-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PQJnwxWOgslZp3UHAXooQw0w7UB11lm1rTA7vgkzkKatYXpZmdEbgq8oNr7+T5+m KG4rOvpajIEz/QflHGsYKQ== 0000024186-94-000040.txt : 19941111 0000024186-94-000040.hdr.sgml : 19941111 ACCESSION NUMBER: 0000024186-94-000040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTEL OF CALIFORNIA INC CENTRAL INDEX KEY: 0000024186 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 951789511 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01245 FILM NUMBER: 94558567 BUSINESS ADDRESS: STREET 1: 16071 MOJAVE DR CITY: VICTORVILLE STATE: CA ZIP: 92392 BUSINESS PHONE: 6192450511 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL TELEPHONE CO OF CALIFORNIA DATE OF NAME CHANGE: 19880519 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA INTERSTATE TELEPHONE CO DATE OF NAME CHANGE: 19750501 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1994 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 0-1245 CONTEL OF CALIFORNIA, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 95-1789511 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 16071 Mojave Drive, Victorville, California 92392 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 619-245- 0511 (Former name, former address and former fiscal year, if changed since last report) 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 The Company had 2,503,667 shares of $5 par value common stock outstanding at October 31, 1994. CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY INDEX PART I. FINANCIAL INFORMATION PAGE Condensed Consolidated Statements of Income. . . . . . . . . . . . . 1 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . 2 Condensed Consolidated Balance Sheets - Assets . . . . . . . . . . . 5 Condensed Consolidated Balance Sheets - Liabilities and Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . 6 Condensed Consolidated Statements of Cash Flows. . . . . . . . . . . 7 Notes to Condensed Consolidated Financial Statements . . . . . . . . 8 PART II. OTHER INFORMATION Items 1 through 6. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PART I. FINANCIAL INFORMATION CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (Thousands of Dollars) OPERATING REVENUES: Local network services $ 24,888 $ 24,002 $ 72,282 $ 70,501 Network access services 33,738 35,301 104,097 105,345 Long distance services 25,851 31,563 73,848 93,653 Equipment sales and services 3,196 3,594 8,962 8,881 Other 3,751 4,884 7,553 9,441 91,424 99,344 266,742 287,821 OPERATING EXPENSES: Cost of sales and services 17,548 16,459 54,189 55,094 Depreciation and amortization 16,240 14,221 48,363 41,791 Marketing, selling, general and administrative 24,735 23,842 67,047 70,635 58,523 54,522 169,599 167,520 Net operating income 32,901 44,822 97,143 120,301 OTHER (INCOME) DEDUCTIONS: Interest expense 2,946 2,835 9,072 9,259 Other - net (182) 6 (356) (733) INCOME BEFORE INCOME TAXES 30,137 41,981 88,427 111,775 INCOME TAXES 12,458 17,551 36,341 46,063 NET INCOME $ 17,679 $ 24,430 $ 52,086 $ 65,712 Per share data is omitted since the Company's common stock is 100% owned by Contel Corporation (a wholly-owned subsidiary of GTE Corporation). See Notes to Condensed Consolidated Financial Statements. 1 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATING RESULTS Net income decreased 28% or $6.8 million and 21% or $13.6 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993. These decreases are primarily due to lower operating revenues, primarily long distance service revenues, and higher operating expenses, primarily depreciation and amortization expense. Operating Revenues Operating revenues decreased 8% or $7.9 million and 7% or $21.1 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993. Local network service revenues increased 4% or $0.9 million and 3% or $1.8 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993 primarily due to continued customer growth, as experienced through an increase in access lines. Network access service revenues decreased 4% or $1.6 million and 1% or $1.2 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993. The decreases are primarily due to rate reductions to achieve competitive pricing. Long distance service revenues decreased 18% or $5.7 million and 21% or $19.8 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993 primarily due to lower settlements with Pacific Bell during 1994. The Company now records revenues on a bill and keep basis. Equipment sales and service revenues decreased 11% or $0.4 million for the three months ended September 30, 1994 and remained virtually unchanged for the nine months ended September 30, 1994 compared to the same periods in 1993. The quarter-to- date decrease is primarily due to lower revenues from telephone equipment sales and installations. These decreases were offset in the nine month period, and partially in the three month period, by increased revenue from billing and collection services. Other revenues decreased 23% or $1.1 million and 20% or $1.9 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993. The quarter-to-date and year-to-date decreases reflect lower rent revenue partially offset by lower provisions for uncollectible accounts. 2 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating Expenses Operating expenses increased 7% or $4.0 million and 1% or $2.1 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993. The increases are primarily due to higher depreciation and amortization expense due to a rate represcription in 1994 and higher expenses for billing and collection services, partially offset by a decrease in labor and benefit costs from headcount reductions that occurred in 1993. Restructuring As previously reported, during the fourth quarter of 1993, the Company recorded a one-time, pre-tax restructuring charge of $49.0 million primarily for incremental costs related to implementation of its three year re-engineering plan. The re- engineering plan will redesign and streamline processes to improve customer-responsiveness and product quality, reduce the time necessary to introduce new products and services and reduce costs. In connection with the re-engineering plan, in the first nine months of 1994 minimal expenditures were incurred and charged to the restructuring reserve. The level of re-engineering activities and related expenditures are expected to accelerate during the remainder of 1994 and throughout 1995. There have been no significant changes made to the overall re-engineering plan as originally reported. Other Expenses Income tax expense decreased 29% or $5.1 million and 21% or $9.7 million for the three months and nine months ended September 30, 1994, respectively, compared to the same periods in 1993. The decreases are primarily due to decreases in pretax income. CAPITAL RESOURCES AND LIQUIDITY The Company's primary source of funds during the first nine months of 1994 was cash from operating activities of $109.1 million compared to $108.7 million for the same period in 1993. The Company's capital expenditures during the first nine months of 1994 were $37.0 million compared to $48.3 million during the same period in 1993. These expenditures reflect the Company's growth in access lines, modernization of facilities and introduction of new products and services. The Company's anticipated construction costs for 1994 are approximately $54 million. 3 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cash used in financing activities was $71.1 million compared to $56.7 million in the same period last year. The largest use of cash was dividend payments of $55.9 million in 1994 compared to $60.2 million in 1993. The Company reacquired $5.3 million of long-term debt and preferred stock in 1994, including the retirement of 8.75% Debentures and all outstanding issues of preferred stock. Management believes that the Company has adequate internal and external resources available to meet ongoing operating requirements for construction of new plant, modernization of facilities and payment of dividends. The Company generally funds its construction programs from operations, although external financing is available. Short-term borrowings can be obtained through commercial paper borrowings or borrowings from GTE. In addition, a $2.8 billion line of credit is available to the Company through shared lines of credit with GTE and other affiliates to support short-term financing needs. OTHER MATTERS The Company follows the accounting for regulated enterprises prescribed by Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulations" ("FAS 71"). In general, FAS 71 requires companies to depreciate plant and equipment over lives approved by regulators. It also requires deferral of certain costs and obligations based upon approvals received from regulators. In the event that recoverability of these costs becomes unlikely or uncertain, whether resulting from actual or anticipated increases in competition or specific regulatory, legislative or judicial actions, continued application of FAS 71 would no longer be appropriate. If the Company no longer qualifies for the provisions of FAS 71, the financial effects of the required accounting change (which would be non-cash) could be material. In September 1994, the California Public Utilities Commission (CPUC) issued a final order in its Implementation Rate Design proceeding. The decision authorizes intraLATA toll competition (except 1+) in California, effective January 1, 1995. It also permits rate rebalancing that would allow rate reductions for intralata toll service and access charges while increasing basic local exchange rates closer to the actual cost of providing this service. Although the rate rebalancing is intended to be revenue neutral, its ultimate effect on revenue will depend, in part, on the extent to which rate reductions result in increased calling volumes. The decision does not permit rate increases to compensate for competitive losses. GTE believes that the CPUC has over-estimated the calling volume that will be stimulated by reduced toll rates. At present, however, it is not possible to accurately quantify the potential effect. 4 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS September 30, December 31, 1994 1993 (Thousands of Dollars) CURRENT ASSETS: Cash $ 1,280 $ 68 Accounts and notes receivable, less allowances of $4,980 and $3,592, respectively 54,144 82,092 Materials and supplies, at average cost 3,311 2,566 Deferred income tax benefits 10,442 7,783 Prepayments and other 75 450 Total current assets 69,252 92,959 PROPERTY, PLANT AND EQUIPMENT: Original cost 898,787 876,420 Accumulated depreciation (376,449) (343,195) Net property, plant and equipment 522,338 533,225 OTHER ASSETS 26,351 32,898 TOTAL ASSETS $ 617,941 $ 659,082 See Notes to Condensed Consolidated Financial Statements. 5 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31, 1994 1993 (Thousands of Dollars) CURRENT LIABILITIES: Notes payable to affiliates $ 58,933 $ 68,873 Current maturities of long-term debt 2,800 500 Accounts payable 22,833 59,317 Accrued taxes 32,623 34,726 Accrued dividends 6,000 42,152 Accrued payroll and vacations 7,723 8,177 Accrued restructuring costs and other 42,939 42,968 Total current liabilities 173,851 256,713 LONG-TERM DEBT 90,000 95,800 DEFERRED CREDITS AND RESERVES, primarily deferred income taxes, investment tax credits and restructuring costs 135,750 118,852 PREFERRED STOCK, subject to mandatory redemption -- 1,710 SHAREHOLDER'S EQUITY: Common stock 12,518 12,518 Other capital 78,917 78,917 Reinvested earnings 126,905 94,572 Total shareholder's equity 218,340 186,007 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 617,941 $ 659,082 See Notes to Condensed Consolidated Financial Statements. 6 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1994 1993 (Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 52,086 $ 65,712 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 48,363 41,791 Deferred income taxes and investment tax credits 6,350 (330) Provision for uncollectible accounts 4,297 4,882 Changes in current assets and current liabilities (15,789) (7,645) Other - net 13,768 4,281 Net cash from operating activities 109,075 108,691 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (36,953) (48,256) Other - net 205 101 Net cash used in investing activities (36,748) (48,155) CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt and preferred stock retired (5,270) (27,630) Dividends paid to shareholders (55,905) (60,234) Net change in affiliate notes (9,940) 31,213 Net cash used in financing activities (71,115) (56,651) Increase in cash 1,212 3,885 Cash at beginning of period 68 1,477 Cash at end of period $ 1,280 $ 5,362 See Notes to Condensed Consolidated Financial Statements. 7 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) The unaudited condensed consolidated financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management of the Company, the condensed consolidated financial statements include all adjustments, which consist only of normal recurring accruals, necessary to present fairly the financial information for such periods. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's 1993 Annual Report to Shareholders incorporated by reference in the Annual Report on Form 10-K. (2) On April 20, 1994 the California Public Utilities Commission (CPUC) issued a decision giving final approval to the merger of the Company into GTE California Incorporated. The decision requires the merging companies to flow through to their ratepayers all of the estimated savings that will be produced from the merger. This flow through requirement is based on the CPUC's interpretation of certain statutory requirements. The CPUC, however, provided the parties with the opportunity to supplement the evidentiary record to show why the estimated merger savings should be apportioned between ratepayers and shareholders. That filing was made on April 29, 1994. By making the filing, the effective date of the decision approving the merger has been delayed. The Company and other interested parties have filed reports and comments pursuant to this proceeding. The Company expects that the Commission will make a determination in late 1994 as to whether the merger proceeding will be reopened. (3) Reclassifications of prior year data have been made in the financial statements where appropriate to conform to the 1994 presentation. 8 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K. (27) Financial Data Schedule. (b) The Company filed no reports on Form 8-K during the third quarter of 1994. 9 SIGNATURE 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 hereunto duly authorized. CONTEL OF CALIFORNIA, INC. (Registrant) Date: November 10, 1994 MICHAEL W. BOLLINGER MICHAEL W. BOLLINGER Assistant Vice President - Controller (Principal Financial and Accounting Officer) 10 EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1,000 9-MOS DEC-31-1993 SEP-30-1994 1,280 0 59,124 4,980 3,311 69,252 898,787 376,449 617,941 173,851 90,000 12,518 0 0 205,822 617,941 266,742 266,742 54,189 169,599 0 0 9,072 88,427 36,341 52,086 0 0 0 52,086 0 0
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