0000085153-95-000015.txt : 19950815 0000085153-95-000015.hdr.sgml : 19950815 ACCESSION NUMBER: 0000085153-95-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROSEVILLE TELEPHONE CO CENTRAL INDEX KEY: 0000085153 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 940817190 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00556 FILM NUMBER: 95563283 BUSINESS ADDRESS: STREET 1: P O BOX 969 CITY: ROSEVILLE STATE: CA ZIP: 95678-0969 BUSINESS PHONE: 9167861407 MAIL ADDRESS: STREET 1: P O BOX 969 CITY: ROSEVILLE STATE: CA ZIP: 95678-0969 10-Q 1 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 June 30, 1995 [ ] 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) 786-6141 Securities registered pursuant to Section 12(g) of the Act: Common Stock - Without Par Value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate 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, 1995, 14,484,953 shares of the registrant's Common Stock were outstanding. ROSEVILLE TELEPHONE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME Quarter Six Months Quarter Six Months Ended Ended Ended Ended June 30, 1994 June 30, 1994 June 30, 1995June 30, 1995 -------------------------- ------------- ------------- Operating Revenues Local Service $ 9,166,000 $18,097,000 $11,778,000 $23,258,000 Network Access Service 10,513,000 21,336,000 8,136,000 16,061,000 Long Distance Service 1,938,000 3,875,000 1,053,000 2,093,000 Miscellaneous 3,751,000 7,520,000 4,259,000 8,358,000 ----------- ----------- ----------- ----------- Total Operating 25,368,000 50,828,000 25,226,000 49,770,000 Revenues Operating Expenses 16,734,000 33,107,000 18,469,000 37,599,000 ----------- ----------- ----------- ----------- Income From Operations 8,634,000 17,721,000 6,757,000 12,171,000 Other Income, Net 455,000 531,000 1,228,000 1,991,000 ----------- ----------- ----------- ----------- Income Before Income 9,089,000 18,252,000 7,985,000 14,162,000 Taxes Income Taxes 3,687,000 7,364,000 3,246,000 5,754,000 ----------- ----------- ----------- ----------- NET INCOME $ 5,402,000 $10,888,000 $ 4,739,000 $ 8,408,000 ========== ========== ========== ========== Per Share of Common Stock Net Income (1) $0.38 $0.77 $0.33 $0.58 Cash Dividends (2) $0.14 $0.29 $0.15 $0.30 Shares of common stock used to calculate net income per share data 14,084,953 14,084,953 14,484,953 14,484,953 (1) Shares used in the computation of net income per share of common stock are based on the weighted average number of shares outstanding in each period after giving retroactive effect to a 5% stock dividend issued in December 1994. (2) Cash dividends per share of common stock are based on the actual dividends per share, as declared by the Company's Board of Directors, after giving retroactive effect to stock dividends. See accompanying notes. ROSEVILLE TELEPHONE COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS December 31, 1994 June 30, 1995 ----------------- ------------- ASSETS Current Assets: Cash and Cash Equivalents $ 21,282,000 $ 31,533,000 Short-term Investments 13,689,000 2,903,000 Accounts Receivable, Net 15,565,000 13,329,000 Inventories 1,302,000 1,879,000 Prepaid Expenses and Other Current Assets 1,541,000 1,824,000 ------------ ------------ Total Current Assets 53,379,000 51,468,000 Property, Plant and Equipment, Net 173,359,000 175,396,000 Investments and Other Assets: Cellular Partnership 18,447,000 22,193,000 Deferred Charges and Other Assets 1,623,000 1,612,000 ------------ ------------ Total Investments and Other Assets 20,070,000 23,805,000 ------------ ------------ $246,808,000 $250,669,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current Portion of Long-Term Debt $ 2,679,000 $ 3,571,000 Accounts Payable and Accrued Liabilities 17,643,000 18,462,000 ------------ ------------ Total Current Liabilities 20,322,000 22,033,000 Long-term Debt 37,321,000 35,536,000 Deferred Credits 24,490,000 24,362,000 Shareholders' Equity: Common Stock, without par value; 20,000,000 shares authorized, 14,484,953 shares issued and outstanding 156,345,000 156,345,000 Retained Earnings 8,330,000 12,393,000 ------------ ------------ Total Shareholders' Equity 164,675,000 168,738,000 ------------ ------------ $246,808,000 $250,669,000 ============ ============ See accompanying notes. ROSEVILLE TELEPHONE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Six Months Six Months Ended Ended June 30, 1994 June 30, 1995 ------------- ------------- Net cash provided by operating activities $18,635,000 $17,238,000 Cash flows from investing activities: Purchases of held to maturity investments (17,799,000) (2,903,000) Maturities of short-term investments 12,882,000 13,689,000 Capital expenditures for property, plant and equipment (7,302,000) (11,545,000) Investment in cellular partnership (1,410,000) (2,401,000) Return of investment in cellular partnership 1,073,000 1,400,000 Changes in deferred charges and other assets (446,000) 11,000 ----------- ----------- Net cash used in investing activities (13,002,000) (1,749,000) Cash flows from financing activities: Principal payments of long-term debt - (893,000) Dividends paid (4,020,000) (4,345,000) ----------- ----------- Net cash used in financing activities (4,020,000) (5,238,000) ----------- ----------- Net increase in cash and cash equivalents 1,613,000 10,251,000 Cash and cash equivalents at beginning of period 9,847,000 21,282,000 ----------- ----------- Cash and cash equivalents at end of period $11,460,000 $31,533,000 =========== =========== See accompanying notes. ROSEVILLE TELEPHONE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 1994 Annual Report to Shareholders. ROSEVILLE TELEPHONE COMPANY PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Operating Revenues: As of January 1, 1992, the Company exited revenue sharing arrangements with Pacific Bell, applicable to certain network access, long distance and local service revenues. Also effective on that date, the Company began billing Pacific Bell various charges in connection with the provision of services by the Company pursuant to certain tentative agreements with Pacific Bell that were completed in February, 1994 (the "Pacific Bell Agreements"). Included in the amounts billed under the Pacific Bell Agreements were transition revenues of approximately $2 million and $4.1 million during the quarters ended June 30, 1995 and 1994, respectively. For the six months ended June 30, 1995 and 1994, transition revenues were approximately $4.1 million and $8.2 million, respectively. In accordance with the Pacific Bell Agreements, the transition revenues are being reduced in calendar year 1995 by approximately $8.3 million from the amount of such revenues for the year ending December 31, 1994. Beginning in 1997, these transition revenues will be further reduced by approximately $2 million per year until ultimately eliminated. In September 1994, the Public Utilities Commission of the State of California (the "P.U.C.") adopted an Implementation Rate Design Decision (the "IRD Decision") authorizing toll competition within the Company's Local Access Transport Area ("LATA") commencing January 1, 1995. The IRD Decision ordered decreases in the Company's access rates and other charges to interexchange carriers beginning on January 1, 1995. Such decreases and the reduction in transition revenues mentioned above will be partially offset by ordered increases in basic exchange rates and revenues from other sources. Based on calculations by the P.U.C., the IRD Decision will result in a $5.3 million reduction in the Company's 1995 annual operating revenues, negatively impacting current and future results of operations. Furthermore, the IRD Decision required the Company to file a rate case on May 15, 1995. The completion of the rate case proceeding and the decision by the P.U.C. is not expected until the third quarter of 1996. Operating revenues decreased $142,000, or 1% for the quarter ended June 30, 1995 compared to the same period in 1994. For the six months ended June 30, 1995, operating revenues decreased approximately $1.1 million, or 2% compared to the same period in 1994. Local service revenues increased approximately $2.6 and $5.2 million, or 28% and 29%, respectively, for the quarter and six month periods ended June 30, 1995 compared to the same periods in 1994. These increases were due to P.U.C. ordered increases in basic exchange service rates and revenues from the California High Cost Fund resulting from the implementation of the IRD Decision discussed above. The remaining increase is attributable to access line growth of approximately 5%. Network access revenues decreased approximately $2.4 and $5.3 million, or 23% and 25%, respectively, for the quarter and six month periods ended June 30, 1995 compared to the same periods in 1994. These decreases were due to the elimination or reduction of certain charges to interexchange carriers resulting from the implementation of the IRD Decision and the reduction in transition revenues discussed above. The reduction in network access revenues was expected to be offset by increased access volumes and revenues as a result of P.U.C. ordered decreases in toll rates, which did not materialize in full in the first six months of 1995. Long distance revenues decreased $885,000 and $1.8 million, or 46% for both the quarter and six month periods ended June 30, 1995 compared to the same periods in 1994. These decreases were due to the reduction in transition revenues discussed above. Operating Expenses: Operating expenses for the quarter ended June 30, 1995 increased approximately $1.7 million, or 10% compared to the same period in 1994. For the six months ended June 30, 1995, operating expenses increased approximately $4.5 million or 14%, compared to the same period in 1994. Cost of services and products increased $667,000 and $2.1 million for the quarter and six month periods ended June 30, 1995 compared to the same periods in 1994 due to a combination of normal inflationary factors and costs associated with a larger work force and higher maintenance costs associated with the severe weather and flooding in January 1995. Depreciation expense increased approximately $511,000 and $900,000 for the quarter and six month periods ended June 30, 1995 compared to the same periods in 1994 as a result of higher plant levels. Customer operations expense increased $199,000 and $378,000 for the quarter and six month periods ended June 30, 1995 compared to the same periods in 1994 primarily due to increased employee costs as described above. In addition, general and administrative expense increased $357,000 and $1.1 million for the quarter and six month periods ended June 30, 1995 compared to the same periods in 1994 due to higher costs associated with the Company's involvement in numerous and state and federal regulatory proceedings. Other Income, Net: Other income, net, increased $773,000 for the quarter ended June 30, 1995, compared to the same period in 1994. For the six months ended June 30, 1995, other income, net, increased approximately $1.5 million compared to the same period in 1994. The year to date increase was primarily due to an increase of approximately $558,000 in interest income attributable to larger invested balances and higher average interest rates, and an increase in income of $961,000 attributable to the Company's interest in the Sacramento-Valley Limited Partnership ("SVLP"). Consistent with the historical trends of SVLP's operating results, the Company believes that the income attributable to SVLP for the second half of 1995 may be significantly lower than that recognized for the six months ended June 30, 1995. Income Taxes: Income tax expense for the quarter ended June 30, 1995 decreased $441,000 compared to the same period in 1994. For the six months ended June 30, 1995, income tax expense decreased $1.6 million compared to the same period in 1994. The decreases were due to a decrease in income subject to income tax. The effective federal and state income tax rates were approximately 41% and 40%, respectively, for the six month periods ended June 30, 1995 and 1994. Liquidity and Capital Resources As reflected in the accompanying Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities amounted to $17.2 million and $18.6 million for the six month periods ended June 30, 1995 and 1994, respectively. During the six months ended June 30, 1995, the Company used cash flows from operations and existing cash, cash equivalents and short-term investments to fund 1) capital expenditures of $11.5 million pertaining to on-going plant construction projects, 2) dividends of $4.3 million and 3) net capital contributions to SVLP of $1.0 million. Cash flows to meet the remaining 1995 budgeted capital expenditures of approximately $9.5 million, anticipated dividends of approximately $4.3 million, remaining 1995 maturities of long-term debt of $1.8 million and potential 1995 capital requirements for SVLP are anticipated to be met from both positive net cash generated from operations and existing cash, cash equivalents and short-term investments. 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. For example, amounts charged to operations for depreciation expense reflect estimated lives and methods prescribed by regulators rather than those consisting of useful and economic lives that might otherwise apply to nonregulated enterprises. 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. The approximate amount of the Company's net regulatory asset at December 31, 1994 was between $5 million and $12 million, consisting principally of property, plant and equipment. The estimate for property, plant and equipment was calculated based upon a projection of useful lives which may be affected by the increasing competition and rapid changes in the telecommunications industry referred to above. 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 effect the Company prospectively and are not expected to affect the Company's interim financial statements at or for the six months ended June 30, 1995. 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. It has announced that in the course of this investigation it will consider the manner in which certain services presently provided solely by the Company within its local exchange area should be opened to competition. On September 15, 1994, the P.U.C. adopted Decision 94-09-065, its opinion in this matter with respect to competition within each LATA and rate design issues. The order revised basic exchange, toll, access, private line, and service connection rates and authorized competition for toll and toll-like services within the Company's LATA effective January 1, 1995. Based on calculations by the P.U.C., the rates adopted in the order will result in an annual revenue reduction to the Company of approximately $5.3 million beginning in 1995. In addition, the order as amended required the Company to submit an application for a general rate case and proposal for a new regulatory framework. This application was filed on May 15, 1995. The P.U.C. is currently reviewing the Company's application and the Company expects a final decision in the third quarter of 1996. On April 7, 1993, the P.U.C. opened an investigation and rulemaking proceeding (R. 93-04-003) to establish rules necessary to provide nondiscriminatory access by competing service providers to the network capabilities of local exchange carriers necessary to ensure fair competition in accordance with the mandate of Public Utilities Code Section 2282.5. In connection with this proceeding, the P.U.C. issued a further order on August 5, 1993 proposing additional rules for implementation of the open access principles proposed in its open access proceeding. On April 26, 1995, the P.U.C. adopted Decision 95-04-073, an interim opinion governing the provision of expanded interconnection and restructuring of local transport rates by Pacific Bell and GTE California. These proceedings may broaden the scope of competition in the provision of intrastate services. The Company anticipates further decisions in this matter during 1995. In November 1993, the P.U.C. issued a report to the Governor of the State of California entitled "Enhancing California's Competitive Strength: A Strategy For Telecommunications Infrastructure" in which it proposes to open all markets to competition and aggressively streamline regulation to accelerate the pace of innovation in the telecommunications marketplace. In connection with this report, on December 21, 1994, the P.U.C. adopted Decision 94-12-053, an initial procedural plan to facilitate opening local exchange telecommunications markets to competition by January 1, 1997. In this decision, the P.U.C. expressed its intent to implement local exchange competition, intraLATA presubscription, open access to local exchange carrier networks on an unbundled basis, and reform of the new regulatory framework for local exchange carriers. In conjunction with these proceedings, the P.U.C. adopted Rulemaking 95-01-020 and Investigation 95- 01-021 on January 24, 1995, an order instituting investigation and rulemaking to consider the goals of and definition of universal telephone service in a changing telecommunications environment, including examination of subsidy support mechanisms and issues of "carrier of last resort" and "franchise" obligations. After reviewing comments, the P.U.C. issued Decision 95-07-050 on July 19, 1995 setting forth a set of proposed rules pertaining to universal service responsibilities in a competitive environment. Comments on these proposed rules are due on September 1, 1995. A final set of rules are expected to be developed by the end of 1996. In addition, on April 26, 1995, the P.U.C. adopted a Rulemaking 95-04-043 and Investigation 95-04-044, an order instituting investigation and rulemaking to develop and adopt rules for local exchange competition. On July 24, 1995, the P.U.C. issued Decision 95-07-54 opening Pacific Bell and GTE territories to competition under interim rules. The interim rules do not apply to the Company's territory. The P.U.C. stated that January 1997 is still the target date for implementing full competition to all telecommunications markets, including the Company's territory. Further comments will be taken and hearings held to resolve a number of issues in order to develop the final rules for local service competition to be effective January 1, 1997. There are a number of regulatory proceedings occurring at the federal level that may have a material impact on the Company. These regulatory proceedings include, but are not limited to, consideration of changes to the interstate universal service fund and the regulation of local exchange carriers. In addition, the F.C.C. periodically establishes the authorized rate of return for interstate access services. Since January 1, 1991, the F.C.C. has established an 11.25% rate of return for interstate access services. In addition, in September 1992, the F.C.C. issued an order granting to competitors expanded interconnection rights to the facilities of local exchange carriers with annual revenues from regulated operations in excess of $100 million. These rules were overturned by the United States Court of Appeals. In 1994, the F.C.C. issued new rules to comply with the decision of the Court of Appeals. While not yet applicable to the Company, these rules will permit competitors to terminate facilities on terms and conditions equivalent to those which would apply if they were permitted to terminate their facilities in telephone company central offices. In addition, the F.C.C. initiated a separate notice of proposed rulemaking establishing a two-phase proceeding to modify interstate access rate structures to further competition in the provision of interstate services. An interim rate structure has been implemented pursuant to this notice of proposed rulemaking. The United States Telephone Association ("USTA") filed an action in the United States District Court in Washington, D.C. on behalf of its members, including the Company, alleging that current federal law prohibiting local telephone companies from owning or operating cable television systems in their telephone service territories is an unconstitutional infringement of their First Amendment rights. The court entered an order enjoining enforcement of the prohibition. The defendants, the United States Department of Justice and F.C.C., have declared their intention to appeal the court's decision as they have appealed similar decisions in favor of other telephone companies. The decision, if affirmed, will permit the Company to provide cable television in its telephone service area. In addition, the F.C.C. is currently proceeding with a rulemaking to consider how telephone companies may offer "video dialtone" services in their telephone service areas, including how common costs and plant are to be allocated between telephone and video service for accounting and ratemaking purposes. Video dialtone involves the provision of common carrier video transport for other video programmers. The outcome of the F.C.C. proceeding will determine, in part, whether the Company may profitably offer video dialtone service in its telephone service area. The proceeding will also consider how telephone companies provide cable television in their telephone service areas. The eventual impact on the Company of the effect of all the proceedings described above cannot presently be determined. Item 4. Submission of Matters to a Vote of Security Holders. On June 16, 1995, the Company held its regularly scheduled Annual Meeting of Shareholders, at which the shareholders: (1) Elected a Board of five (5) Directors; and (2) Considered and acted upon a proposal to approve the creation of a holding company by approving the Agreement and Plan of Reorganization described in the proxy solicitation materials prepared pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. The five nominees to serve as Directors, which constituted the existing Board of Directors, were all reelected to serve as Directors, by the following votes (out of 14,484,953 shares). Broker Nominees For Against/Withheld Abstentions Non-votes Robert L. Doyle 13,430,435 256,511 N/A N/A Brian H. Strom 13,428,465 258,481 N/A N/A Thomas E. Doyle 13,430,443 256,503 N/A N/A Ralph E. Hoeper 13,428,747 258,199 N/A N/A John R. Roberts III 13,429,737 257,209 N/A N/A The proposal to approve the creation of a holding company was approved by the following vote: Broker For Against/Withheld Abstentions Non-votes 12,444,093 782,650 N/A N/A Item 5. Other Information. On July 26, 1995, the Board of Directors of the Company adopted a resolution, subject to the approval of the P.U.C., declaring a stock dividend of up to three percent (3%) on the common stock of the Company, payable as soon as practicable after December 1, 1995 to shareholders of record of the Company at the close of business on such date. The Company subsequently filed an application for the stock dividend with the P.U.C. in August, 1995. 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 1995. 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 11, 1995 By: /s/BRIAN H. STROM Brian H. Strom, President and Chief Executive Officer Date: August 11, 1995 By: /s/MICHAEL D. CAMPBELL Michael D. Campbell, Vice-President and Chief Financial Officer EX-27 2
OPUR1 6-MOS DEC-31-1995 JUN-30-1995 PER-BOOK 175396000 22193000 51468000 1612000 0 250669000 156345000 0 12393000 168738000 0 0 35536000 0 0 0 3571000 0 0 0 42824000 250669000 49770000 5754000 0 37599000 12171000 1991000 14162000 1524000 8408000 0 8408000 4345000 0 17238000 .58 0