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 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 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 September 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
Reports on Form 10-Q, which are incorporated by reference.
-1-
Item 1 - Financial Statements
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sept 30, 1994 December 31, 1993
(Unaudited) (Audited)
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Property and equipment less accumulated
depreciation and amortization $ 237,892 $ 246,104
Investments and other assets 51,483 47,163
Current assets 78,654 81,751
Deferred charges 18,828 20,261
--------- ---------
Total assets $ 386,857 $ 395,279
========= =========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock investment $ 191,056 $ 184,032
5% redeemable preferred stock 4,499 4,499
Long-term debt 44,000 44,000
--------- ---------
Total capitalization 239,555 232,531
--------- ---------
Current liabilities:
Notes payable to banks 27,000 41,500
Accounts payable and accrued liabilities 34,184 32,885
--------- ---------
Total current liabilities 61,184 74,385
--------- ---------
Deferred credits and other long-term liabilities 86,118 88,363
--------- ---------
Total capitalization and liabilities $ 386,857 $ 395,279
========= =========
</TABLE>
-2-
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1994 1993 1994 1993
(Dollars in Thousands Except Per Share Data)
<CAPTION>
<S> <C> <C> <C> <C>
Telephone operating revenues:
Local network services $19,742 $18,154 $57,635 $52,670
Long distance services 3,850 3,964 10,977 11,576
Access services 12,593 11,955 37,911 35,232
Directory advertising, billing
and other services 4,232 4,099 12,583 12,340
Other operating revenues 3,878 3,541 11,156 10,471
------- ------- ------- -------
Total telephone operating
revenues 44,295 41,713 130,262 122,289
------- ------- ------- -------
Diversified operations revenues
and sales:
Long distance services 4,592 4,911 14,016 14,721
Product sales 2,886 2,228 7,681 5,537
Other revenues 93 85 265 257
------- ------- ------- -------
Total diversified operations
revenues and sales 7,571 7,224 21,962 20,515
------- ------- ------- -------
Intercompany revenues (2,078) (1,909) (5,750) (5,760)
------- ------- ------- -------
Total operating revenues 49,788 47,028 146,474 137,044
------- ------- ------- -------
Operating expenses:
Depreciation 7,950 7,194 23,890 21,373
Additional nonrecurring depreci-
ation on cellular equipment -- -- 3,398 --
Cost of goods and services 4,780 4,511 13,854 13,016
Other operating expenses 22,207 21,817 66,505 64,622
Taxes, other than payroll
and income 927 313 2,775 1,915
Intercompany expenses (2,078) (1,909) (5,750) (5,760)
------- ------- ------- -------
Total operating expenses 33,786 31,926 104,672 95,166
------- ------- ------- -------
Earnings from operations 16,002 15,102 41,802 41,878
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other
investments 1,433 1,150 3,790 3,100
Charge for additional non-
recurring depreciation on
cellular equipment in limited
partnership -- -- 2,179 --
(Continued on following page)
-3-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (Cont'd)
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1994 1993 1994 1993
(Dollars in Thousands Except Per Share Data)
Interest expense and other
deductions 1,649 2,592 4,982 6,879
------- ------- ------- -------
Net non-operating expense 216 1,442 3,371 3,779
------- ------- ------- -------
Earnings before income taxes and
cumulative effect of change
in accounting principle 15,786 13,660 38,431 38,099
Income taxes 6,085 5,384 14,786 13,781
Earnings before cumulative
effect of change in
accounting principle 9,701 8,276 23,645 24,318
Cumulative effect of change in
accounting principle -- -- -- (23,166)
------- ------- ------- -------
Net earnings 9,701 8,644 23,645 1,152
Preferred dividends 57 57 169 169
------- ------- ------- -------
Earnings available
for common shares 9,644 8,587 23,476 983
======= ======= ======= =======
Earnings per common share:
Earnings before cumulative
effect of change in
accounting principle .30 .25 .72 .74
Cumulative effect of change
in accounting principle -- .01 -- (.71)
------- ------- ------- -------
Earnings per common share .30 .26 .72 .03
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 32,354 32,533 32,427 32,533
Dividends declared per common share .13 .12 .39 .36
</TABLE>
-4-
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sept 30, 1994 Sept 30, 1993
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 23,645 $ 1,152
-------- --------
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 23,913 21,465
Additional nonrecurring depreciation on
cellular equipment 3,398 --
Cumulative effect of change in accounting
principle -- 23,166
Equity in undistributed earnings of joint
venture and general partnership 2,954 1,381
Provision for losses on receivables 390 321
Deferred income taxes (2,032) (12,420)
Increase in note receivable from general
partnership (2,741) (2,441)
Changes in assets and liabilities resulting
from operating activities:
Receivables (5,096) (3,549)
Materials, supplies and other assets (722) (1,009)
Deferred charges 1,413 (15,728)
Accounts payable and accrued expenses 1,485 3,650
Income taxes payable (467) (837)
Advance billings and customer deposits 282 244
Unamortized investment tax credits (795) (1,020)
Other deferred credits 582 30,036
-------- --------
Total adjustments 22,564 43,259
-------- --------
Net cash provided by operating
activities 46,209 44,411
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (19,901) (17,687)
Net salvage on retirements 931 (41)
-------- --------
Net capital additions (18,970) (17,728)
Proceeds from sale of investments and other
assets 27 85
Purchases of investments and other assets (4,669) (564)
Purchases of temporary investments (14,358) (27,782)
Maturities and sales of temporary investments 24,339 26,417
-------- --------
Net cash used for investing
activities (13,631) (19,572)
-------- --------
(Continued on following page)
-5-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Nine Months Ended
Sept 30, 1994 Sept 30, 1993
(Dollars in Thousands)
Cash flows from financing activities:
Dividends to stockholders (12,819) (11,554)
Proceeds from issuance of notes payable 1,800 35,000
Retirement of notes payable (16,300) (4,000)
Purchase of treasury stock (3,920) (58)
Sale of treasury stock 117 67
Retirement and conversion of long-term debt and
redemption of preferred stock -- (34,875)
-------- --------
Net cash used in financing
activities (31,122) (15,420)
-------- --------
Net increase in cash and cash equivalents 1,456 9,419
Cash and cash equivalents at beginning of year 15,341 9,585
-------- --------
Cash and cash equivalents at end
of quarter $ 16,797 $ 19,004
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 3,321 $ 4,934
======== ========
Income taxes paid $ 18,025 $ 14,851
======== ========
</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 32,353,927 and 32,427,046 for the three- and nine-month periods
ended September 30, 1994 and 32,532,989 and 32,532,916 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 September 30, 1994,
274,376 shares have been purchased. No shares have been purchased
since the second quarter of 1993. 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 certain 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 certain 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.
-8-
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, 1994, increases the company's interest in NCTC to
16.1 percent from 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 80 corridor and other major highway systems across
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 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 nine-month periods ended
September 30, 1994 and 1993 was $6,085,000 and $14,786,000; and
$5,384,000 and $13,781,000, 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
nine-month periods ended September 30, 1994 and 1993 consists of:
-9-
Nine Months Ended September 30,
1994 1993
----------- -----------
Current
U.S. Federal $14,383,000 $11,584,000
State and local 3,213,000 2,556,000
------------ ------------
17,596,000 14,140,000
Deferred
U.S. Federal (1,893,000) 285,000
State and local (121,000) 376,000
------------ ------------
(2,014,000) 661,000
Investment tax credits (795,000) (1,020,000)
------------ ------------
$14,786,000 $13,781,000
============ ============
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:
Nine Months Ended September 30,
1994 1993
------------ ------------
Computed "expected" tax
expense $13,451,000 $13,335,000
Increase (reduction) in
income taxes resulting from:
State and local taxes, net
of Federal tax benefit 2,010,000 1,906,000
Non-taxable interest income (95,000) (60,000)
Amortization of regulatory
deferred charges 1,436,000 1,434,000
Amortization of regulatory
deferred liabilities (1,418,000) (1,505,000)
Amortization of investment
tax credits (795,000) (1,020,000)
Effect of FASB No. 109 adoption
on non-regulated income -- (236,000)
Other, net 197,000 (73,000)
------------ ------------
$14,786,000 $13,781,000
============ ============
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the nine-month
periods ended September 30, 1994 and 1993 were the following:
Nine Months Ended September 30,
1994 1993
------------ ------------
Deferred tax expense (benefit) $(2,032,000) $ 732,000
Amortization of regulatory
deferred charges 1,436,000 1,434,000
Amortization of regulatory
deferred liabilities (1,418,000) (1,505,000)
------------ ------------
$(2,014,000) $ 661,000
============ ============
-10-
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1994 and December 31, 1993 are presented below:
September 30, 1994 December 31, 1993
------------------ -----------------
Deferred tax assets:
Accumulated post-retirement
benefit cost $16,551,000 $15,946,000
Regulatory deferred credits 5,114,000 5,884,000
Other 2,537,000 2,438,000
------------ ------------
Total gross deferred
tax assets 24,202,000 24,268,000
Less valuation allowance 0 0
------------ ------------
Net deferred tax assets $24,202,000 $24,268,000
============ ============
Deferred tax liabilities:
Plant and equipment,
principally due to
depreciation differences $39,369,000 $40,720,000
Regulatory deferred charges 3,654,000 4,036,000
Other 2,121,000 2,486,000
------------ ------------
Total gross deferred tax
liabilities 45,144,000 47,242,000
------------ ------------
Net deferred tax liabilities $20,942,000 $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
September 30, 1994 was necessary.
Postretirement Benefits
In addition to the Company's defined benefit pension plan, the Company
sponsors a health care plan (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.
The following table presents the Plan's status reconciled with amounts
recognized in the Company's consolidated balance sheet at December 31,
1993:
-11-
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 nine-month periods
ended September 30, 1994 and 1993 include the following components:
Nine Months Ended September 30,
1994 1993
------------ ------------
Service cost $ 321,000 $ 225,000
Interest cost 2,771,000 2,724,000
Amortization of
unrecognized loss 125,000 --
------------ ------------
Net periodic postretirement
benefit costs $ 3,217,000 $ 2,949,000
============ ============
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 nine-month periods ended
September 30, 1994 and 1993, cash provided by operating activities,
less dividends paid, exceeded capital additions.
At September 30, 1994, the Company had consolidated short-term
borrowings of $27,000,000. LT&T had short-term borrowings of
$35,000,000 which were completed July 6, 1993 and were used to fund
the call of long-term First Mortgage Bond Issues G, I and J. The
interest savings on long-term debt, net of premium and bond discount
and issuance cost amortization expenses, will exceed $2,511,000 for
1994. Short-term debt related to the LT&T borrowings was reduced to
$19,000,000 by September 30, 1994. At that date, the Company had
short-term bank borrowings of $8,000,000. No long-term borrowings are
presently anticipated for the balance of 1994.
Results of Operations
Revenues
Third Quarter 1994 Nine Months 1994
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1993 Months 1993
------------------- -------------------
Telephone Operating Revenues:
Local network services 8.7% 9.4%
Long distance services (2.9%) (5.2%)
Access services 5.3% 7.6%
Directory advertising, billing
and other services 3.2% 2.0%
Other operating revenues 9.5% 6.5%
Total telephone operating
revenues 6.2% 6.5%
Diversified Operations Revenues
and Sales:
Long distance services (6.5%) (4.8%)
Product sales 29.5% 38.7%
Other revenue 9.4% 3.1%
Total diversified operations
revenues and sales 4.8% 7.1%
Intercompany revenues (8.9%) --
Total operating revenues 5.9% 6.9%
All comparisons hereinafter made are of the third quarter and nine-
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 $1,558,000 (8.7%) and
$4,965,000 (9.4%), respectively. An important element is the growth
in revenue from LT&T's cellular services. Cellular service revenue
increased $823,000 (49.3%) and $2,384,000 (54.2%), for the three- and
nine-month periods. Cellular access lines grew 7,035 (61.4%) between
September 30, 1993 and September 30, 1994. Basic local services
revenue increased $518,000 (4.4%) and $1,685,000 (4.8%) led by growth
in revenue from residential and small business services for the three-
month period and centrex and small business services for the nine-
month period. Residential and business telephone access lines in
service grew 3.7% from September 30, 1993. Revenue from Custom
Calling-CLASS services increased $87,000 (43.9%) and $328,000 (60.9%),
respectively.
Long distance services revenue decreased $114,000 (2.9%) and $599,000
(5.2%), respectively. The decrease is due primarily to reduced
revenue from a contract for providing Operator Services to AT&T.
Access services revenue increased $638,000 (5.3%) and $2,679,000
(7.6%), respectively. Both interstate and intrastate access services
revenues significantly increased principally due to increased traffic.
Total revenues from diversified operations grew by $347,000 (4.8%) and
$1,447,000 (7.1%), respectively, led by a growth of $658,000 (29.5%)
and $2,144,000 (38.7%), respectively, from sales of telecommunications
products and services by LinTel. Revenues from Lincoln Telephone Long
Distance services decreased by $319,000 (6.5%) and $705,000 (4.8%),
respectively. These decreases resulted from a decrease in minutes of
use and a decrease in the average revenue per minute of 4.6% and 4.2%,
respectively.
Overall, total operating revenues for telephone operations and
diversified operations increased $2,760,000 (5.9%) for the three-month
and $9,430,000 (6.9%) for the nine-month periods ended September 30,
1994 over the same periods in 1993.
Operating Expenses
Third Quarter 1994 Nine Months 1994
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1993 Months 1993
------------------- -------------------
Depreciation 10.5% 11.8%
Additional nonrecurring
depreciation on cellular
equipment -- --
Cost of goods and services 6.0% 6.4%
Other operating expenses 1.8% 2.9%
Taxes, other than payroll
and income 196.2% 44.9%
Intercompany expenses (8.9%) --
Total operating expenses 5.8% 10.0%
All comparisons hereinafter made are of the third quarter and nine-
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.
-14-
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 $756,000 (10.5%) and $2,517,000 (11.8%),
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.
Cost of goods and services increased $269,000 (6.0%) and $838,000
(6.4%), respectively. The cost of system sales increased $396,000
(42.3%) and $1,262,000 (60.9%), respectively, as a result of increased
sales by LinTel, offset in part by reduced costs of providing long
distance services.
Taxes, other than payroll and income, increased $614,000 (196.2%) and
$860,000 (44.9%), respectively. The increases over the 1993 amounts
are due to the refunds of and accruals for refunds of 1989 and 1990
property taxes occurring in 1993. The 1994 expenses for taxes other
than payroll and income have been uniform on a monthly basis.
Overall, total operating expenses increased $1,860,000 (5.8%) and
$9,506,000 (10.0%) for the three- and nine-month periods ended
September 30, 1994, respectively, over the same periods in 1993.
Non-Operating Income (Expense)
Third Quarter 1994 Nine Months 1994
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1993 Months 1993
------------------- -------------------
Income from interest and
other investments 24.6% 22.3%
Charge for additional nonrecurring
depreciation on cellular equipment
in limited partnership -- --
Interest expense and other
deductions (36.4%) (27.6%)
Net non-operating expense (85.0%) (10.8%)
Income from interest and other investments increased $283,000 (24.6%)
and $690,000 (22.3%), respectively. The increase is attributable to
a combination of three factors; 1) LT&T's income from interest and
other investments increased $362,000 (40.3%) over the first nine
months of 1993 as a result of increased short-term interest rates on
investments during the first four months of 1994; 2) the Company's
interest income from Omaha Cellular General Partnership increased
$300,000 to $2,741,000 in the first nine months of the year; and 3)
Prairie's portion of Omaha Cellular General Partnership's operating
loss decreased $192,000 (13.3%) over the first nine months of 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.
-15-
Interest expense and other deductions decreased $943,000 (36.4%) and
$1,897,000 (27.6%) for the third quarter and nine-month periods,
generally attributable to the decrease in interest expense on funded
debt of $2,337,000 offset by increase in interest expense of $491,000
on short-term borrowings.
Income Taxes
Income taxes increased $701,000 (13.0%) and $1,005,000 (7.2%) for the
three- and nine-month periods. The increase in the third quarter is
attributable to increased income over the third quarter 1993. For
explanation of the increase in the nine-month period, see second table
on page 10.
-16-
PART II - OTHER INFORMATION
Item 1-5 - Not applicable
Item 6 - a) Not applicable.
b) During the quarter ended September 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.
-17-
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)
November 14, 1994 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
November 14, 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.
-18-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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-19-
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