UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901 (d) OF REGULATION S-T
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 June 30, 1994
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-556
ROSEVILLE TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
California 94-0817190
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
211 Lincoln Street, Roseville, California 95678
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 786-6161
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Without Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of July 31, 1994, 13,399,194 shares of the registrant's Common Stock were
outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1993 June 30, 1993 June 30, 1994 June 30, 1994
=============== ================= ============== ==================
Operating Revenues $23,842,000 $47,858,000 $25,368,000 $50,828,000
Operating Expenses 13,766,000 28,119,000 16,734,000 33,107,000
--------------- ----------------- -------------- ------------------
Income From Operations 10,076,000 19,739,000 8,634,000 17,721,000
Other Income, Net 483,000 279,000 455,000 531,000
--------------- ----------------- -------------- ------------------
Income Before Income Taxes 10,559,000 20,018,000 9,089,000 18,252,000
Income Taxes 4,158,000 7,900,000 3,687,000 7,364,000
--------------- ----------------- -------------- ------------------
NET INCOME $6,401,000 $12,118,000 $5,402,000 $10,888,000
=============== ================= ============== ==================
Per Share of Common Stock
Net Income $0.45 $0.86 $0.38 $0.77
Cash Dividends $0.14 $0.27 $0.14 $0.29
Shares of common stock used to
calculate per share data 1/ 14,069,154 14,069,154 14,069,154 14,069,154
<F1>
1/ Shares used in the computation of net income and cash dividends per share of common stock are
based on the weighted average number of shares outstanding after giving retroactive effect to
a 5% stock dividend declared in June 1994 to be issued in December 1994.
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1993 June 30, 1994
----------------- -------------
ASSETS (UNAUDITED)
Current Assets:
Cash and Cash Equivalents $9,847,000 $11,460,000
Short-term Investments 8,920,000 13,837,000
Accounts Receivable, Net 16,109,000 13,439,000
Inventories 1,115,000 1,304,000
Prepaid Expenses and Other Current Assets 2,507,000 1,644,000
----------------- -------------
Total Current Assets 38,498,000 41,684,000
Property, Plant and Equipment, Net 168,571,000 167,244,000
Investments and Other Assets:
Cellular Partnership 17,327,000 19,448,000
Deferred Charges and Other Assets 2,063,000 2,509,000
----------------- -------------
Total Investments and Other Assets 19,390,000 21,957,000
----------------- -------------
$226,459,000 $230,885,000
================= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities $19,143,000 $15,763,000
Current Portion of Long-Term Debt - 893,000
Total Current Liabilities 19,143,000 16,656,000
Long-term Debt 40,000,000 39,107,000
Deferred Credits 24,395,000 25,333,000
Shareholders' Equity:
Common Stock, without par value; 20,000,000
shares authorized, 13,399,194 shares
issued and outstanding 130,287,000 130,287,000
Stock Dividend Distributable,
669,960 shares at $24 per share - 16,079,000
Retained Earnings 12,634,000 3,423,000
Total Shareholders' Equity 142,921,000 149,789,000
----------------- -------------
$226,459,000 $230,885,000
================= =============
ROSEVILLE TELEPHONE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 1993 June 30, 1994
---------------- ----------------
Net cash provided by operating activities: $14,273,000 $18,635,000
Cash flows from investing activities:
Purchases of short-term investments - (17,799,000)
Maturities of short-term investments - 12,882,000
Capital expenditures for property, plant and
equipment (10,531,000) (7,302,000)
Investment in cellular partnership (901,000) (337,000)
Changes in deferred charges and other assets (76,000) (446,000)
---------------- ----------------
Net cash used in investing activities (11,508,000) (13,002,000)
Cash flows from financing activities:
Dividends paid (3,830,000) (4,020,000)
---------------- ----------------
Net cash used in financing activities (3,830,000) (4,020,000)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (1,065,000) 1,613,000
Cash and cash equivalents at beginning of
period 11,200,000 9,847,000
---------------- ----------------
Cash and cash equivalents at end of $10,135,000 $11,460,000
period ================ ================
ROSEVILLE TELEPHONE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. General
The condensed consolidated financial statements of Roseville Telephone Company
(the "Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the results for the interim periods
shown. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations and generally accepted accounting principles applicable for interim
periods. Management believes that the disclosures made are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1993 Annual Report to
Shareholders.
2. Stock Dividend Payable
On June 29, 1994, the Board of Directors of the Company adopted a resolution,
subject to the approval of the Public Utilities Commission of the State of
California ("the P.U.C."), declaring a stock dividend of five percent (5%) on
the common stock of the Company, payable as soon as practicable after December
1, 1994 to stockholders of record of the Company at the close of business on
such date. Accordingly, 669,960 shares estimated to be distributable have been
reflected on the accompanying condensed consolidated balance sheet at June 30,
1994, and have been included in the computation of net income and cash dividends
per share for all periods presented.
ROSEVILLE TELEPHONE COMPANY
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operating Revenues:
Operating revenues increased approximately $1.5 million, or 6% for the three
months ended June 30, 1994 compared to the same period in 1993. For the six
months ended June 30, 1994, operating revenues increased approximately $3.0
million or 6%, compared to the same period in 1993. The increases in operating
revenues were due primarily to the combined effects of 1) growth in access lines
of 4.6%, 2) higher settlements from the National Exchange Carrier Association
for recovery of increased costs and investment, and 3) higher intrastate access
revenues resulting from increased message volumes.
In July 1994, the P.U.C. issued an Implementation Rate Design Draft Decision(the
"Draft Decision"), which, if adopted, would authorize toll competition within
the Company's Local Access Transport Area("LATA") commencing January 1, 1995.
The Draft Decision would also result in decreases in the Company's access rates
and other charges to interexchange carriers, which would be partially offset by
increases in basic exchange rates and other revenue sources. Furthermore, the
Draft Decision would require the Company to file a rate case by December 31,
1994. Based on calculations by the P.U.C., the Draft Decision, if adopted in
its present form, was designed to result in a $5.3 million reduction in the
Company's annual revenues commencing January 1, 1995. To avoid potential
adverse effects on future results of operations, the Company must either obtain
other sources of revenues, increase productivity or both. The Company is in
disagreement with certain aspects of the Draft Decision and has filed comments
in an effort to obtain revisions to the Draft Decision prior to its adoption in
final form.
Operating Expenses:
Operating expenses for the three months ended June 30, 1994 increased
approximately $3.0 million, or 22% compared to the same period in 1993. For the
six months ended June 30, 1994, operating expenses increased approximately $5.0
million or 18%, compared to the same period in 1993. Depreciation expense
increased $2.5 million to a total of $8.6 million for the six months ended June
30,1994, attributable to the growth in property, plant and equipment and
anticipated increases in depreciation rates. The remaining increases were due
primarily to a combination of 1) software purchases and improvements in the
Company's data systems to implement movement from a mainframe platform to a
client/server platform and to implement a wide area network, 2) normal
inflationary factors combined with a 5% increase in workforce, and 3) increased
costs associated with serving a larger number of access lines.
Other Income, Net:
Other income, net, decreased approximately $28,000 or 6%, for the three months
ended June 30, 1994, compared to the same period in 1993. For the six months
ended June 30, 1994, other income, net, increased approximately $252,000 or 90%,
compared to the same period in 1993. The net year to date increase was due
primarily to an increase of $957,000 in the Company's income attributable to its
interest in Sacramento-Valley Limited Partnership, offset by increased interest
expense on long-term debt of $484,000 due to larger borrowings and a decrease in
the allowance for funds used during construction of $353,000.
Income Taxes:
Income tax expense for the three months ended June 30, 1994 decreased $471,000
or 11%, compared to the same period in 1993. For the six months ended June 30,
1994, income tax expense decreased $536,000 or 7%, compared to the same period
in 1993. The net decrease was due to a decrease in income subject to income tax.
The effective federal and state income tax rate was approximately 40% for the
six months ended June 30, 1994 and 1993.
Liquidity and Capital Resources:
As reflected in the accompanying Condensed Consolidated Statements of Cash
Flows, net cash provided by operating activities amounted to $18.6 million and
$14.3 million for the six month periods ended June 30, 1994 and 1993,
respectively. The increase in 1994 is due primarily to a reduction in accounts
receivable as a result of completion in certain contracts with Pacific Bell.
During the six months ended June 30, 1994, the Company used cash flows from
operations and existing cash, cash equivalents and short-term investments to
fund capital expenditures of $7.3 million pertaining to on-going plant
construction projects. Cash flows to meet the remaining 1994 budgeted capital
expenditures of approximately $10.1 million are anticipated to be met from both
positive net cash generated from operations and existing cash, cash equivalents
and short-term investments.
The Company filed an application with the P.U.C. to obtain approval for the
issuance of up to 400,000 shares of its common stock to the Roseville Telephone
Company Retirement Supplement Plan (the "Plan"). Assuming all necessary
approvals are obtained, and all shares for which approvals have been sought are
issued and sold, proceeds of up to $10 million from the issuance of common stock
to the Plan are anticipated. These proceeds would be used for future capital
expenditures, participation in more recent wireless technologies, and general
corporate purposes.
Competition:
The Company believes it meets the criteria of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation"
("SFAS No. 71"), which requires the Company to give effect in its financial
statements to certain actions of regulators. Accordingly, the Company's
consolidated financial statements have been prepared on that basis. As a result
of increasing competition and rapid changes in the telecommunications industry,
the Company periodically monitors whether it continues to meet the criteria
which require the use of SFAS No. 71. In the future, should the Company
determine it no longer meets the SFAS No. 71 criteria, a material,
extraordinary, noncash charge would result.
PART II
Item 1. Regulatory and Legal Proceedings
Except for the proceedings described below the Company is not aware of any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which it is a party or to which any of its
property is subject.
The Company is subject to regulation by the Federal Communications Commission
(the "F.C.C.") and the P.U.C. In the past, there have been various proceedings
before these agencies to which the Company has been a party. The regulatory
proceedings discussed below relate to matters which may affect the Company
prospectively and are not expected to effect the Company's interim financial
statements at and for the six months ended June 30, 1994.
In March 1985, the P.U.C. commenced an investigation into the "rates, tolls,
rules, charges, operations, costs, separations, intercompany settlements,
contracts, service and facilities of the operations of independent telephone
companies" (I. 85-03-078), and consolidated this investigation with Application
No. 85-01-034 of Pacific Bell. In connection with the application, the P.U.C.
issued an interim rate design effective in 1988 for Pacific Bell which resulted
in a local rate increase for the Company and a decrease in settled toll
revenues. The P.U.C. has stated that it will order a final rate design during
1994, in conjunction with I. 87-11-033 discussed below, which could have a
material impact on the sources and amount of the Company's revenues.
The P.U.C. has instituted an investigation (I. 87-11-033) into the manner in
which it regulates local exchange carriers, including the Company. In the
course of this investigation, it will consider whether certain services
presently provided solely by the Company within its LATA should be open to
competition. In the course of this current proceeding the Company has proposed
adjustments to its rates that would maintain revenues at their present level,
while the P.U.C. staff has proposed a revenue reduction of $5.3 million. In
July 1994, the P.U.C. issued a Draft Decision in this investigation. See "Part
I, Item 2"; "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The Company expects a final decision to be issued in
September 1994.
In April 1993, the P.U.C. opened an investigation and rulemaking proceeding (R.
93-04-003) to establish rules that will provide non-discriminatory access by
competing service providers to the network capabilities of local exchange
carriers. The P.U.C. proposed applying these rules to the five largest local
exchange carriers in California, including the Company. In connection with this
proceeding, the P.U.C. issued a further order in August 1993 proposing
additional rules to allow broader competition in the provision of specific
special access and switched transport services. The Company has filed comments
and expects a decision during 1994.
In November 1993, the P.U.C. issued a report to the Governor of the State of
California in which it proposed opening all markets to competition by January 1,
1997. Specifically, the P.U.C. proposed streamlining regulation and eliminating
all remaining legal barriers to competition for telecommunications services in
order to accelerate the pace of innovation in the California telecommunications
marketplace.
There are a number of regulatory proceedings and legislative initiatives
occurring at the federal level that may have a material impact on the Company.
These proceedings include implementation of revised separations procedures,
modification of interstate access rate structures, and expanded interconnection
through physical or virtual collocation. These proceedings, as well others
aimed at increasing competition within various telecommunication markets,
including cable television, may broaden the scope of competition in the
provision of interstate services, the effects of which cannot yet be determined.
The Company is subject to certain legal proceedings and claims arising in the
ordinary course of its business. In the opinion of management, any liability
which may ultimately be incurred with respect to these matters will not
materially affect the consolidated financial position or results of operations
of the Company.
Item 6. Exhibits and Reports on Form 8-K
a) None.
b) No reports on Form 8-K were filed during the second quarter of
1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSEVILLE TELEPHONE COMPANY
(Registrant)
Date: August 12, 1994 By:
Brian H. Strom,
President and Chief
Executive Officer
Date: August 12, 1994 By:
Michael D. Campbell,
Vice-President and Chief
Financial Officer