-----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, kdLEgWYm0FPXBwce/4UlfnQep6LMMNikRqiGgM8WxJBrKDBs8JYhYu4ZXrU/yEMJ AFQacbEXNp/OjptChPqEGA== 0000024186-94-000030.txt : 19940822 0000024186-94-000030.hdr.sgml : 19940822 ACCESSION NUMBER: 0000024186-94-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 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: 94543502 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 June 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 July 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 Six Months Ended June 30, June 30, 1994 1993 1994 1993 (Thousands of Dollars) OPERATING REVENUES: Local network services $ 23,217 $ 23,068 $ 47,394 $ 46,499 Network access services 35,270 32,648 70,359 70,044 Long distance services 23,805 31,346 47,997 62,090 Equipment sales and services 2,515 3,309 5,766 5,287 Other 1,910 2,671 3,802 4,557 86,717 93,042 175,318 188,477 OPERATING EXPENSES: Cost of sales and services 15,641 19,572 36,641 38,635 Depreciation and amortization 16,005 13,887 32,123 27,570 Marketing, selling, general and administrative 15,168 24,529 42,312 46,793 46,814 57,988 111,076 112,998 Net operating income 39,903 35,054 64,242 75,479 OTHER (INCOME) DEDUCTIONS: Interest expense 3,109 3,188 6,126 6,424 Other - net (104) (294) (174) (739) INCOME BEFORE INCOME TAXES 36,898 32,160 58,290 69,794 INCOME TAXES 15,135 13,281 23,883 28,512 NET INCOME $ 21,763 $ 18,879 $ 34,407 $ 41,282 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 increased 15% or $2.9 million for the three months ended June 30, 1994 and decreased 17% or $6.9 million for the six months ended June 30, 1994 compared to the same periods in 1993. The quarter-to-date increase is primarily due to lower operating expenses. The year-to-date decrease is primarily the result of lower operating revenues. Operating Revenues Operating revenues decreased 7% or $6.3 million and 7% or $13.2 million for the three months and six months ended June 30, 1994, respectively, compared to the same periods in 1993. Local network service revenues increased 1% or $0.1 million and 2% or $0.9 million for the three months and six months ended June 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 increased $2.6 million and $0.3 million for the three months and six months ended June 30, 1994, respectively, compared to the same periods in 1993. The increases are primarily due to favorable settlements with AT&T. Long distance service revenues decreased 24% or $7.5 million and 23% or $14.1 million for the three months and six months ended June 30, 1994, respectively, compared to the same periods in 1993 primarily due to the Company's exit from the California toll pool and reduced toll transitional support payments. The Company is currently recording revenues on a bill and keep basis, which are reflected as local network revenues in 1994. Equipment sales and services revenues decreased 24% or $0.8 million for the three months ended June 30, 1994 and increased 9% or $0.5 million for the six months ended June 30, 1994 compared to the same periods in 1993. The quarter-to-date decrease is primarily due to lower revenues from maintenance agreements and billing and collection services. The year-to-date increase is primarily due to increased revenue from billing and collection services. Miscellaneous revenues decreased 28% or $0.8 million and 17% or $0.8 million for the three months and six months ended June 30, 1994, respectively, compared to the same periods in 1993. The quarter-to-date and year-to-date changes reflect lower directory advertising revenue due to timing and lower rental 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 decreased 19% or $11.2 million and 2% or $1.9 million for the three months and six months ended June 30, 1994, respectively, compared to the same periods in 1993. The decreases are primarily due to reductions to certain reserves and the one-time charge associated with the enhanced early retirement and voluntary separation programs offered to eligible employees during the second quarter of 1993. These reductions are partially offset by higher depreciation and amortization expense due to a rate increase in 1994 and higher expenses for billing and collection services. Other Expenses Income taxes increased 14% or $1.9 million and decreased 16% or $4.6 million for the three months and six months ended June 30, 1994, respectively, compared to the same periods in 1993 primarily due to changes in pretax income. CAPITAL RESOURCES AND LIQUIDITY The Company's primary source of funds during the first six months of 1994 was cash flow from operating activities of $73.1 million compared to $70.6 million for the same period in 1993. Capital expenditures represent a significant use of funds during 1994 and 1993 reflecting the Company's continued growth in access lines, modernization of current facilities and introduction of new products and services. The Company's capital expenditures during the first six months of 1994 were $24.9 million compared to $35.1 million during the same period in 1993. The Company's anticipated construction costs for 1994 are approximately $60 million. Cash used in financing activities was $45.9 million in 1994 compared to $35.8 million in 1993. This included dividend payments of $47.2 million in 1994 compared to $42.7 million in 1993. Financing activities included short-term borrowings of $6.1 million in 1994 compared to $19.0 million in 1993. The Company retired $4.8 million of long-term debt and preferred stock in 1994, including the retirement of 8.75% Debentures and all outstanding issues of preferred stock, compared to $12.1 million in 1993. During the second quarter of 1994, the Company continued implementation of its re-engineering plan. This plan will allow the Company to continue to respond aggressively to competitive and regulatory developments through reduced costs, improved service quality, competitive prices and new product offerings. Moreover, implementation of this program over the next three years will position the Company to accelerate delivery of a full array of voice, video and data services. Cash requirements for the implementation of the re-engineering plan during 1994 are expected to be largely offset by cost savings. 3 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. 4 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 1994 1993 (Thousands of Dollars) CURRENT ASSETS: Cash $ 2,578 $ 68 Accounts and notes receivables, less allowances of $4,469 and $3,592 respectively 57,186 82,092 Materials and supplies, at average cost 3,025 2,566 Deferred income tax benefits 8,510 7,783 Prepayments and other 395 450 Total current assets 71,694 92,959 PROPERTY, PLANT AND EQUIPMENT: Original cost 894,301 876,420 Accumulated depreciation (368,024) (343,195) Net property, plant and equipment 526,277 533,225 OTHER ASSETS 25,934 32,898 TOTAL ASSETS $ 623,905 $ 659,082 See Notes to Condensed Consolidated Financial Statements. 5 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31, 1994 1993 (Thousands of Dollars) CURRENT LIABILITIES: Notes payable to affiliates $ 74,985 $ 68,873 Accounts payable 17,380 59,317 Accrued taxes 45,880 34,726 Accrued dividends 8,688 42,152 Accrued payroll and vacations 6,726 8,177 Accrued restructuring costs and other 43,868 43,468 Total current liabilities 197,527 256,713 LONG-TERM DEBT 92,800 95,800 DEFERRED CREDITS, primarily deferred income taxes and investment tax credits 126,918 118,852 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 115,225 94,572 Total shareholder's equity 206,660 186,007 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 623,905 $ 659,082 See Notes to Condensed Consolidated Financial Statements. 6 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1994 1993 (Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 34,407 $ 41,282 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 32,123 27,570 Deferred income taxes and investment tax credits 2,918 (221) Provision for uncollectible accounts 2,420 2,998 Changes in current assets and current liabilities (9,652) (8,466) Other - net 10,889 7,416 Net cash from operating activities 73,105 70,579 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (24,929) (35,118) Other - net 250 (175) Net cash used in investing activities (24,679) (35,293) CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt and preferred stock retired (4,810) (12,100) Dividends paid to shareholders (47,218) (42,669) Net change in affiliate notes 6,112 18,996 Net cash used in financing activities (45,916) (35,773) Increase(decrease) in cash 2,510 (487) Cash at beginning of period 68 1,477 Cash at end of period $ 2,578 $ 990 See Notes to Condensed Consolidated Financial Statements. 7 CONTEL OF CALIFORNIA, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) The condensed consolidated financial statements included herein have been prepared by the Company, without audit, 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 mergers has been delayed until such time as the Commission has the opportunity to review and issue a new decision based on the new evidence. On June 17, 1994, the CPUC issued a ruling canceling all dates relative to the filing of testimony and evidentiary hearings. Applications were also filed with the Arizona Corporation Commission and the Nevada Public Service Commission for approval of the merger of the Company and GTE California Incorporated. During the second quarter 1994, the Nevada Public Service Commission approved the merger, subject to final approval of the merger by the CPUC. A decision from the Arizona Corporation Commission is expected in the third quarter. (3) In July 1994, the CPUC proposed an order aimed at rebalancing local phone companies' rates and introducing new competition in the local toll market beginning January 1, 1995. A final order is expected in September 1994. While this order is intended to be revenue neutral, its ultimate effect will depend, in part, on the extent to which toll and access rate reductions result in increased calling volumes. (4) 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 Items 1 through 6 are not applicable for the quarter ended June 30, 1994. 9SIGNATURE 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. CONTEL OF CALIFORNIA, INC. (Registrant) Date: August 12, 1994 MICHAEL W. BOLLINGER MICHAEL W. BOLLINGER Assistant Vice President - Controller (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----