UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-556
ROSEVILLE COMMUNICATIONS COMPANY
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(Exact name of registrant as specified in its charter)
California 68-0365195
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
211 Lincoln Street, Roseville, California 95678
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 786-6141
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Without Par Value
--------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of April 30, 2000, 15,682,547 shares of the registrant's Common Stock were
outstanding.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
Quarter Ended Quarter Ended
March 31, 2000 March 31, 1999
-------------- --------------
Operating revenues:
Local service $17,457 $16,508
Network access service 11,728 11,164
------- -------
Total rate regulated revenues 29,185 27,672
Directory advertising 3,366 3,281
Nonregulated sales and service 1,842 1,668
Other 2,604 2,359
------- -------
Total operating revenues 36,997 34,980
Operating expenses:
Cost of services and products 11,178 8,922
Customer operations and selling 4,948 4,141
General and administrative 4,662 5,109
Depreciation and amortization 6,745 4,914
------- -------
Total operating expenses 27,533 23,086
------- -------
Income from operations 9,464 11,894
Other income (expense):
Interest income 193 512
Interest expense (777) (802)
Equity in earnings of cellular partnership 3,752 1,824
Other, net 400 440
------- -------
Total other income, net 3,568 1,974
------- -------
Income before income taxes 13,032 13,868
Income taxes 5,262 5,614
------- -------
Net income $ 7,770 $ 8,254
======= =======
Basic and diluted earnings per share (1) $ .49 $ .52
===== =====
Cash dividends per share (2) $ .25 $ .25
===== =====
Shares of common stock used to
calculate earnings per share 15,816 15,815
======= =======
(1) Shares used in the computation of basic and diluted earnings per share are
based on the weighted average number of shares outstanding in each period.
(2) Cash dividends per share are based on the actual dividends per share as
declared by the Company's Board of Directors.
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
March 31, December 31,
2000 1999
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ASSETS
Current assets:
Cash and cash equivalents $ 14,127 $ 10,886
Short-term investments 1,488 6,464
Accounts receivable, net 19,368 20,399
Refundable income taxes -- 330
Inventories 2,081 2,510
Deferred income tax asset 1,625 1,625
Prepaid expenses and other current assets 1,036 251
-------- --------
Total current assets 39,725 42,465
Property, plant and equipment, net 250,868 238,908
Investments and other assets:
Cellular partnership 36,036 38,426
PCS licenses, at cost, net 8,625 8,737
Deferred charges and other assets 4,279 4,651
-------- --------
48,940 51,814
-------- --------
$339,533 $333,187
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,143 $ 2,143
Accounts payable and accrued liabilities 12,008 6,265
Payables to telecommunications entities 6,160 6,353
Advance billings and customer deposits 3,190 2,014
Accrued pension cost 6,249 5,128
Accrued compensation 4,993 4,253
-------- --------
Total current liabilities 34,743 26,156
Long-term debt 45,892 46,428
Deferred credits and other liabilities 31,822 31,747
Minority interest in subsidiary 1,172 1,256
Shareholders' equity:
Common Stock, without par value;
100,000 shares authorized,
15,692 shares issued and
outstanding (15,828 shares in 1999) 186,090 189,554
Retained earnings 39,814 38,046
-------- --------
Total shareholders' equity 225,904 227,600
-------- --------
$339,533 $333,187
======== ========
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(Amounts in thousands)
Quarter Quarter
Ended Ended
March 31, March 31,
---------- ---------
Net cash provided by operating activities $ 21,843 $ 15,879
Cash flows from investing activities:
Capital expenditures for property, plant
and equipment (18,593) (9,621)
Purchases of held-to-maturity investments (24) (1,522)
Maturities of held-to-maturity investments 5,000 1,500
Investment in cellular partnership (3,078) --
Return of investment in cellular
partnership 9,220 410
Refundable deposit (800) --
Changes in deferred charges and other
assets 48 49
-------- --------
Net cash used in investing activities (8,227) (9,184)
Cash flows from financing activities:
Principal payments of long-term debt (536) (536)
Dividends paid (3,960) (3,954)
Repurchase of common stock (5,879) --
-------- --------
Net cash used in financing activities (10,375) (4,490)
-------- --------
Increase in cash and cash equivalents 3,241 2,205
Cash and cash equivalents at beginning of
period 10,886 38,840
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Cash and cash equivalents at end of
period $ 14,127 $ 41,045
======== ========
See accompanying notes.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements of Roseville
Communications Company (the "Company") have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission
(the "SEC") and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly the results for the interim periods shown. Certain information
and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules
and regulations and generally accepted accounting principles applicable
for interim periods. Management believes that the disclosures made are
adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's 1999 Annual Report to Shareholders.
The Company is a holding company with subsidiaries operating in the
communications services industry. The Company's wholly-owned principal
operating subsidiary is Roseville Telephone Company ("Roseville
Telephone"). Roseville Directory Company ("RCS Directories"), Roseville
Long Distance Company ("Roseville Long Distance"), RCS Internet
Services ("RCS Internet") and Roseville PCS, Inc. are each wholly owned
subsidiaries of the Company. Roseville PCS, Inc. is the manager of and
has an approximate 97.6% interest in West Coast PCS LLC (d.b.a. "RCS
Wireless"), which was formed for the purpose of providing wireless
personal communications services ("PCS"). The Company expects that the
sources of its revenues and its cost structure may be different in
future periods as a result of its entry into these communications
markets.
The Company's consolidated financial statements have been prepared in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 71, "Accounting for the Effects of Certain Types of Regulation",
which requires companies meeting its 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 California Public
Utilities Commission's ("P.U.C.") 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, non-cash charge would result. The
approximate non-cash charge for Roseville Telephone's net regulatory
asset at December 31, 1999 was between $9,900 and $17,100, 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.
2. Investment in Sacramento-Valley Limited Partnership ("SVLP")
The Company has an approximate 23.5% interest in SVLP, which operates a
cellular mobile radiotelephone system principally in California.
Summarized unaudited income statement information for the quarters
ended March 31, 2000 and 1999 for SVLP is as follows:
Quarter Ended Quarter Ended
March 31, 2000 March 31, 1999
-------------- --------------
Net revenues $ 49,867 $ 41,276
Costs and expenses 33,881 33,507
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Net Income $ 15,986 $ 7,769
======== ========
Commencing in July 1998, there have been a series of communications
between the partners of SVLP regarding the ownership and operation of PCS
licenses in territories served by SVLP and the allegation by its general
partner AirTouch Cellular ("AirTouch") that such ownership and operation
would cause a partner of SVLP to be in violation of the terms of SVLP's
Agreement Establishing Limited Partnership, as amended ("Partnership
Agreement"). In addition to the Company's ownership of PCS licenses, an
affiliate of AirTouch and one other limited partner also own such
licenses.
On March 26, 1999, the Company filed an action against AirTouch in the
United States District Court for the Eastern District of California
requesting declaratory relief, injunctive relief and damages for
violation of the Sherman Act, the California Cartwright Act, breach of
contract, breach of fiduciary duty, intentional and negligent
interference with economic advantage and violation of California's unfair
competition act. AirTouch answered the complaint, and filed counterclaims
against the Company for breach of contract, breach of fiduciary duty,
breach of the covenant of good faith and fair dealing, fraud and deceit,
negligent misrepresentation, misappropriation of trade secrets, violation
of the California Business and Professions Code, declaratory relief and
contract reformation. In addition, AirTouch also sought to compel
arbitration to resolve the dispute.
The Company and AirTouch have previously reached an agreement on a
resolution of the dispute, including the dismissal of the litigation,
which would permit the Company to continue to provide PCS subject to the
restriction on the provision of certain SVLP information to the Company.
AirTouch now refuses to implement the agreement, and the Company has
filed a Motion to Enforce Settlement, and requested an Evidentiary
Hearing, which request was granted and the Evidentiary Hearing was
concluded on April 5, 2000, with a ruling expected in May 2000. If the
Company prevails on its Motion to Enforce Settlement, the litigation will
be concluded. Even if the Motion is unsuccessful, the Company will be
able to continue to pursue its legal remedies. If the dispute is not
resolved, the Company does not believe that these proceedings impair the
recoverability of its $36,036 investment in SVLP as of March 31, 2000.
<PAGE>
3. BUSINESS SEGMENTS
The Company has two reportable business segments: Telecom and PCS. The
Telecom segment primarily provides local, network access and long
distance services, directory advertising services, internet services
and the sale of non-regulated products and services principally to
customers residing in Roseville Telephone's service area. Additionally,
the Telecom segment includes Roseville Telephone's investment in SVLP.
The PCS segment provides personal communications services and the sale
of related communications equipment. The Company evaluates the
performance of these business segments based on income from operations.
These segments are strategic business units that offer different
products and services. The accounting policies of these segments are
the same as those described in Note 1 - Summary of Significant
Accounting Policies. The Company accounts for intersegment sales and
transfers at prevailing market rates. Intersegment sales and transfers
between the Telecom and PCS segments are not significant. The Company's
business segment information is as follows:
At March 31, 2000 or the three months ended
Telecom PCS Consolidated
------- ----- -----------
Operating revenues $ 36,775 $ 222 $ 36,997
Depreciation and amortization 5,669 1,076 6,745
Income from operations 12,687 (3,223) 9,464
Assets 293,339 46,194 339,533
At March 31, 1999 or the three months ended
Telecom PCS Consolidated
------- ----- ------------
Operating revenues $ 34,972 $ 8 $ 34,980
Depreciation and amortization 4,910 4 4,914
Income from operations 12,463 (569) 11,894
Assets 302,226 21,999 324,225
4. PENDING ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the staff's views
in applying generally accepted accounting principles to revenue
recognition in financial statements and is effective for the Company in
the second quarter of 2000. The Company is currently evaluating the
impact that SAB 101 has on its various revenue recognition policies,
including those pertaining to nonrefundable activation and installation
fees, which the Company currently recognizes as revenue upon completion
of the service. The F.C.C. has not yet issued an order indicating the
extent or manner in which telephone companies should adopt the
provisions of SAB 101. Accordingly, the Company cannot yet fully
evaluate the impact of SAB 101 on its consolidated financial
statements.
The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
is effective for fiscal years beginning after June 15, 2000. This
statement standardized the accounting for derivatives and hedging
activities and requires that all derivatives be recognized in the
statement of financial position as either assets or liabilities at fair
value. Changes in the fair value of derivatives that do not meet the
hedge accounting criteria are to be reported in earnings. The Company
is required to adopt this accounting pronouncement in 2001; however,
management believes it will not have a significant impact on the
Company's consolidated financial statements.
5. LINE OF CREDIT
In March 2000, the Company entered into a business loan agreement with
a bank for a $30,000 line of credit with a term of three years. There
were no amounts outstanding under this line of credit at March 31,
2000.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
PART I
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. (Amounts in thousands)
Information included in the Company's quarterly report on From 10-Q contains
"forward looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995, that are based on current expectations, estimates and
projections. Statements that are not historical facts, including statements
about the beliefs and expectations of the Company and its subsidiaries, are
forward looking statements. Such forward looking statements are subject to a
number of risks, assumptions and uncertainties that could cause the Company's
actual results to differ materially from those projected in such forward looking
statements.
Important factors that could cause actual results to differ from those set forth
in the forward looking statements include, but are not limited to: advances in
telecommunications technology, changes in the telecommunications regulatory
environment, changes in competition in markets in which the Company operates,
the availability of future financing, changes in the demand for services and
products, new product and service development and introductions, pending and
future litigation and unanticipated changes in the growth of PCS operations. The
Company does not undertake any obligation to update any forward looking
statements whether as a result of new information, future events or otherwise.
Results of Operations
General
Roseville Communications Company (the "Company") is a holding company with
subsidiaries operating in the Telecommunications ("Telecom") and Personal
Communications Services ("PCS") segments.
The Telecom segment is aligned with specific subsidiaries of the Company.
Roseville Telephone, a wholly-owned subsidiary of the Company, 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
Directory Company ("RCS Directories"), a wholly-owned subsidiary of the Company,
produces, publishes and distributes Roseville Telephone's directory including
the sale of yellow pages advertising previously provided by an unaffiliated
company. RCS Directories is also engaged in the business of producing,
publishing and distributing directories in other Northern California communities
outside of Roseville Telephone's service area. The Company's wholly-owned
subsidiary, Roseville Long Distance Company ("Roseville Long Distance"), is
engaged in the provision of long distance services. The Company's wholly-owned
subsidiary, RCS Internet Services ("RCS Internet"), is engaged in the provision
of high speed internet services.
The PCS segment consists of the Company's wholly-owned subsidiary, Roseville
PCS, Inc., which is the manager of and has an approximate 97.6% interest in West
Coast PCS LLC (d.b.a. "RCS Wireless"), which was formed together with another
entity not controlled by the Company for the purpose of providing PCS.
The Company expects that the sources of its revenues and its cost structure may
be different in future periods as a result of its entry into new communications
markets.
<PAGE>
Operating Revenues
The Telecom segment derives its revenue from rate regulated services, long
distance services, directory advertising services, internet services and the
sale of non-regulated products and services. The PCS segment derives its revenue
from the provision of wireless digital personnel communication services and the
sale of related communications equipment.
Revenues from rate regulated services, which include local service and network
access service generated by Roseville Telephone, constitute approximately 79% of
the Company's total operating revenues for the quarters ended March 31, 2000 and
1999. Rate regulated revenues are derived from various sources, including
billings to business and residential subscribers for basic exchange services,
extended area service charges, surcharges mandated by the California Public
Utilities Commission (the "P.U.C."), billings to Pacific Bell, long distance
carriers, competitive access providers and subscribers for network access
services; interstate settlement revenues from the National Exchange Carrier
Association; and support payments from the interstate Universal Service Fund.
Roseville Telephone bills Pacific Bell various charges for certain local service
and network access service revenues pursuant to certain agreements described
below. Of the Company's total revenues for the quarters ended March 31, 2000 and
1999, 11% and 12%, respectively, were recorded under these agreements. In March
1999, Pacific Bell expressed interest in withdrawing from the designated carrier
plan ("DCP") for Roseville Telephone's toll traffic and to enter into a new,
permanent compensation arrangement for extended area service ("EAS"). The DCP is
a compensation arrangement between Roseville Telephone and Pacific Bell for
certain intraLATA toll services. Pacific Bell also pays Roseville Telephone
$11,500 per year for EAS pursuant to a Settlement Transition Agreement ("STA").
Pacific Bell and Roseville Telephone have begun to negotiate the terms of
possible modifications to these agreements. In addition, Roseville Telephone has
filed an application with the P.U.C. for revenues to replace potential changes
in Pacific Bell's payments. In January 2000, Pacific Bell filed a petition for
arbitration pursuant to the Telecommunications Act to establish an
interconnection agreement for extended area service which, if successful, might
have eliminated Pacific Bell's obligation to make payments pursuant to the STA
before the P.U.C. orders replacement revenues. This petition was withdrawn
pursuant to an agreement between Pacific Bell and Roseville Telephone. Pacific
Bell filed a second petition for arbitration on April 27, 2000. Roseville
Telephone disagrees with the authority on which Pacific Bell relied for its
filing and, in addition, in February 2000, filed a separate application with the
P.U.C. to suspend any such proceedings pending an order on the prior application
filed by Roseville Telephone to obtain revenues to replace any changes in
Pacific Bell's payments to Roseville Telephone. Roseville Telephone anticipates
that additional proceedings and negotiations will be held to address these
issues, the effects of which on Roseville Telephone cannot yet be determined.
In December 1996, the P.U.C. issued a decision in connection with Roseville
Telephone's general rate proceeding which authorized Roseville Telephone to
implement a New Regulatory Framework ("NRF") for services furnished within the
State of California in order to accommodate market and regulatory movement
toward competition and greater pricing flexibility. Under the NRF, Roseville
Telephone is subject to ongoing monitoring and reporting requirements, including
a sharing mechanism whereby Roseville Telephone may be required to share
earnings with customers based on its earned annual rate-of-return. As of
December 31, 1999 and 1998, Roseville Telephone had no obligation to share
earnings with customers.
In accordance with the requirements of its general rate case order, Roseville
Telephone filed an application for review of its NRF in March 1999. This
proceeding will consider modifications to the NRF structure, including potential
changes to the current monitoring and reporting requirements, the earnings
sharing mechanism, promotional and pricing flexibility, and related matters. In
addition, the P.U.C. Office of Ratepayer Advocates ("ORA") conducted a
verification audit of Roseville Telephone's non-regulated and affiliated
transactions pursuant to the general rate case, the NRF framework and other
P.U.C. orders. The ORA report was submitted in the NRF proceeding and
evidentiary hearings on how this impacts the NRF framework were completed on
April 21, 2000. During these hearings, ORA claimed, among other things, that the
results of the verification audit allegedly show that Roseville Telephone has
misallocated costs and revenues between regulated and non-regulated accounts. As
a result, ORA recommends retroactive rate adjustments and continuation of the
sharing mechanism. The Company disagrees with the audit findings and ORA's
recommendations to the P.U.C. The Company anticipates a P.U.C. decision in the
NRF proceeding later this year, the effect of which on Roseville Telephone
cannot yet be determined.
Rate regulated revenues increased $1,500, or 5%, for the quarter ended March 31,
2000 compared to the same period in 1999 due to the combined effects of 1)
access line growth of 4%, 2) improved penetration in custom calling, voice mail
and other enhanced network services due to increased marketing activities, 3)
increased network access revenues due to larger minute-of-use volumes, expanded
demand for dedicated access services and the introduction of digital subscriber
line services in August of 1999. These increases were offset by a one-time
positive adjustment of $812 relating to interstate access settlements in the
first quarter of 1999.
Directory advertising revenues increased $85 due to an increase in advertising
sales relating to Roseville Telephone's directory. Other operating revenues
increased $245 due primarily to an increase in the market penetration of long
distance services and the introduction of wireless and internet services in June
and August of 1999, respectively.
Operating Expenses:
Operating expenses increased $4,400, or 19%, for the quarter ended March 31,
2000 compared to the same period in 1999. Cost of services and products
increased $2,300 due primarily to an increase in tower rents related to RCS
Wireless and transport costs associated with long distance services.
Customer operations and selling expense increased $807 due to increased labor
costs relating to an increase in personnel and marketing and customer service
costs associated with long distance services, wireless services, and internet
services.
General and administrative costs decreased $447 due primarily to the
capitalization of software in accordance with Statement of Position 98-1 ("SOP
98-1"). In June 1999, the Company adopted SOP 98-1 which required the
capitalization of certain costs incurred in connection with developing or
obtaining internal use software. Prior to adoption of SOP 98-1, the Company
expensed all internal use software related costs as incurred. Had the Company
adopted SOP 98-1 on January 1, 1999, general and administrative costs would have
increased $106 for the quarter ended March 31, 2000 compared to the same period
in 1999.
Depreciation and amortization costs increased $1,800, or 37%, compared to the
same period in 1999 due primarily to the amortization of PCS licenses commencing
in June 1999 and increased telecom and PCS investment in property, plant and
equipment.
Other Income, Net:
Other income, net, increased $1,600 for the quarter ended March 31, 2000
compared to the same period in 1999. The increase was primarily due to an
increase of $1,900, or 106%, in income attributable to the Company's interest in
SVLP. Consistent with historical trends of SVLP's operating results, the Company
believes that the income attributable to SVLP for the remaining quarters of 2000
may be lower than that recognized in the first quarter of 2000.
Income Taxes:
Income taxes for the quarter ended March 31, 2000 decreased $352 compared to the
same period in 1999 due primarily to the decrease in income subject to tax. The
effective federal and state income tax rate was approximately 40.4% and 40.5%
for the quarters ended March 31, 2000 and 1999, respectively.
Liquidity and Capital Resources
As reflected in the Condensed Consolidated Statements of Cash Flows, net cash
provided by operating activities was $21,800 and $15,900 for the quarters ended
March 31, 2000 and 1999, respectively. During the quarter ended March 31, 2000,
the Company used cash flows from operations and existing cash and cash
equivalents to fund 1) capital expenditures of $18,600 pertaining to ongoing
plant construction projects, 2) common stock repurchases of $6,000, 3) dividends
of $4,000, 4) principal payments of $536 to retire long-term debt and 5) a
deposit of $800 to participate in the auction for Local Multipoint Distribution
System ("LMDS") broadband wireless licenses.
The Company's most significant use of funds for the balance of 2000 is expected
to be for 1) remaining budgeted capital expenditures of approximately $24,000
and $10,000 relating to Roseville Telephone and RCS Wireless respectively, 2)
remaining scheduled payments of long-term debt of $1,600 3) anticipated cash
dividends of $11,900 and 4) net operating expenditures of up to $11,900 relating
to RCS Wireless.
In February 2000, the Board of Directors authorized the repurchase of up to
1,000 shares of Company common stock. The shares are purchased from time to time
in the open market or through privately negotiated transactions subject to
overall financial and market conditions. As of March 31, 2000, approximately 147
shares of common stock have been repurchased. As a result, the Company has
authorization from the Board of Directors to repurchase 853 additional
outstanding shares.
In March 2000, the Company entered into a business loan agreement with a bank
for a $30,000 line of credit with a term of three years. There were no amounts
outstanding under this line at March 31, 2000.
In addition to net cash provided by operations and existing cash, cash
equivalents and short-term investments, as well as the Company's borrowing
capacity under the aforementioned business loan agreement, the Company may
consider other sources of external financing for the purposes of funding future
capital expenditures and potential investments.
Other Financial Information
As discussed in the notes to the condensed consolidated financial statements,
the Company's consolidated financial statements have been prepared in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting
for the Effects of Certain Types of Regulation", which require companies meeting
its 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, non-cash charge would result. The
approximate non-cash charge for Roseville Telephone's net regulatory asset at
December 31, 1999 was between $9,900 and $17,100, 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements and is
effective for the Company in the second quarter of 2000. The Company is
currently evaluating the impact that SAB 101 has on its various revenue
recognition policies, including those pertaining to nonrefundable activation and
installation fees, which the Company currently recognizes as revenue upon
completion of the service. The F.C.C. has not yet issued an order indicating the
extent or manner in which telephone companies should adopt the provisions of SAB
101. Accordingly, the Company cannot yet fully evaluate the impact of SAB 101 on
its consolidated financial statements.
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for fiscal
years beginning after June 15, 2000. This statement standardized the accounting
for derivatives and hedging activities and requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities at fair value. Changes in the fair value of derivatives that do not
meet the hedge accounting criteria are to be reported in earnings. The Company
is required to adopt this accounting pronouncement in 2001; however, management
believes it will not have a significant impact on the Company's consolidated
financial statements.
<PAGE>
PART II
Item 1. Regulatory and Legal Proceedings.
---------------------------------
Except for the proceedings described below, the Company is not aware of any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which it is a party or to which any of its
property is subject.
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.
In 1996, Congress passed the Telecommunications Act of 1996 (the "Act") which
significantly changed the regulatory environment for telecommunications
companies. Beginning in 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. In 1997, the United
States Court of Appeals for the Eighth Circuit found that the F.C.C. exceeded
its jurisdiction in connection with some of its orders implementing the Act. In
early 1999, the United States Supreme Court reversed the Eighth Circuit's
determinations that the F.C.C. lacked authority to implement the Act by adopting
local pricing standards or to bar incumbent local exchange carriers from
separating already-combined unbundled network elements ("UNEs") before offering
them to competitors. The Supreme Court also reinstated the agency's
"pick-and-choose" rules. However, the Supreme Court invalidated the F.C.C.'s
original list of UNEs, saying the F.C.C. had failed to determine that those
elements were necessary for competitors to offer service. The F.C.C. has opened
a proceeding to review this issue in light of the Supreme Court's order, and on
September 15, 1999, adopted an order identifying UNEs that incumbent local
exchange carriers ("ILECs") must make available to competitors.
In 1997, the F.C.C. adopted orders on access charge reform and a new universal
service program. The F.C.C.'s order on access charge reform generally removed
from minute-of-use access charges costs that are not incurred on a
per-minute-of-use basis. The F.C.C. also adopted changes to its interstate rate
structure for transport services which are designed to move the charges for
these services to more cost-based levels. The F.C.C.'s order on universal
service reformed the existing system of universal service in a manner that will
permit local telephone markets to move to a competitive arena. The order on
universal service provides continued support to low-income consumers and will
help to connect eligible schools, libraries and rural health care providers to
the global telecommunications network. In 1999, the United States Court of
Appeals for the Fifth Circuit issued an opinion addressing challenges to the
F.C.C.'s universal service order. The Court upheld the F.C.C.'s authority to
implement its program for funding telecommunications services for schools and
libraries and rejected challenges on technical issues such as the F.C.C.'s use
of models in determining universal service. The Court ruled, however, that the
F.C.C. can't use intrastate revenues in determining a carriers' universal
service contribution and rejected the so-called flowback method of collecting
universal service contributions through access charges. To implement the Fifth
Circuit's decision, the F.C.C. adopted an order in October 1999, making
revisions to its rules, effective on November 1, 1999, requiring, among other
things, that ILECs recover their universal service contributions either through
interstate access charges or interstate end-user charges based on interstate and
international end-user telecommunications revenues only. On October 21, 1999,
the Commission adopted two orders in connection with universal service reform.
In the first order, the F.C.C. completed development of the cost model to be
used as a basis for federal universal service support. In the second order, the
F.C.C. adopted a methodology based on the results of the cost model to calculate
the level of support for non-rural carriers serving high-cost areas. In
addition, the F.C.C. held that the amount of support provided to carriers on a
per-line basis by the forward-looking mechanism will be no less than the amount
of support provided to the carrier by the present mechanism but that federal
universal service support will be portable among all eligible telecommunications
carriers. If a competitor acquires a subscriber line from an incumbent receiving
support, the competitor will receive the incumbent's federal universal service
support for that line.
Given the Act's relatively recent enactment, the ongoing actions of the F.C.C.
to implement the Act, and the various ongoing legal challenges considering the
validity of these F.C.C. orders, it is not yet possible to determine fully the
impact of the Act and related F.C.C. regulations on Roseville Telephone's
operations. The Company's financial condition and results of operations have
been and will be affected by recent and future proceedings before the P.U.C. and
F.C.C. Pending before the F.C.C. and P.U.C. are proceedings which are
considering:
o The rules governing the opening of markets to competition
o 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
o 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.
Commencing in July 1998, there have been a series of communications between the
partners of SVLP regarding the ownership and operation of PCS licenses in
territories served by SVLP and the allegation by its general partner AirTouch
Cellular ("AirTouch") that such ownership and operation would cause a partner of
SVLP to be in violation of the terms of SVLP's Agreement Establishing Limited
Partnership, as amended ("Partnership Agreement"). In addition to the Company's
ownership of PCS licenses, an affiliate of AirTouch and one other limited
partner also own such licenses.
On March 26, 1999, the Company filed an action against AirTouch in the United
States District Court for the Eastern District of California requesting
declaratory relief, injunctive relief and damages for violation of the Sherman
Act, the California Cartwright Act, breach of contract, breach of fiduciary
duty, intentional and negligent interference with economic advantage and
violation of California's unfair competition act. AirTouch answered the
complaint, and filed counterclaims against the Company for breach of contract,
breach of fiduciary duty, breach of the covenant of good faith and fair dealing,
fraud and deceit, negligent misrepresentation, misappropriation of trade
secrets, violation of the California Business and Professions Code, declaratory
relief and contract reformation. In addition, AirTouch also sought to compel
arbitration to resolve the dispute.
The Company and AirTouch have previously reached an agreement on a resolution of
the dispute, including the dismissal of the litigation, which would permit the
Company to continue to provide PCS subject to the restriction on the provision
of certain SVLP information to the Company. AirTouch now refuses to implement
the agreement, and the Company has filed a Motion to Enforce Settlement, and
requested an Evidentiary Hearing, which request was granted and the Evidentiary
Hearing was concluded on April 5, 2000, with a ruling expected in May 2000. If
the Company prevails on its Motion to Enforce Settlement, the litigation will be
concluded. Even if the Motion is unsuccessful, the Company will be able to
continue to pursue its legal remedies. If the dispute is not resolved, the
Company does not believe that these proceedings impair the recoverability of its
$36,036 investment in SVLP.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) See Index to Exhibits.
b) No reports on Form 8-K were filed during the first quarter of 2000.
<PAGE>
ROSEVILLE COMMUNICATIONS COMPANY
INDEX TO EXHIBITS
(Item 6 (a))
Method
Description of Filing Page
----------- ----------- ----
3(a) Articles of Incorporation of the Company, Incorporated -
together with Certificate of Amendment by reference
of 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 Incorporated -
by reference
4(a) Shareholder Rights Plan(Filed as Exhibit Incorporated -
2.1 to Form 8-A Registration Statement by reference
under the Securities Act of 1934)
10(a) Sacramento-Valley Limited Partnership Incorporated -
Agreement, dated April 4, 1984 (Filed by reference
as 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 by reference
Trust 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) Note Purchase Agreement for Series A Incorporated -
Senior Notes in the aggregate amount of by reference
$40,000,000 dated December 9, 1998 (Filed as
Exhibit 10(c) to Form 10-K Annual Report
of Roseville Communications Company for
the year ended December 31, 1998)
10(d) Operating Agreement of West Coast PCS Incorporated -
LLC (Filed as Exhibit 10(d) to Form by reference
10-K Annual Report of Roseville
Communications Company for the year
ended December 31, 1997)
10(e) 1999 Restricted Stock Bonus Plan (Filed Incorporated -
as Exhibit 10(e) to Form 10-K Annual by reference
Report of Roseville Communications
Company for the year ended
December 31, 1998)
10(f) 2000 Equity Incentive Plan Incorporated -
by reference
10(g) Business Loan Agreement of Roseville Filed 21
Communications Company with Bank of herewith
America, dated March 15, 2000
21(a) List of subsidiaries Incorporated -
by reference
27 Financial Data Schedule Filed -
herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROSEVILLE COMMUNICATIONS COMPANY
(Registrant)
Date: May 4, 2000 By: /s/BRIAN H. STROM
-----------------
Brian H. Strom,
President and Chief
Executive Officer
Date: May 4, 2000 By: /s/MICHAEL D. CAMPBELL
----------------------
Michael D. Campbell,
Executive Vice-President
and Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROSEVILLE COMMUNICATIONS COMPANY
(Registrant)
Date: May 4, 2000 By: ___________________________
Brian H. Strom,
President and Chief
Executive Officer
Date: May 4, 2000 By: ___________________________
Michael D. Campbell,
Executive Vice-President
and Chief Financial Officer
BANK OF AMERICA
BUSINESS LOAN AGREEMENT
This Agreement dated as of March 15, 2000, is between Bank of America, N A (the
"Bank") and
Roseville Communications Company (the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Thirty Million and 00/100 Dollars ($30,000,000.00).
(b) This is a revolving line of credit providing for cash advances.
During the availability period, the Borrower may repay
principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
advances under the line of credit to exceed the Commitment.
1.2 Availability Period. The line of credit is available between the date of
this Agreement and June 1, 2003, or such earlier date as the availability may
terminate as provided in this Agreement (the "Expiration Date").
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Prime Rate minus 0.5 percentage points.
(b) The Prime Rate is the rate of interest publicly announced from time to
time by the Bank as its Prime Rate. The Prime Rate is set by the Bank
based on various factors, including the Bank's costs and desired return,
general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans to its
customers at, above, or below the Prime Rate. Any change in the Prime
Rate shall take effect at the opening of business on the day specified
in the public announcement of a change in the Bank's Prime Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on March 1, 2000, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date. Any interest period for an optional interest rate (as
described below) shall expire no later than the Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on the Bank's
Prime Rate, the Borrower may elect the optional interest rates listed below
during interest periods agreed to by the Bank and the Borrower. The optional
interest rates shall be subject to the terms and conditions described later in
this Agreement. Any principal amount bearing interest at an optional rate under
this Agreement is referred to as a "Portion." The following optional interest
rates are available:
(a) Short Term Fixed Rates.
(b) the LIBOR Rate plus 0.75 percentage points
2. OPTIONAL INTEREST RATES
2.1 Optional Rates Each optional interest rate is a rate per year. Interest will
be paid on the last day of each interest period, and on the first day of each
month during the interest period. At the end of any interest period, the
interest rate will revert to the rate based on the Prime Rate, unless the
Borrower has designated another optional interest rate for the Portion. No
Portion will be converted to a different interest rate during the applicable
interest period. Upon the occurrence of an event of default under this
Agreement, the Bank may terminate the availability of optional interest rates
for interest periods commencing after the default occurs.
2.2 Short Term Fixed Rate. The election of Short Term Fixed Rates shall be
subject to the following terms and requirements:
(a) The `Short Term Fixed Rate" means the fixed interest rate the Bank and
the Borrower agree will apply during the applicable interest period.
(b) The interest period during which the Short Term Fixed Rate will be in
effect will be one year or less.
(c) Each Short Term Fixed Rate Portion will be for an amount not less than
the following:
(i) for interest periods of 91 days or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of between 30 days and 90 days,
One Million Dollars ($1,000,000).
(iii) for interest periods of between 2 days and 29 days, an amount
which, when multiplied by the number of days in the applicable
interest period, is not less than thirty million (30,000,000)
dollar-days.
(iv) for interest periods of 1 day, Fifteen Million Dollars
($15,000,000).
(d) Each prepayment of a Short Term Fixed Rate Portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid, and a prepayment fee
as described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement.
(e) The prepayment fee shall be in an amount sufficient to compensate the
Bank for any loss, cost or expense incurred by it as a result of the
prepayment, including any loss of anticipated profits and any loss or
expense arising from the liquidation or reemployment of funds obtained
by it to maintain such Portion or from fees payable to terminate the
deposits from which such funds were obtained. The Borrower shall also
pay any customary administrative fees charged by the Bank in connection
with the foregoing. For purposes of this paragraph, the Bank shall be
deemed to have funded each Portion by a matching deposit or other
borrowing in the applicable interbank market, whether or not such
Portion was in fact so funded.
2.3 LIBOR Rate. The election of LIBOR Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in effect will
be one, two, three, four, five, six, seven, eight, nine, ten, eleven, or
twelve months. The first day of the interest period must be a day other
than a Saturday or a Sunday on which the Bank is open for business in
New York and London and dealing in offshore dollars (a "LIBOR Banking
Day"). The last day of the interest period and the actual number of days
during the interest period will be determined by the Bank using the
practices of the London inter-bank market.
(b) Each LIBOR Rate Portion will be for an amount not less than the
following:
(i) for interest periods of four months or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of one, two or three months, One Million
Dollars ($1,000,000).
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
-------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the average per annum
interest rate at which U.S. dollar deposits would be offered for
the applicable interest period by major banks in the London
inter-bank market, as shown on the Telerate Page 3750 (or such
other page as may replace it) at approximately 11:00 am. London
time two (2) London Banking Days before the commencement of the
interest period. If such rate does not appear on the Telerate
Page 3750 (or such other page that may replace it), the rate for
that interest period will be determined by such alternate method
as reasonably selected by Bank. A "London Banking Day" is a day
on which the Bank's London Branch is open for business and
dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion no later
than 12:00 noon time on the LIBOR Banking Day preceding the day on which
the London Inter-Bank Offered Rate will be set, as specified above. For
example, if there are no intervening holidays or weekend days in any of
the relevant locations, the request must be made at least three days
before the LIBOR Rate takes effect.
(e) The Borrower may not elect a LIBOR Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below.
A "prepayment" is a payment of an amount on a date earlier than the
scheduled payment date for such amount as required by this Agreement.
(g) The prepayment fee shall be in an amount sufficient to compensate the
Bank for any loss, cost or expense incurred by it as a result of the
prepayment, including any loss of anticipated profits and any loss or
expense arising from the liquidation or reemployment of funds obtained
by it to maintain such Portion or from fees payable to terminate the
deposits from which such funds were obtained. The Borrower shall also
pay any customary administrative fees charged by the Bank in connection
with the foregoing. For purposes of this paragraph, the Bank shall be
deemed to have funded each Portion by a matching deposit or other
borrowing in the applicable interbank market, whether or not such
Portion was in fact so funded.
(h) The Bank will have no obligation to accept an election for a LIBOR Rate
Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of a LIBOR Rate Portion are
not available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate Portion.
3. FEES AND EXPENSES
3.1 Fees.
(a) Unused commitment fee. The Borrower agrees to pay a fee on any
difference between the Commitment and the amount of credit it actually
uses, determined by the weighted average credit outstanding during the
specified period. The fee will be calculated at 0.125% per year. This
fee is due on March 31, 2000, and on the last day of each following
quarter until the expiration of the availability period.
3.2 Expenses. The Borrower agrees to immediately repay the Bank for expenses
that include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees and documentation fees.
3.3 Reimbursement Costs.
(a) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys fees, including any allocated costs of the Bank's
in-house counsel.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Requests for Credit. Each request for an extension of credit will be made in
writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
4.2 Disbursements and Payments. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
<PAGE>
4.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates given, or
purported to be given, by any one of the individuals authorized to sign
loan agreements on behalf of the Borrower, or any other individual
designated by any one of such authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 12337-22696, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower will indemnify and hold the Bank harmless from all
liability, loss, and costs in connection with any act resulting from
telephone or telefax instructions the Bank reasonably believes are made
by any individual authorized by the Borrower to give such instructions.
This paragraph will survive this Agreement's termination, and will
benefit the Bank and its officers, employees, and agents.
4.4 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 12337-22696, or such other of the Borrower's accounts
with the Bank as designated in writing by the Borrower (the "Designated
Account") on the date each payment of interest and any fees from the
Borrower becomes due (the "Due Date"). If the Due Date is not a banking
day, the Designated Account will be debited on the next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date
(the "Billed Amount"). The calculation will be made on the assumption
that no new extensions of credit or payments will be made between the
date of the billing statement and the Due Date, and that there will be
no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the Billed Amount
for the following Due Date will be increased by the amount of the
discrepancy. The Borrower will not be in default by reason of any such
discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount
for the following Due Date will be decreased by the amount of the
discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without compounding.
The Bank will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
4.5 Banking Days. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California. All payments and disbursements which would be due on a day which
is not a banking day will be due on the next banking day. All payments received
on a day which is not a banking day will be applied to the credit on the next
banking day.
4.6 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used. Installments of principal which are not paid
when due under this Agreement shall continue to bear interest until paid.
4.7 Default Rate. Upon the occurrence of any default under this Agreement,
principal amounts outstanding under this Agreement will at the option of the
Bank bear interest at a rate which is 2 percentage point(s) higher than the rate
of interest otherwise provided under this Agreement. This will not constitute a
waiver of any default.
5. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
5.1 Authorizations. Evidence that the execution, delivery and performance by the
Borrower of this Agreement and any instrument or agreement required under this
Agreement have been duly authorized.
5.2 Governing Documents. A copy of the Borrower's articles of incorporation.
5.3 Good Standing. Certificates of good standing for the Borrower from its
state of formation and from any other state in which the Borrower is
required to qualify to conduct its business.
5.4 Other Items. Any other items that the Bank reasonably requires.
6. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation:
6.1 Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
6.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
6.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
6.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
6.5 No Conflicts. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
6.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank, including the
Borrower's financial statement dated as of September 30, 1999, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition, including all
material contingent liabilities.
(b) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the business condition (financial or otherwise),
operations, properties or prospects of the Borrower (or any guarantor).
6.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
6.8 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
6.9 Other Obligations. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any
other material lease, commitment, contract, instrument or obligation.
6.10 Income Tax Matters. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
6.11 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
6.12 Location of Borrower. The Borrower's place of business (or, if the Borrower
has more than one place of business, its chief executive office) is located at
the address listed under the Borrower's signature on this Agreement.
7. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
7.1 Use of Proceeds. To use the proceeds of the credit only for equipment
financing, general corporate purposes and common stock repurchase.
7.2 Financial Information. To provide the following financial information and
statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited (with
an unqualified opinion) by a Certified Public Accountant acceptable to
the Bank. The statements shall be prepared on a consolidated and
consolidating basis.
(b) Within 60 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidated and consolidating basis.
(c) Within the period(s) provided in 7.2 (a) and (b) above, a compliance
certificate of the Borrower signed by an authorized financial officer of
the Borrower setting forth (i) the information and computations (in
sufficient detail) to establish that the Borrower is in compliance with
all financial covenants at the end of the period covered by the
financial statements then being furnished and (ii) whether there existed
as of the date of such financial statements and whether there exists as
of the date of the certificate, any default under this Agreement and, if
any such default exists, specifying the nature thereof and the action
the Borrower is taking and proposes to take with respect thereto.
7.3 Net Worth. To maintain on a consolidated basis net worth equal to at least
One Hundred Eighty Million Dollars ($180,000,000).
7.4 Total Liabilities to Net Worth. To maintain on a consolidated basis a
ratio of total liabilities to net worth not exceeding 1.0:1.0.
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
7.5 Minimum Net Income. To earn on a consolidated basis net income after taxes
and extraordinary items of at least Fifteen Million Dollars ($15,000,000) as of
the end of each fiscal quarter, using the results of that quarter and each of
the 3 immediately preceding quarters.
7.6 Other Debts. Not to have outstanding or incur any direct or contingent
liabilities (other than those to the Bank), or become liable for the
liabilities of others, without the Bank's written consent. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities in existence on the date of this Agreement disclosed in
writing to the Bank.
(e) Additional debts with a maturity of over five (5) years from the date of
its origination in an amount not exceeding Fifty Million Dollars
($50,000,000).
7.7 Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later
owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
7.8 Loans and Investments. Not to have any existing, or make any new, loans or
other extensions of credit to, or investments in, any individual or entity, or
make any capital contributions or other transfers of assets to any individual or
entity, except for:
(a) existing investments in the Borrower's current subsidiaries.
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business to non-affiliated entities.
(c) investments in any of the following:
(i) certificates of deposit;
(ii) U.S. treasury bills and other obligations of the federal
government.
(d) investments that do not materially change the nature or scope of
business that is currently conducted by the Borrower.
7.9 Change of Ownership. Not to cause, permit, or suffer any change, direct
or indirect, in the Borrower's capital ownership.
7.10 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Million Dollars ($5,000,000) against the Borrower
(or any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and any
government authority.
(c) any event of default under this Agreement, or any event which, with
notice or lapse of time or both, would constitute an event of default.
(d) any material adverse change in the Borrower's (or any guarantor's)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
(f) any actual contingent liabilities of the Borrower (or any guarantor),
and any such contingent liabilities which are reasonably foreseeable,
where such liabilities are in excess of One Million and 00/100 Dollars
($1,000,000) in the aggregate.
7.11 Books and Records. To maintain adequate books and records.
7.12 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
7.13 Compliance with Laws. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
7.14 Preservation of Rights. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
7.15 Maintenance of Properties. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
7.16 Cooperation. To take any action reasonably requested by the Bank to carry
out the intent of this Agreement.
7.17 General Business Insurance. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss of use
and occupancy) to any of the Borrower's properties, public liability insurance
including coverage for contractual liability, product liability and workers'
compensation, and any other insurance which is usual for the Borrower's
business.
7.18 Additional Negative Covenants. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, or other combination, or become a
partner in a partnership, a member of a joint venture, or a member of a
limited liability company.
(d) sell, assign, lease, transfer or otherwise dispose of any part of the
Borrower's business or the Borrower's assets except in the ordinary course
of the Borrower's business.
(e) enter into any sale and leaseback agreement covering any of its fixed
assets.
(f) voluntarily suspend its business for more than 3 consecutive days in any 30
day period.
7.19 ERISA Plans. Promptly during each year, to pay contributions adequate to
meet at least the minimum funding standards under ERISA with respect to each and
every Plan; file each annual report required to be filed pursuant to ERISA in
connection with each Plan for each year; and notify the Bank within ten (10)
days of the occurrence of any Reportable Event that might constitute grounds for
termination of any capital Plan by the Pension Benefit Guaranty Corporation or
for the appointment by the appropriate United States District Court of a trustee
to administer any Plan. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time. Capitalized terms in this paragraph
shall have the meanings defined within ERISA.
8. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
8.1 Failure to Pay. The Borrower fails to make a payment under this Agreement
when due.
8.2 False Information. The Borrower (or any guarantor) has given the Bank
false or misleading information or representations.
8.3 Bankruptcy. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the
Borrower (or any guarantor) or the Borrower (or any guarantor) makes a general
assignment for the benefit of creditors.
8.4 Receivers. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.
8.5 Judgments. Any judgments or arbitration awards are entered against the
Borrower (or any guarantor), or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Million Dollars ($5,000,000) or more in excess of any
insurance coverage.
8.6 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
8.7 Material Adverse Change. A material adverse change occurs, or is reasonably
likely to occur, in the Borrower's (or any guarantor's) business condition
(financial or otherwise), operations, properties or prospects, or ability to
repay the credit.
8.8 Cross-default. Any default occurs under any agreement in connection with any
credit the Borrower (or any guarantor) or any of the Borrower's related entities
or affiliates has obtained from anyone else or which the Borrower (or any
guarantor) or any of the Borrower's related entities or affiliates has
guaranteed.
8.9 Default under Related Documents. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
8.10 Other Bank Agreements. The Borrower (or any guarantor) or any of the
Borrower's related entities or affiliates fails to meet the conditions of, or
fails to perform any obligation under any other agreement the Borrower (or any
guarantor) or any of the Borrower's related entities or affiliates has with the
Bank or any affiliate of the Bank.
8.11 Other Breach Under Agreement. The Borrower fails to meet the conditions of,
or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article. This includes any failure or
anticipated failure by the Borrower to comply with any financial covenants set
forth in this Agreement, whether such failure is evidenced by financial
statements delivered to the Bank or is otherwise known to the Borrower or the
Bank.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
9.2 California Law. This Agreement is governed by California law.
9.3 Successors and Assigns. This Agreement is binding on the Borrower's and the
Bank's successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent. The Bank may sell participations in
or assign this loan, and may exchange financial information about the Borrower
with actual or potential participants or assignees; provided that such actual or
potential participants or assignees shall agree to treat all financial
information exchanged as confidential. If a participation is sold or the loan is
assigned, the purchaser will have the right of set-off against the Borrower.
9.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, whether arising in contract, tort or
by statute, including but not limited to controversies or claims that
arise out of or relate to:
(i) this Agreement (including any renewals, extensions or
modifications); or
(ii) any document related to this Agreement (collectively a "Claim").
(b) At the request of the Borrower or the Bank, any Claim shall be
resolved by arbitration in accordance with the Federal
Arbitration Act (Title 9, U. S. Code) (the `Act"). The Act will apply
even though this Agreement provides that it is governed
by the law of a specified state.
(c) Arbitration proceedings will be determined in accordance with the Act,
the rules and procedures for the arbitration of financial services
disputes of J.A.M.S./Endispute or any successor thereof ("J.A.M.S."),
and the terms of this paragraph. In the event of any inconsistency, the
terms of this paragraph shall control.
(d) The arbitration shall be administered by J.A.M.S. and conducted in any
U. S. state where real or tangible personal property
collateral for this credit is located or if there is no such collateral,
in California. All Claims shall be determined by one
arbitrator; however, if Claims exceed Five Million Dollars
($5,000,000), upon the request of any party, the Claims shall be
decided by three arbitrators. All arbitration hearings shall
commence within ninety (90) days of the demand for arbitration
and close within ninety (90) days of commencement and the award of the
arbitrator(s) shall be issued within thirty (30) days
of the close of the hearing. However, the arbitrator(s), upon a
showing of good cause, may extend the commencement of the
hearing for up to an additional sixty (60) days. The arbitrator(s)
shall provide a concise written statement of reasons for
the award. The arbitration award may be submitted to any court having
jurisdiction to be confirmed and enforced.
(e) The arbitrator(s) will have the authority to decide whether any Claim is
barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis. For purposes of the application of the
statute of limitations, the service on J.A.M.S. under applicable
J.A.M.S. rules of a notice of Claim is the equivalent of the filing of a
lawsuit. Any dispute concerning this arbitration provision or whether a
Claim is arbitrable shall be determined by the arbitrator(s). The
arbitrator(s) shall have the power to award legal fees pursuant to the
terms of this Agreement.
(f) This paragraph does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies, such as but not limited to, setoff;
(ii) initiate judicial or nonjudicial foreclosure against any real or
personal property collateral; (iii) exercise any judicial or power of
sale rights, or (iv) act in a court of law to obtain an interim remedy,
such as but not limited to, injunctive relief, writ of possession or
appointment of a receiver, or additional or supplementary remedies.
(g) The filing of a court action is not intended to constitute a waiver of
the right of the Borrower or the Bank, including the suing party,
thereafter to require submittal of the Claim to arbitration.
9.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced.
The Bank retains all rights, even if it makes a loan after default.
If the Bank waives a default, it may enforce a later default.
Any consent or waiver under this Agreement must be in writing.
9.6 Attorneys' Fees. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-house counsel.
9.7 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.8 Notices. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, or by overnight courier,
to the addresses on the signature page of this Agreement, or sent by facsimile
to the fax numbers listed on the signature page, or to such other addresses as
the Bank and the Borrower may specify from time to time in writing. Notices sent
by first class mail shall be deemed delivered on the earlier of actual receipt
or on the fourth business day after deposit in the U.S. mail.
9.9 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
9.10 Commitment Expiration. The Bank's commitment to extend credit under this
Agreement will expire on June 1, 2000, unless this Agreement and any documents
required by this Agreement have been signed and returned to the Bank on or
before that date.
This Agreement is executed as of the date stated at the top of the first page.
Bank of America, N.A. Roseville Communications Company
By: Robert L. Munn, Jr., By: Brian H. Strom,
Senior Vice President President
Address where notices to the Bank are to be sent:
Address for Notices:
Sacramento Commercial Banking Office #01489
555 Capitol Mall, Suite 150 211 Lincoln Street
Sacramento, CA 95814 Roseville, CA 95661
<PAGE>
BANK OF AMERICA
AMENDMENT TO DOCUMENTS
AMENDMENT NO. I TO BUSINESS LOAN AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of April 10, 2000 is
----------------
between Bank of America, NA. (the Bank') and Roseville Communications
Company( (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of March 15, 2000 (the "Agreement').
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
-----------
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
----------
2.1 Subparagraph (d) of Paragraph 7.18 of the Agreement is amended
to read in its entirety as follows:
"(d) sell, assign, lease, transfer or otherwise dispose of
any part of the Borrower's business or the Borrower's
assets except in the ordinary course of the
Borrower's business and excepting further any sale by
Borrower of all or a portion of its limited
partnership interest in Sacramento-Valley Limited
Partnership, a California limited partnership."
3. Representations and Warranties. When the Borrower signs this Amendment, the
Borrower represents and warrants to the Bank that: (a) there is no event
which is, or with notice or lapse of time or both would be, a default under
the Agreement except those events, if any, that have been disclosed in
writing to the Bank or waived in writing by the Bank, (b) the representations
and warranties in the Agreement are true as of the date of this Amendment as
if made on the date of this Amendment, (c) this Amendment is within the
Borrower's powers, has been duly authorized, and does not conflict with any
of the Borrower's organizational papers, and (d) this Amendment does not
conflict with any law, agreement, or obligation by which the Borrower is
bound.
4. Effect of Amendment. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in
full force and effect.
This Amendment is executed as of the date stated at the beginning of this
Amendment.
Bank of America, N.A. Roseville Communications Company
X X
--------------------------- -----------------------------
By: Robert L. Munn, Jr., By: Brian H. Strom,
Senior Vice President President
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