FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly 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 No. 2-70020
________________________________________
Lincoln Telecommunications Company
(Exact name of registrant as specified in its charter)
Nebraska 47-0632436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 M Street, Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 402-476-5289
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 equirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at June 30, 1994
$.25 par Value 32,353,927
PART I - FINANCIAL INFORMATION
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
The following consolidated financial statements of Lincoln
Telecommunications Company and its wholly owned subsidiaries have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, include
all adjustments necessary for a fair statement of income for each
period shown. All such adjustments made are of a normal recurring
nature except when noted as extraordinary or nonrecurring. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
SEC rules and regulations. Management believes that the disclosures
made are adequate and that the information is fairly presented. The
results for the interim periods are not necessarily indicative of the
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto in the 1993 Annual Report on Form 10-K
and in this year's prior Quarterly Report on Form 10-Q, which are
incorporated by reference.
-1-
Item 1 - Financial Statements
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1994 December 31,1993
(Unaudited) (Audited)
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Property and equipment less accumulated
depreciation and amortization $ 238,571 $ 246,104
Investments and other assets 46,471 47,163
Current assets 84,676 81,751
Deferred charges 20,111 20,261
--------- ---------
Total assets $ 389,829 $ 395,279
========= =========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock investment $ 185,618 $ 184,032
5% redeemable preferred stock 4,499 4,499
Long-term debt, excluding current
installments 44,000 44,000
--------- ---------
Total capitalization 234,117 232,531
--------- ---------
Current liabilities:
Notes payable to banks 31,700 41,500
Accounts payable and accrued liabilities 37,249 32,885
--------- ---------
Total current liabilities 68,949 74,385
--------- ---------
Deferred credits and other long-term liabilities 86,763 88,363
--------- ---------
Total capitalization and liabilities $ 389,829 $ 395,279
========= =========
</TABLE>
-2-
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
(Dollars in Thousands Except Per Share Data)
<CAPTION>
<S> <C> <C> <C> <C>
Telephone operating revenues:
Local network services $19,187 $17,525 $37,893 $34,516
Long distance services 3,595 3,685 7,127 7,612
Access services 12,540 11,589 25,318 23,277
Directory advertising, billing
and other services 4,222 4,121 8,351 8,241
Other operating revenues 3,651 3,486 7,278 6,930
------- ------- ------- -------
Total telephone operating
revenues 43,195 40,406 85,967 80,576
------- ------- ------- -------
Diversified operations revenues
and sales:
Long distance services 4,642 4,868 9,424 9,810
Product sales 2,593 1,875 4,795 3,309
Other revenues 86 85 172 172
------- ------- ------- -------
Total diversified operations
revenues and sales 7,321 6,828 14,391 13,291
------- ------- ------- -------
Intercompany revenues (1,843) (1,955) (3,672) (3,851)
------- ------- ------- -------
Total operating revenues 48,673 45,279 96,686 90,016
------- ------- ------- -------
Operating expenses:
Depreciation 7,982 7,135 15,940 14,179
Additional nonrecurring depreci-
ation on cellular equipment* -- -- 3,398 --
Cost of goods and services 4,544 4,434 9,074 8,505
Other operating expenses 21,962 21,229 44,298 42,805
Taxes, other than payroll
and income 898 907 1,848 1,602
Intercompany expenses (1,843) (1,955) (3,672) (3,851)
------- ------- ------- -------
Total operating expenses 33,543 31,750 70,886 63,240
------- ------- ------- -------
Operating income 15,130 13,529 25,800 26,776
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other
investments 1,203 1,066 2,357 1,950
Charge for additional non-
recurring depreciation on
cellular equipment in limited
partnership* -- -- 2,179 --
Interest expense and other
deductions 1,684 2,165 3,333 4,287
------- ------- ------- -------
(Continued on following page)
-3-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF INCOME (Cont'd)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
(Dollars in Thousands Except Per Share Data)
Net non-operating expense 481 1,099 3,155 2,337
------- ------- ------- -------
Income before income taxes and
cumulative effect of change
in accounting principle 14,649 12,430 22,645 24,439
Income taxes 5,683 4,460 8,701 8,397
Income before cumulative
effect of change in
accounting principle 8,966 7,970 13,944 16,042
Cumulative effect of change in
accounting principle -- -- -- (23,534)
------- ------- ------- -------
Net income (loss) 8,966 7,970 13,944 (7,492)
Preferred dividends 56 56 112 112
------- ------- ------- -------
Earnings (loss) attributable
to common shares 8,910 7,914 13,832 (7,604)
======= ======= ======= =======
Earnings per common share:
Earnings before cumulative
effect of change in
accounting principle .28 .24 .43 .49
Cumulative effect of change
in accounting principle -- -- -- (.72)
------- ------- ------- -------
Earnings (loss) per common share .28 .24 .43 (.23)
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 32,354 32,531 32,464 32,533
Dividends declared per common share .13 .12 .26 .24
*See comments under "Cellular Activities," pages 8 and 9.
</TABLE>
-4-
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, 1994 June 30, 1993
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 13,944 $ (7,492)
-------- --------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 15,955 14,205
Additional nonrecurring depreciation on
cellular equipment 3,398 --
Cumulative effect of change in accounting
principle -- 23,534
Equity in undistributed earnings of joint
venture and general partnership 3,627 1,087
Provision for losses on receivables 267 197
Deferred income taxes (1,962) (13,549)
Increase in note receivable from general
partnership (1,792) (1,596)
Changes in assets and liabilities resulting
from operating activities:
Receivables (6,961) (1,707)
Materials, supplies and other assets (411) (542)
Deferred charges 137 (15,346)
Accounts payable and accured expenses 2,698 2,752
Income taxes payable 1,419 (1,213)
Advance billings and customer deposits 248 89
Unamortized investment tax credits (530) (680)
Other deferred credits 892 29,760
-------- --------
Total adjustments 16,985 36,991
-------- --------
Net cash provided by operating
activities 30,929 29,499
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (12,282) (11,242)
Net salvage on retirements 547 (181)
-------- --------
Net capital additions (11,735) (11,423)
Proceeds from sale of investments and other
assets 27 85
Purchases of investments and other assets (1,242) (417)
Purchases of temporary investments (12,444) (22,496)
Maturities and sales of temporary investments 16,920 23,629
-------- --------
Net cash used for investing
activities (8,474) (10,622)
-------- --------
Cash flows from financing activities:
Dividends to stockholders (8,556) (7,600)
(Continued on following page)
-5-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Six Months Ended
June 30, 1994 June 30, 1993
(Dollars in Thousands)
Proceeds from issuance of notes payable 1,800 --
Retirement of notes payable (11,600) (500)
Purchase of treasury stock (3,920) (58)
Sale of treasury stock 117 --
Retirement and conversion of long-term debt and
redemption of preferred stock -- (125)
-------- --------
Net cash used in financing
activities (22,159) (8,283)
-------- --------
Net increase in cash and cash equivalents 296 10,594
Cash and cash equivalents at beginning of year 15,341 9,585
-------- --------
Cash and cash equivalents at end
of quarter $ 15,637 $ 20,179
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 2,923 $ 3,972
======== ========
Income taxes paid $ 9,760 $10,040
======== ========
</TABLE>
-6-
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO FORM 10-Q
The consolidated Form 10-Q reflects the operations of Lincoln
Telecommunications Company (the Company) and its wholly owned
subsidiaries. The primary subsidiary is The Lincoln Telephone and
Telegraph Company (LT&T) which provides local and long distance
telephone service in 22 southeastern counties of Nebraska. It further
provides cellular telecommunications services in the Lincoln, Nebraska
Metropolitan Statistical Area (MSA) (which includes all of Lancaster
County in Nebraska) under the name of Lincoln Telephone Cellular.
LinTel Systems Inc. (LinTel) provides telephone answering services,
sales of non-regulated telecommunications products and services and
toll services beyond LT&T's local service territory. Prairie
Communications, Inc. (Prairie) has a 50% investment in, and is the
operating partner of, a general partnership with Centel Nebraska, Inc.
which manages a limited partnership providing cellular
telecommunications services in the Omaha MSA (which includes Douglas
and Sarpy Counties in Nebraska and Pottawatomie County in Iowa). The
limited partnership is doing business as First Cellular Omaha (FCO).
A joint venture with Anixter Bros., Inc., doing business as Anixter-
Lincoln, warehouses and distributes electrical wire, cable, and
communications products in a six-state area which includes Nebraska,
North and South Dakota, Wyoming, Montana and Idaho.
General
Earnings per share of common stock are based on the weighted average
number of shares of common stock outstanding during the periods
presented herein. The weighted average shares used in the calculation
were 32,353,645 and 32,464,212 for the three- and six-month periods
ended June 30, 1994 and 32,531,399 and 32,532,879 for the same periods
in 1993 (restated to reflect the 100% stock dividend referred to
below).
On April 24, 1991 the Board of Directors of the Company authorized the
Company to purchase up to 600,000 shares of its common stock from time
to time as market conditions warrant. As of June 30, 1994, 274,376
shares have been purchased. These purchases are in addition to the
purchases which the Company has been making for purposes of satisfying
participant requirements under the Employee and Stockholder Dividend
Reinvestment and Stock Purchase Plan, satisfying Employer Matching and
Stock Bonus Contributions under the Company's 401(k) Savings and Stock
Ownership Plan and satisfying participant requirements under the
Company's 1989 Stock and Incentive Plan.
Effective January 6, 1994 the Company distributed a 100% stock
dividend to common stockholders of record on December 27, 1993, which
has been treated as a stock split for financial reporting purposes.
Common stock, premium on common stock and all per share information
has been retroactively adjusted to give effect to the stock dividend
for all periods presented.
-7-
On February 1, 1994 the Company entered into an agreement (Agreement)
with Sahara Enterprises, Inc. (Sahara), then an owner of approximately
16.6% of the issued and outstanding common stock of the Company in
connection with a firm commitment underwritten public offering of
shares of the Company's common stock by Sahara (Offering). The
Agreement provided (i) the Company with a right of first refusal to
purchase additional shares of Company common stock from Sahara for 120
days following the closing of the Offering; (ii) that, concurrently
with the closing of the Offering, the Company has purchased 250,000
shares of Company common stock from Sahara at the Offering price less
2 percent for future use in funding the Company's stock obligations
under one or more of its employee benefit plans; and (iii) that Sahara
has indemnified and has reimbursed the Company against payment of an
amount not to exceed the first $200,000 of the Company's out-of-pocket
expenses in connection with the Offering.
On February 1, 1994 the Company filed a Form S-3 Registration Statement
with the Securities and Exchange Commission in connection with the
Offering. On March 24, 1994 the Offering was closed and pursuant thereto,
Sahara sold 1,850,000 shares of Company common stock to the public,
reducing its ownership of the issued and outstanding Company common stock
to approximately 10%. Concurrently therewith and pursuant to the
Agreement, the Company purchased 250,000 shares of Company common stock
from Sahara for a purchase price of $15.68 per share, a transaction which
the Company financed with current assets. On April 12, 1994 Sahara sold
an additional 136,200 shares of the Company's Common Stock to the public
in connection with an over-allotment option which Sahara had granted in
connection with the Offering. Exclusive of shares of common stock
received by Sahara pursuant to Company stock dividends or stock splits,
Sahara (or its wholly-owned subsidiary) beneficially owned the shares sold
in the Offering and the 250,000 shares sold to the Company concurrently
therewith since the Company's formation as a holding company effective
February 23, 1981.
Cellular Activities
Due to changes in technology, customer growth, and usage demand for
cellular services in their respective markets Lincoln Telephone
Cellular and First Cellular Omaha have entered into an agreement with
AT&T dated March 15, 1994 to purchase digital cellular telephone
systems to replace the existing analog systems serving these markets.
These digital systems are expected to increase capacity and performance
in these markets. The new Omaha system was operational in April 1994 and
the Lincoln system is expected to be operational in mid-1995.
The implementation of these system upgrades will cause the early
retirement of existing analog equipment prior to the expiration of its
anticipated useful life. As a result, in the first quarter 1994, the
Company wrote down the value of these assets by approximately
$3,398,000. The after-tax impact of this one-time non-cash charge to
earnings was $2,050,000. The Company's share of a similar charge for
First Cellular Omaha was $2,179,000, producing an after-tax impact of
$1,314,000. The one-time non-cash reduction of first quarter 1994
earnings is approximately $3,364,000 or $.104 per share. See Non-
Operating Income (Expense), Page 15.
Lincoln Telecommunications increased its interest in Nebraska Cellular
Telephone Corporation (NCTC) by acquiring an additional 234,262 shares of
common stock from an existing NCTC shareholder. The purchase, announced
July 13, increases the company's interest in NCTC to 16.1 percent from
-8-
13.1 percent. NCTC provides cellular service outside the Lincoln and Omaha
metropolitan areas in Nebraska. Its network serves cellular users with
transparent interconnection along the Interstate corridor in Nebraska.
Changes in Accounting Principles
Income Taxes
On January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Statement 109 requires a change in the method of accounting for
deferred income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the accounting period in which the enactment occurs.
Generally accepted accounting principles for regulated enterprises
adopting Statement 109 required, in the case of LT&T, the recognition
of deferred regulatory charges and deferred regulatory credits of
$15,856,000 and $14,743,000, respectively. In September 1993, an
additional deferred regulatory charge of $1,223,000 was recognized to
account for the 1% increase in the federal income tax rate,
retroactive to January 1, 1993. The adjusted net effect of these
regulatory charges and credits of $2,336,000 was recorded on the
financial statements as of January 1, 1993 and September 30, 1993 as
an increase to deferred income tax liabilities and will be amortized
into income tax expense on the financial statements over a ten year
period.
Total income tax expense for the three- and six-month periods ended
June 30, 1994 and 1993 was $5,683,000 and $8,701,000; and $4,460,000
and $8,397,000, respectively, and was comprised solely of income taxes
on income from continuing operations. Income tax expense (benefit)
attributable to income from continuing operations for the six-month
periods ended June 30, 1994 and 1993 consists of:
Six Months Ended June 30,
1994 1993
------------ ------------
Current
U.S. Federal $ 9,151,000 $ 7,365,000
State and local 2,030,000 1,690,000
------------ ------------
11,181,000 9,055,000
Deferred
U.S. Federal (1,765,000) (183,000)
State and local (185,000) 205,000
------------- ------------
(1,950,000) 22,000
Investment tax credits (530,000) (680,000)
------------ ------------
$ 8,701,000 $ 8,397,000
============ ============
-9-
Income tax expense differed from the amounts computed by applying the
U. S. Federal income tax rate of 35 percent to pretax income from
continuing operations as stated in the following:
Six Months Ended June 30,
1994 1993
------------ ------------
Computed "expected" tax
expense $ 7,926,000 $ 8,309,000
Increase (reduction) in
income taxes resulting from:
State and local taxes, net
of Federal tax benefit 1,199,000 1,251,000
Non-taxable interest income (46,000) (31,000)
Amortization of regulatory
deferred charges 957,000 888,000
Amortization of regulatory
deferred liabilities (945,000) (1,003,000)
Amortization of investment
tax credits (530,000) (680,000)
Effect of FASB No. 109 adoption
on non-regulated income -- (305,000)
Other, net 140,000 (32,000)
------------ ------------
$ 8,701,000 $ 8,397,000
============ ============
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the six-month
periods ended June 30, 1994 and 1993 were the following:
Six Months Ended June 30,
1994 1993
------------ ------------
Deferred tax expense (benefit) $(1,962,000) $ 93,000
Amortization of regulatory
deferred charges 957,000 888,000
Amortization of regulatory
deferred liabilities (945,000) (1,003,000)
------------ ------------
$(1,950,000) $ 22,000
============ ============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 1994 and December 31, 1993 are in the following:
-10-
June 30, 1994 December 31, 1993
------------- -----------------
Deferred tax assets:
Accumulated post-retirement
benefit cost $16,355,000 $15,946,000
Regulatory deferred credits 5,371,000 5,884,000
Other 2,344,000 2,438,000
------------ ------------
Total gross deferred
tax assets 24,070,000 24,268,000
Less valuation allowance 0 0
------------ ------------
Net deferred tax assets $24,070,000 $24,268,000
============ ============
Deferred tax liabilities:
Plant and equipment,
principally due to
depreciation differences $39,419,000 $40,720,000
Regulatory deferred charges 3,781,000 4,036,000
Other 1,882,000 2,486,000
------------ ------------
Total gross deferred tax
liabilities 45,082,000 47,242,000
------------ ------------
Net deferred tax
liabilities $21,012,000 $22,974,000
============ ============
As a result of the nature and amount of the temporary differences
which give rise to the gross deferred tax liabilities and the
Company's expected taxable income in future years, no valuation
allowance for deferred tax assets as of December 31, 1993 and June 30,
1994 was necessary.
Postretirement Benefits
In addition to the Company's defined benefit pension plan, the Company
sponsors a health care plan that provides postretirement medical and
other benefits to employees who meet minimum age and service
requirements upon retirement.
In respect to these benefits, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," as of January 1, 1993.
The new standard requires accounting for these benefits during the
active employment of the participants. The Company elected to record
the accumulated postretirement benefit obligation in the first quarter
1993. After taxes, this one-time charge in 1993 amounted to
$23,166,000, net of income tax benefit of $15,258,000.
-11-
The following table presents the plan's status reconciled with amounts
recognized in the Company's consolidated balance sheet at December 31,
1993:
Accumulated Postretirement Benefit Obligation:
Retirees $29,851,000
Fully eligible active plan participants 10,202,000
Other active plan participants 7,328,000
------------
$47,381,000
Plan assets at fair market value --
Unrecognized net loss (7,054,000)
------------
Accrued postretirement benefit cost
recognized in the balance sheet $40,327,000
============
For purposes of measuring the benefit obligation, a discount rate of
8.0% and an 11.7% annual rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) was assumed for
1993. This rate of increase was assumed to decrease gradually to 5.5%
by the year 2004.
The Company has not designated any assets to fund plan obligations.
Net periodic postretirement benefit costs for the six-month periods
ended June 30, 1994 and 1993 include the following components:
Six Months Ended June 30,
1994 1993
------------ ------------
Service cost $ 214,000 $ 150,000
Interest cost 1,848,000 1,816,000
Amortization of
unrecognized loss 84,000 --
------------ ------------
Net periodic postretirement
benefit costs $ 2,146,000 $ 1,966,000
============ ============
For purposes of measuring the benefit cost, a discount rate of 9.5%
and a 12% annual rate of increase in the health care cost trend rate
was assumed for 1993. This rate of increase was assumed to decrease
gradually to 6.5% by the year 2002. The health care cost trend rate
assumptions have a significant effect on the amounts reported.
-12-
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Total capital additions to telephone plant for 1994 are now projected
to be $29,782,000. During the three- and six-month periods ended
June 30, 1994 and 1993, cash provided by operating activities, less
dividends paid, exceeded capital additions.
At June 30, 1994, the Company had consolidated short-term borrowings
of $31,700,000. LT&T short-term borrowings of $35,000,000 which were
completed July 6, 1993, were used to fund the call of long-term First
Mortgage Bond Issues G, I and J. The long-term debt interest savings,
net of premium and bond discount and issuance cost amortization
expenses, will exceed $2,511,000 for 1994. Short-term debt related
to the latter borrowings was reduced to $22,000,000 by June 30, 1994.
The Parent Company has short-term bank borrowings of $9,700,000. No
long-term borrowings are presently anticipated for the balance of
1994.
Results of Operations
Revenues
Second Quarter 1994 Six Months 1994
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1993 Months 1993
------------------- -------------------
Telephone Operating Revenues:
Local network services 9.5% 9.8%
Long distance services (2.4%) (6.4%)
Access services 8.2% 8.8%
Directory advertising, billing
and other services 2.5% 1.3%
Other operating revenues 4.7% 5.0%
Total telephone operating
revenues 6.9% 6.7%
Diversified Operations Revenues
and Sales:
Long distance services (4.6%) (3.9%)
Product sales 38.3% 44.9%
Other revenue 1.2% --
Total diversified operations
revenues and sales 7.2% 8.3%
Intercompany revenues 5.7% 4.6%
Total operating revenues 7.5% 7.4%
All comparisons hereinafter made are of the second quarter and six-
month periods for 1994 with the same periods in 1993. The adjustments
included are all of a normal recurring nature except when noted as
extraordinary or nonrecurring.
-13-
Local network services revenue increased $1,662,000 (9.5%) and $3,344,000
(9.8%), respectively. An important element is the growth in revenue from
LT&T's cellular services. Cellular service revenue increased $771.000
(52.3%) and $1,561,000 (57.1%), for the three- and six-month periods.
Cellular access lines grew 6,833 (67.7%) between June 30, 1993 and June 30,
1994. Basic local services revenue increased $500,000 (4.3%) and $1,166,000
(5.0%) led by growth in revenue from centrex and small business services.
Residential and business telephone access lines in service grew 2.9% from
June 30, 1993. Revenue from Custom Calling-CLASS services increased
$105,000 (59.3%) and $241,000 (70.7%), respectively.
Long distance services revenue decreased $90,000 (2.4%) and $485,000
(6.4%), respectively. The decrease is due primarily to reduced
revenue from a contract for providing Operator Services to AT&T.
Access services revenue increased $951,000 (8.2%) and $2,041,000
(8.8%), respectively. Both interstate and intrastate access services
revenues significantly increased principally due to increased traffic.
Total revenues from diversified operations grew by $493,000 (7.2%) and
$1,100,000 (8.3%), respectively, led by a growth of $718,000 (38.3%)
and $1,486,000 (44.9%), respectively, from sales of telecommunications
products and services by LinTel.
Overall, total operating revenues for telephone operations and diversified
operations increased $3,394,000 (7.5%) for the three-month and $6,670,000
(7.4%) for the six-month periods ended June 30, 1994 over the same periods
in 1993.
Operating Expenses
Second Quarter 1994 Six Months 1994
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1993 Months 1993
------------------- -------------------
Depreciation 11.9% 12.4%
Additional nonrecurring
depreciation on cellular
equipment -- --
Cost of goods and services 2.5% 6.7%
Other operating expenses 3.5% 3.5%
Taxes, other than payroll
and income (1.0%) 15.4%
Intercompany expenses 5.7% 4.6%
Total operating expenses 5.6% 12.1%
All comparisons hereinafter made are of the second quarter and six-
month periods for 1994 with the same periods in 1993. The adjustments
included are all of a normal recurring nature except when noted as
extraordinary or nonrecurring.
In addition to a one-time non-cash charge of $3,398,000 for additional
nonrecurring depreciation on cellular equipment in the first quarter
1994 (see "Cellular Activities" on Pages 8 and 9), depreciation
expense increased $847,000 (11.9%) and $1,761,000 (12.4%),
respectively. On March 16, 1994, the NPSC authorized new depreciation
rates for telephone plant, retroactive to January 1, 1994. These new
depreciation rates will generate approximately $2,700,000 of
additional depreciation expense during 1994.
-14-
Cost of goods and services increased $110,000 (2.5%) and $569,000 (6.7%),
respectively. The cost of system sales increased $285,000 (38.5%) and
$865,000 (76.1%), respectively, as a result of increased sales by LinTel.
Taxes, other than payroll and income, decreased $9,000 (1.0%) for the
second quarter, but increased $246,000 (15.4%) for the first six months,
due to repayment of refunds to counties and subdistricts in final
settlement of 1989 and 1990 property taxes which were received in first
quarter 1993.
Overall, total operating expenses increased $1,793,000 (5.6%) and
$7,646,000 (12.1%) for the three- and six-month periods ended June 30,
1994, respectively, over the same periods in 1993.
Non-Operating Income (Expense)
Second Quarter 1994 Six Months 1994
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1993 Months 1993
------------------- -------------------
Income from interest and
other investments 12.9% 20.9%
Charge for additional nonrecurring
depreciation on cellular equipment
in limited partnership -- --
Interest expense and other
deductions (22.2%) (22.3%)
Net non-operating expense (56.2%) 35.0%
Income from interest and other investments increased $137,000 (12.9%)
and $407,000 (20.9%), respectively. The increase is attributable to
a combination of three factors; 1) LT&T's income from interest and
other investments increased $257,000 (47.3%) over the first six months
of 1993 as a result of increased short-term investments and short-term
interest rates during the first four months of 1994; 2) the Company's
interest income from Omaha Cellular General Partnership increased
$196,000 to $1,792,000 in the first six months of the year; and 3)
Prairie's portion of Omaha Cellular General Partnership's operating
loss decreased $64,000 (6.5%) over the first six months in 1993.
The Company recorded a one-time non-cash charge of $2,179,000 for the
effect of the additional nonrecurring depreciation on cellular
equipment at First Cellular Omaha in the first quarter 1994. See
"Cellular Activities" on Pages 8 and 9.
Interest expense and other deductions decreased $481,000 (22.3%) and
$954,000 (22.3%) for the second quarter and six-month period, generally
attributable to the decrease in interest expense on funded debt of
$1,471,000 offset by interest expense of $517,000 on short-term borrowings.
Income Taxes
Income taxes increased $1,223,000 (27.4%) and $304,000 (3.6%) for the three-
and six-month periods. The increase in the second quarter is attributable
to increased income over the second quarter 1993. For the six-month period,
the increased income is offset by the increase in expense from the additional
nonrecurring depreciation on cellular equipment and the resulting decrease
in income before income taxes booked in the first quarter.
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PART II - OTHER INFORMATION
Item 1-5 - Not applicable
Item 6 - a) Not applicable.
b) During the quarter ended June 30, 1994 the
Registrant did not file a Form 8-K to report
materially important events, as described in
said Form, occurring during such period.
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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.
Lincoln Telecommunications Company
----------------------------------
(Registrant)
August 12, 1994 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
August 12, 1994 /s/ Michael J. Tavlin
Date..................... ......................................
(Signature)
Michael J. Tavlin, Vice President-
Treasurer
____________________________
*See General Instruction G
**Print name and title of the signing officer under his signature.
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