 2,144 1,861 2,098
Other, net (219) (126) (209)
-------- -------- --------
Income tax provision $ 14,518 $ 12,634 $ 13,866
========= ======== ========
Effective federal and state tax rate 40.4% 40.6% 40.5%
===== ===== =====
5. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31, 1996 and 1995 (in thousands):
Deferred Income Taxes
----------------------
1996 1995
---- ----
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Property, plant and equipment -
primarily due to depreciation
differences $ - $ 22,300 $ - $ 21,747
Differences in the timing of
recognition of revenues 2,428 - 2,636 -
Cellular partnership - 4,678 - 4,218
State franchise taxes 1,211 - 982 -
Other, net 2,678 519 2,091 619
-------- -------- -------- --------
Total 6,317 27,497 5,709 26,584
Less current portion 1,211 - 982 -
-------- -------- -------- -------
$ 5,106 $ 27,497 $ 4,727 $ 26,584
======== ======== ======== ========
Net long-term deferred income
tax liability $ 22,391 $ 21,857
======== ========
6. PENSION AND OTHER POSTRETIREMENT 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
6. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
government agency obligations, publicly traded stocks and bonds and
mortgage-related securities.
Net periodic pension cost for 1996, 1995 and 1994 includes the following
components (in thousands):
1996 1995 1994
---- ---- ----
Service cost-benefits earned during the period $2,939 $2,416 $2,376
Interest cost on projected benefit obligation 4,263 3,830 3,493
Actual (return) loss on plan assets (6,548) (7,741) 600
Net amortization and deferral 3,533 5,664 (2,311)
------ ------ ------
Net pension cost $4,187 $4,169 $4,158
====== ====== ======
The following table sets forth the defined benefit plan's funded status and
amounts recognized in the consolidated balance sheets as of December 31,
1996 and 1995 (in thousands):
1996 1995
---- ----
Actuarial present value of benefit obligations:
Vested benefit obligation $31,808 $30,848
Nonvested benefit obligation 7,929 7,439
------- -------
Accumulated benefit obligation $39,737 $38,287
======= =======
Plan assets at fair value $50,087 $42,022
Less projected benefit obligation (59,420) (58,774)
------- -------
Projected benefit obligation in excess of plan assets (9,333) (16,752)
Unrecognized net loss 3,016 11,125
Unrecognized transition obligation 2,444 2,711
------- -------
Accrued pension cost $(3,873) $(2,916)
======= =======
The discount rates used in determining the projected benefit obligation at
December 31, 1996 and 1995 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, 1996 and 1995. The
6. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
expected long-term rate of return on plan assets used in determining net
pension cost was 8.5% in 1996 and 1995 and 8% in 1994. A reduction in the
discount rate at December 31, 1995 increased pension cost $645,000 for
1996, which was offset by favorable plan experience.
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
amounted to $1,226,000, $1,137,000 and $1,043,000 in 1996, 1995 and 1994,
respectively. At December 31, 1996, 11% of the Company's outstanding
shares of common stock were held by the retirement supplement plan.
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. The benefit obligations
and annual postretirement benefits costs relating to these benefits are not
significant to the Company's consolidated financial position and results of
operations.
7. 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 $412,000, $394,000 and $387,000
in 1996, 1995 and 1994, respectively.
At December 31, 1996, the aggregate minimum rental commitments under
noncancellable operating lease obligations are not significant.
Other commitments
The budgeted capital expenditures for Roseville Telephone's operations for
the year ending December 31, 1997 approximate $25 million. Binding
commitments for such planned expenditures at December 31, 1996 are not
significant.
The Company periodically contributes capital to SVLP to maintain its
existing partnership interest. As of December 31, 1996, the known
commitment for capital funding to the partnership was $2.5 million.
At the close of the recent F.C.C. auctions for PCS licenses, West Coast was
the successful bidder to offer PCS services in four Basic Trading Areas
located in central California including Sacramento, Stockton, Modesto and
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Yuba City. The cost of the licenses will be $9 million, of which the
Company's share will be approximately $7.9 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.
8. 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 in Note 1 - Revenues, approximately 23%, 24% and 34% of the
Company's consolidated operating revenues in 1996, 1995, and 1994,
respectively, were derived from access charges and other charges to, and
transition contract payments from Pacific Bell pursuant to the Pacific Bell
Agreements. Approximately 8%, 7% and 10% of the Company's consolidated
operating revenues in 1996, 1995 and 1994, respectively 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.
9. PENDING ACQUISITION
On October 14, 1996, Roseville Cable entered into an Asset Purchase
Agreement (the "Purchase Agreement") with IDS/Jones Growth Partners 87-A,
LTD ("Seller") under which Roseville Cable agreed to purchase the cable
television system (the "System") currently serving approximately 18,000
subscribers in the City of Roseville, California and certain unincorporated
areas of Placer County, California. The consummation of the transaction
contemplated by the Purchase Agreement is subject to conditions, certain of
which have been satisfied, including 1) approval of the City of Roseville
and Placer County to the transfer of the franchises, 2) satisfaction of
requirements under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, 3) a waiver from the F.C.C. of certain provisions of the
Telecommunications Act of 1996 and 4) approval of the Board of Directors of
the Company and the limited partners of the Seller. Upon satisfaction of
the terms and conditions of the Purchase Agreement, Roseville Cable will
purchase substantially all of the assets of the System
9. PENDING ACQUISITION (CONTINUED)
for a purchase price of $30.9 million in cash. In accordance with the
provisions of the Purchase Agreement, $1.6 million (included in Other
Assets at December 31, 1996) of the consideration was delivered to an
escrow account in December 1996 as a refundable earnest money deposit.
While there can be no assurance that the remaining waivers and approvals
will be obtained, the Company expects that the closing of the transaction
contemplated by the Purchase Agreement will occur on or before June 30,
1997.
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.
Incorporated herein by reference from the proxy statement for the annual meeting
of the Company's shareholders to be held on June 20, 1997.
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 20, 1997.
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 20, 1997.
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
A Current Report on Form 8-K, dated October 1, 1996,
was filed under Item 5, Other Events, in connection with the
implementation of the Company's Agreement and Plan of
Reorganization which resulted in the creation of the holding
company structure.
A Current Report on Form 8-K, dated October 14, 1996,
was filed under Item 5, Other Events, announcing that
Roseville Cable Company, a recently-formed wholly-owned
subsidiary of the Company, entered into an Asset Purchase
Agreement with IDS/Jones Growth Partners 87-A, LTD to
acquire the cable television system currently serving
approximately 18,000 subscribers in the City of Roseville
and Placer County, California.
(c) Separate Financial Statements of Subsidiaries Not
Consolidated and Fifty Percent or Less Owned Persons
The financial statements of a 50% or less owned
unconsolidated company are submitted inasmuch as the
registrant's equity in the income before income taxes of
such company exceeds 20% of the total consolidated income
before income taxes of the registrant:
1. Financial Statements of Sacramento-Valley Limited
Partnership are included herewith beginning on page 47:
Page
----
Report of Independent Auditors 48
Consolidated Balance Sheets at
December 31, 1996 and 1995 49
Consolidated Statements of Income
for the Years Ended December 31, 1996,
1995 and 1994 (unaudited) 51
Consolidated Statements of Partners'
Capital for the Years Ended December 31,
1996, 1995 and 1994 (unaudited) 52
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996,
1995 and 1994 (unaudited) 53
Notes to Consolidated Financial
Statements 54
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a) 1 and 2)
PAGE
Report of independent auditors 22
Consolidated balance sheets as of December 31, 1996 and 1995 23
Consolidated statements of income for each of the three years in
the period ended December 31, 1996 25
Consolidated statements of shareholders' equity for each of the
three years in the period ended December 31, 1996 26
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1996 27
Notes to consolidated financial statements 29
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.
Sacramento-Valley Limited Partnership
and its Subsidiary
Consolidated Financial Statements
December 31, 1996 and 1995
Report of Independent Accountants
To the Partners of Sacramento-Valley Limited Partnership
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, partners' capital and cash flows present
fairly, in all material respects, the financial position of Sacramento-Valley
Limited Partnership and its subsidiary at December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Sacramento, California
February 25, 1997
SACRAMENTO-VALLEY LIMITED PARTNERSHIP
AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
December 31,
Assets 1996 1995
------ ---- ----
Current assets:
Cash $ 16 $ 4
Accounts receivable, net of allowance for doubtful
accounts of $1,305 and $1,061 23,593 20,403
Due from general partner 6,135 6,851
Inventories 3,244 2,391
Other current assets 1,955 1,386
------- -------
Total current assets 34,943 31,035
Property, plant and equipment, net of
accumulated depreciation 110,727 88,396
FCC licenses, at cost, net of accumulated amortization
of $1,873 and $1,551 10,840 11,162
Other assets 852 813
------- -------
$157,362 $131,406
======= =======
The accompanying notes are an integral part of these consolidated financial
statements
SACRAMENTO-VALLEY LIMITED PARTNERSHIP
AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS(IN THOUSANDS)(CONTINUED)
December 31,
Liabilities and Partners' Capital 1996 1995
--------------------------------- ---- ----
Current liabilities:
Accounts payable - trade $ 37,317 $ 23,749
Accrued commissions 3,895 4,902
Accrued employee benefits 2,589 1,788
Other current liabilities 1,060 741
------- -------
Total current liabilities 44,861 31,180
Other liabilities 962 861
------- -------
45,823 32,041
------- -------
Commitments and contingencies (Note 3)
Minority interest in consolidated subsidiary 136 119
------- -------
Partners' capital:
General partner 55,560 49,498
Limited partners 55,843 49,748
------- -------
111,403 99,246
------- -------
$157,362 $131,406
======= =======
The accompanying notes are an integral part of these consolidated financial
statements
SACRAMENTO-VALLEY LIMITED PARTNERSHIP
AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
For the Years Ended
December 31,
1994
1996 1995 (Unaudited)
---- ---- ----
Operating revenues $141,125 $124,393 $ 87,894
Operating expenses:
Cost of revenues:
General partner and affiliates - - 1,211
Other 14,903 14,045 9,140
Selling, general and administrative:
General partner and affiliates 6,489 7,539 6,310
Other 63,321 63,758 50,397
Depreciation and amortization 15,818 12,831 14,006
------- ------- -------
Total operating expenses 100,531 98,173 81,064
------- ------- -------
Operating income 40,594 26,220 6,830
Interest income on amounts due
from general partner 363 156 275
Minority interest in net income of
consolidated subsidiary (44) (31) (23)
------- ------- -------
Net income $40,913 $26,345 $ 7,082
======= ======= =======
Allocation of net income:
General partner $20,407 $13,140 $ 3,533
Limited partners 20,506 13,205 3,549
------- ------- -------
$40,913 $26,345 $ 7,082
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements
SACRAMENTO-VALLEY LIMITED PARTNERSHIP
AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
General
Partner Limited Partners
------- -------------------------------------------
Centennial
Cellular Roseville Evans Contel
AirTouch Telephone Telephone Cellular, Cellular,
Cellular Company Company Inc. Inc. Total
------- ------ ------- ------- ------- -------
Partners'
capital,
January 1, 1994
(unaudited) $36,821 $17,331 $17,331 $1,623 $725 $73,831
Contributions
(unaudited) 3,566 1,678 1,678 157 70 7,149
Distributions
(unaudited) (4,716) (2,220) (2,220) (208) (93) (9,457)
Net income
(unaudited) 3,533 1,662 1,662 156 69 7,082
------- ------- ------- ------- ------- -------
Partners'
capital,
December 31, 39,204 18,451 18,451 1,728 771 78,605
1994
Contributions 5,103 2,401 2,401 225 100 10,230
Distributions (7,949) (3,740) (3,740) (351) (154) (15,934)
Net income 13,140 6,184 6,184 580 257 26,345
------- ------- ------- ------- ------- -------
Partners'
capital,
December 31, 49,498 23,296 23,296 2,182 974 99,246
1995
Contributions 776 366 366 34 15 1,557
Distributions (15,121) (7,115) (7,115) (666) (296) (30,313)
Net income 20,407 9,603 9,603 900 400 40,913
------- ------- ------- ------- ------- -------
Partners'
capital,
December 31, $ 55,560 $ 26,150 $ 26,150 $ 2,450 $ 1,093 $111,403
1996
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements
SACRAMENTO-VALLEY LIMITED PARTNERSHIP
AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the Years Ended
December 31,
1994
1996 1995 (Unaudited)
---- ---- ----
Cash flows from operating activities:
Net income $40,913 $26,345 $ 7,082
Adjustments to reconcile net income to net
cash
provided by operating activities:
Minority interest in net income of
consolidated subsidiary 44 31 23
Depreciation and amortization 15,818 12,831 14,006
(Gain) loss on sale of equipment 68 (24) (23)
Changes in operating assets and
liabilities:
Accounts receivable (3,190) (5,047) (4,893)
Due from general partner 716 (5,299) 2,052
Inventories (853) (1,497) (319)
Other current assets (569) 150 (835)
Other assets (39) (21) -
Accounts payable - trade 5,547 3,513 3,588
Accrued commissions (1,007) (871) 2,226
Accrued employee benefits 801 (129) 299
Other current liabilities 319 410 (104)
Other liabilities 101 101 101
------ ------ ------
Net cash provided by operating 58,669 30,493 23,203
activities
------ ------ ------
Cash flows from investing activities:
Acquisitions of property, plant and (29,920) (24,829) (20,961)
equipment
Proceeds from sale of equipment 46 64 46
------ ------ ------
Net cash used in investing (29,874) (24,765) (20,915)
activities
------ ------ ------
Cash flows from financing activities:
Contributions from partners' 1,557 10,230 7,149
Contributions from minority interest in
consolidated subsidiary - - 20
Distributions to partners (30,313) (15,934) (9,457)
Distributions to minority interest in
consolidated subsidiary (27) (23) -
------ ------ -----
Net cash used in financing (28,783) (5,727) (2,288)
activities
------ ------ ------
Increase in cash 12 1 -
Cash at beginning of year 4 3 3
------ ------ ------
Cash at end of year $ 16 $ 4 3
------ ------ ------
Supplemental disclosure of non-cash
transactions:
Acquisitions of property and equipment
included in accounts payable-trade at $12,134 $ 4,113 $ 5,313
year end
====== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements
SACRAMENTO-VALLEY LIMITED PARTNERSHIP
AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS)
1. Summary of Partnership and Significant Accounting Policies
Organization
Sacramento-Valley Limited Partnership (the Partnership) was formed under
the laws of the State of California as the owner of a cellular mobile
telephone system. The majority of the Partnership's business is located in
Northern California. Partnership interests are as follows:
General Partner -
AirTouch Cellular, wholly owned by a subsidiary
of AirTouch Communications, Inc. 49.878%
Limited Partners:
Centennial Cellular Telephone Company
of Sacramento Valley 23.472%
Roseville Telephone Company 23.472%
Evans Cellular, Inc. 2.200%
Contel Cellular, Inc. .978%
Profits and losses are allocated based on respective Partnership interests.
Capital calls and distributions are made quarterly, at the discretion of
the general partner.
Financial statement presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. Generally accepted accounting
principles require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of the Redding
MSA Limited Partnership (RMLP) and the Partnership. At December 31, 1996
and 1995, the Partnership owned a 97.1 % interest in RMLP. All significant
intercompany transactions have been eliminated.
1. Summary of Partnership and Significant Accounting Policies (continued)
Property, plant and equipment
Property, plant and equipment is stated at cost and is depreciated using
the straight-line method over the following estimated useful lives:
Buildings 15 years
Equipment 5-10 years
Furniture, office equipment and vehicles 3-5 years
Maintenance and repairs are charged to expense as incurred. Construction
in progress represents costs incurred to construct cell sites.
Depreciation commences when a site is completed and placed in service.
Costs and related accumulated depreciation of assets sold or otherwise
disposed of are eliminated from the accounts and the related gains or
losses are included in operations.
Impairment of long-lived assets
Effective January 1, 1996, the Partnership implemented the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Under SFAS No. 121, the Partnership is required to review
long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the book value of
an asset may not be recoverable. An impairment loss would be recognized
whenever the review demonstrates that the book value of a long-lived asset
is not recoverable. The implementation of SFAS No. 121 did not have an
impact on the Partnership's financial position or results of operations.
FCC licenses
The Federal Communications Commission (FCC) issues cellular licenses that
enable domestic cellular carriers to provide service in specific Cellular
Geographic Service Areas. A cellular license is issued conditionally for
ten years. Historically, the FCC has routinely granted license renewals
providing the licensees have complied with applicable rules, policies, and
the Communications Act of 1934, as amended. The Partnership believes it
has complied and intends to continue to comply with these standards and is
amortizing the related costs using the straight-line method over 40 years.
Revenue recognition
Revenues from operations primarily consist of charges to customers for
monthly access charges, cellular airtime usage, and roamer charges.
Revenues are recognized as services are provided.
Unbilled revenues, resulting from cellular service provided from the
billing cycle date to the end of each period and from other cellular
carriers' customers using the Partnership's cellular systems for the last
1. Summary of Partnership and Significant Accounting Policies (continued)
half of each period, are estimated and recorded as receivables. Unearned
monthly access charges relating to periods after period end are deferred.
Concentration of credit risk
Due to the diversity and large number of customers within the Partnership's
service area, concentrations of credit risk with respect to trade
receivables are limited. The Partnership performs ongoing credit
evaluations of its customers and in certain circumstances obtains
refundable deposits. The Partnership maintains reserves for potential
credit losses and, historically, such losses have been within management's
expectations.
Income taxes
No provisions have been made for federal or state income taxes since such
taxes, if any, are the responsibility of the individual partners.
Advertising costs
Advertising costs, which totaled $7,372, $7,045 and $6,609 (unaudited) for
the years ended December 31, 1996, 1995 and 1994, are expensed when
incurred and are included in selling, general and administrative expenses.
Reclassifications
Certain reclassifications of the 1995 financial statements have been made
to conform to the 1996 presentation. The reclassifications have not
affected previously reported net income or partners' capital.
2. Property, Plant and Equipment
Property, plant and equipment consist of:
December 31,
1996 1995
---- ----
Land $ 37 $ 37
Buildings 23,783 19,563
Equipment 129,955 110,069
Furniture, equipment and vehicles 17,949 12,748
Construction in progress 13,611 5,685
--------- --------
185,335 148,102
Less accumulated depreciation 74,608 59,706
-------- --------
$ 110,727 $ 88,396
======== ========
2. Property, Plant and Equipment (continued)
In the first quarter of 1995, the Partnership completed a review of the
estimated service lives of certain telecommunications equipment. As a
result, the Partnership extended the estimated service lives of such
equipment from seven to ten years. The change was made to reflect more
accurately the estimated periods that such assets will remain in service
and was effective January 1, 1995. The new ten-year depreciation period is
consistent with industry standards. The change had the effect of reducing
depreciation expense and increasing net income by approximately $3,233 for
1995.
3. Commitments and Contingencies
Future minimum rental payments required under operating leases for real
estate and equipment that have initial or remaining noncancellable lease
terms in excess of one year as of December 31, 1996, are as follows:
1997 $ 3,840
1998 2,228
1999 2,000
2000 1,762
2001 1,606
Thereafter 13,191
------
$24,627
======
The lease terms range from three to twenty years. The majority of these
leases have initial terms of twenty years and generally provide a minimum
of two renewal options for five years each and for rental escalation. Rent
expense amounted to approximately $3,657, $3,409 and $2,718 (unaudited) for
the years ended December 31, 1996, 1995 and 1994.
In the normal course of business, the Partnership is subject to state
regulation of the "terms and conditions" of cellular service other than
rates and FCC regulation of cellular rates and market entry and is a
defendant in various claims. Management does not expect such regulation or
the resolution of such claims to have a material adverse effect on the
results of operations or financial position of the Partnership.
4. Related Party Transactions
The general partner is reimbursed for all Partnership expenditures made as
a general partner. As provided in the Partnership agreement, certain
system operations and selling, general and administrative expenses incurred
by the general partner on behalf of the Partnership are passed through to
the Partnership.
The Partnership participates in a centralized cash management arrangement
with the general partner. The general partner pays or charges the
Partnership monthly interest, computed using the general partner's average
borrowing rate on the amounts due to or from the Partnership.
5. Major Supplier
The Partnership purchases substantially all of its network equipment from
one supplier.
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY)
INDEX TO EXHIBITS
(Item 14(a) 3)
Method
Exhibit No. Description of Filing Page
----------- ----------- --------- ----
3(a) Articles of Incorporation of the Company, Incorporated -
together with Certificate of Amendment of by reference
Articles of Incorporation dated January 25,
1996 and Certificate of Amendment of
Articles of Incorporation dated June 21,
1996 (Filed as Exhibit 3(a) to Form 10-Q
Quarterly Report for the quarter ended
September 30, 1996)
3(b) Bylaws of the Company (Filed as Exhibit Incorporated -
3.01(b) to Form S-4 Registration Statement by reference
under the Securities Act of 1933
(Registration No. 33-58271))
10(a) Sacramento-Valley Limited Partnership Incorporated -
Agreement, dated April 4, 1984 (Filed as by reference
Exhibit I to Form 10-Q Quarterly Report of
Roseville Telephone Company for the quarter
ended March 31, 1984)
10(b) Credit Agreement of Roseville Telephone Incorporated -
Company with Bank of America National Trust by reference
and Savings Association, dated March 27,
1992, with respect to $25,000,000 term
loan. (Filed as Exhibit 10(a) to Form 10-Q
Quarterly Report of Roseville Telephone
Company for the quarter ended March 31,
1992)
10(c) Credit Agreement of Roseville Telephone Incorporated -
Company with Bank of America National Trust by reference
and Savings Association, dated January 4,
1994, with respect to $15,000,000 term loan
(Filed as Exhibit 10(c) to Form 10-K Annual
Report of Roseville Telephone Company for
the year ended December 31, 1993)
10(d) Asset Purchase Agreement, dated as of Incorporated -
October 14, 1996, by and between IDS/Jones by reference
Growth Partners 87-A LTD and Roseville
Cable Company, with respect to a plan of
acquisition (Filed as Exhibit 10(d) to Form
10-Q Quarterly Report for the quarter ended
September 30, 1996.)
ROSEVILLE COMMUNICATIONS COMPANY
(SUCCESSOR TO ROSEVILLE TELEPHONE COMPANY
INDEX TO EXHIBITS
(Item 14(a) 3)(CONTINUED)
Method
Exhibit No. Description of Filing Page
----------- ----------- --------- ----
21(a) List of subsidiaries Filed 63
herewith
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 COMMUNICATIONS COMPANY
(Registrant)
Date: March 21, 1997 By: /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer
Date: March 21, 1997 By: /s/Michael D. Campbell
Michael D. Campbell,
Executive 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: March 21, 1997 /s/ Robert L. Doyle
Robert L. Doyle,
Chairman of the Board
Date: March 21, 1997 /s/ Brian H. Strom
Brian H. Strom,
President and Chief
Executive Officer; Director
Date: March 21, 1997 /s/ Michael D. Campbell
Michael D. Campbell,
Executive Vice President
and Chief Financial Officer
Date: March 21, 1997 /s/ Thomas E. Doyle
Thomas E. Doyle,
Director
Date: March 21, 1997 /s/ Ralph E. Hoeper
Ralph E. Hoeper,
Director
Date: March 21, 1997 /s/ John R. Roberts III
John R. Roberts III,
Director
ROSEVILLE COMMUNICATIONS COMPANY
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21(a)
Percentage of
State of Voting Securities
Incorporation Owned by
Subsidiary or Organization Immediate Parent
---------- --------------- ----------------
Roseville Telephone Company California 100.00
Roseville PCS, Inc. California 100.00
West Coast PCS LLC California 89.00
RTC Communications Corporation California 100.00
Sacramento-Valley Limited Partnership California 23.47
Roseville Cable Company California 100.00
Roseville Directory Company California 100.00
Roseville Long Distance Company California 100.00
<TABLE> <S> <C>
<ARTICLE> OPUR1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 184182000
<OTHER-PROPERTY-AND-INVEST> 26147000
<TOTAL-CURRENT-ASSETS> 45918000
<TOTAL-DEFERRED-CHARGES> 2634000
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 267881000
<COMMON> 177758000
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 9043000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 186801000
0
0
<LONG-TERM-DEBT-NET> 28036000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 5714000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 47330000
<TOT-CAPITALIZATION-AND-LIAB> 267881000
<GROSS-OPERATING-REVENUE> 105566000
<INCOME-TAX-EXPENSE> 14518000
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 61076000
<OPERATING-INCOME-LOSS> 27371000
<OTHER-INCOME-NET> 8608000
<INCOME-BEFORE-INTEREST-EXPEN> 35979000
<TOTAL-INTEREST-EXPENSE> 2753000
<NET-INCOME> 21461000
0
<EARNINGS-AVAILABLE-FOR-COMM> 21461000
<COMMON-STOCK-DIVIDENDS> 8949000
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 32663000
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 0
</TABLE>
