FORM 10-Q/A
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, 1995
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. 0-10516
---------------------------------------
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: 402-436-5289
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 requirements 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, 1995
$.25 par Value 36,605,299
THIS AMENDED FILING IS BEING TRANSMITTED DUE TO ERRORS DISCOVERED IN PART 1,
ITEM 1 - FINANCIAL STATEMENTS OF FORM 10-Q DATED SEPTEMBER 30, 1995 FILED
NOVEMBER 14, 1995. SPECIFICALLY, THE CONSOLIDATED STATEMENTS OF CASH FLOWS
(PGS 5 & 6) CONTAINED ERRORS IN PRESENTATION WHICH RENDERED IT INCOMPATIBLE
WITH MANAGEMENT'S DISCUSSION AND ANALYSIS, WHICH IS INCLUDED IN THIS AMENDED
FILING BUT WAS CORRECT AS ORIGINALLY STATED.
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 1994 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
Sep. 30, 1995 Dec. 31, 1994
(Unaudited) (Audited)
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets $ 78,087 $ 79,957
Property and equipment less accumulated
depreciation and amortization 273,460 241,770
Investments and other assets 178,178 52,578
Deferred charges 19,459 18,879
--------- ---------
Total assets $ 549,184 $ 393,184
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks 60,624 23,000
Accounts payable and accrued liabilities 40,542 39,324
--------- ---------
Total current liabilities 101,166 62,324
Deferred credits and other long-term liabilities 86,712 85,926
Long-term debt 74,000 44,000
Preferred stock, 5%, redeemable 4,499 4,499
Stockholders' equity 282,807 196,435
--------- ---------
Total liabilities and stockholders' equity $ 549,184 $ 393,184
========= =========
</TABLE>
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<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
1995 1994 1995 1994
(Dollars in Thousands Except Per Share Data)
<CAPTION>
<S> <C> <C> <C> <C>
Telephone operating revenues:*
Local network services $17,905 $17,022 $52,853 $50,209
Access services 14,073 12,593 40,136 37,911
Long distance services 7,485 8,137 23,275 24,184
Other wireline communications
services 6,022 6,315 17,929 18,286
------- ------- ------- -------
Total telephone operating
revenues 45,485 44,067 134,193 130,590
Wireless communications revenues 13,632 3,025 20,626 8,235
Telephone equipment sales and
services 4,794 4,722 14,392 13,260
Intercompany revenues (1,730) (2,078) (5,256) (5,750)
------- ------- ------- -------
Total operating revenues 62,181 49,736 163,955 146,335
------- ------- ------- -------
Operating expenses:
Depreciation and amortization 10,442 7,987 26,881 24,002
Additional non-recurring depreci-
ation on cellular equipment** -- -- -- 3,398
Other operating expenses 31,607 26,898 87,287 80,108
Restructuring charge 1,552 -- 1,552 --
Taxes, other than payroll
and income 857 927 2,563 2,775
Intercompany expenses (1,730) (2,078) (5,256) (5,750)
------- ------- ------- -------
Total operating expenses 42,728 33,734 113,027 104,533
------- ------- ------- -------
Operating income 19,453 16,002 50,928 41,802
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other
investments 1,819 1,433 4,991 3,790
Charge for additional non-recurring
depreciation on cellular equipment
in limited partnership** -- -- -- 2,179
Interest expense and other
deductions 2,698 1,649 5,981 4,982
------- ------- ------- -------
(Continued on following page)
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LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (Cont'd)
(UNAUDITED)
Three Months Ended Nine Months Ended
Sep. 30, Sep. 30, Sep. 30, Sep. 30,
1995 1994 1995 1994
(Dollars in Thousands Except Per Share Data)
Net non-operating expense 879 216 990 3,371
------- ------- ------- -------
Income before income taxes 18,574 15,786 49,938 38,431
Income taxes 7,344 6,085 19,493 14,786
Net income 11,230 9,701 30,445 23,645
------- ------- ------- -------
Preferred dividends 57 57 169 169
------- ------- ------- -------
Earnings available
for common shares 11,173 9,644 30,276 23,476
======= ======= ======= =======
Earnings per common share .31 .30 .90 .72
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 36,044 32,354 33,598 32,427
Dividends declared per common share .14 .13 .42 .39
*Certain reclassifications have been made to the historical consolidated
statements of earnings to conform to the current presentation.
**See comments under "Cellular Activities," pages 8 & 9.
</TABLE>
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<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sep. 30, 1995 Sep. 30, 1994
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,445 $ 23,645
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 26,905 27,423
Net change in investments and other assets (2,336) 213
Deferred income taxes 432 (2,032)
Changes in assets and liabilities resulting
from operating activities:
Receivables (3,683) (4,706)
Materials, supplies and other assets (759) 691
Accounts payable and accrued expenses (6,890) 1,485
Other Liabilities (653) (398)
-------- --------
Total adjustments 13,116 22,676
-------- --------
Net cash provided by operating
activities 43,461 46,321
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (31,572) (19,901)
Net salvage on retirements 2,006 819
-------- --------
Net capital additions (29,566) (19,082)
Proceeds from sale of investments and other
assets 1,098 27
Purchases of investments and other assets (2,711) (4,669)
Acquisition, net of cash acquired (297) --
Purchases of temporary investments (1,912) (14,358)
Maturities and sales of temporary investments 13,779 24,339
-------- --------
Net cash used for investing
activities (19,609) (13,743)
-------- --------
Cash flows from financing activities:
Dividends to stockholders (13,756) (12,819)
Proceeds from issuance of notes payable 3,350 1,800
Retirement of notes payable (13,615) (16,300)
Net purchases and sales of treasury stock (127) (3,803)
-------- --------
(Continued on following page)
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LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Nine Months Ended
Sep. 30, 1995 Sep. 30, 1994
(Dollars in Thousands)
Net cash provided by (used in)
financing activities (24,148) (31,122)
-------- --------
Net increase (decrease) in cash and
cash equivalents (296) 1,456
Cash and cash equivalents at beginning of year 22,038 15,341
-------- --------
Cash and cash equivalents at end
of quarter $ 21,742 $ 16,797
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 4,312 $ 3,321
======== ========
Taxes paid $ 20,540 $ 18,025
======== ========
</TABLE>
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LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation and Organization
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 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. On July 13, 1995, the Company acquired
Nebraska Cellular Telephone Corporation (NCTC) which provides cellular
service outside the Lincoln and Omaha metropolitan areas in Nebraska. This
acquisition accounted for as a purchase, is further described in Part II,
Item 5 of this report. LinTel Systems Inc. (LinTel) provides toll services
beyond LT&T's local service territory, sales of non-regulated
telecommunications products and services and telephone answering services.
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
hich includes Nebraska, North and South Dakota, Wyoming, Montana and Idaho.
The Company's telephone operations follow accounting for regulated
enterprises prescribed by statement of Financial Accounting Standard (FAS)
No. 71, Accounting for the Effects of Certain Types of Regulation. The
effect of FAS No. 71 results in regulatory assets of approximately
$11,831,000 and $13,745,000 at September 30, 1995 and 1994, respectively,
and regulatory liabilities of approximately $9,503,000 and $11,318,000 at
September 30, 1995 and 1994, respectively.
The Company presently gives accounting recognition to the actions of
regulators where appropriate, as prescribed by FAS No. 71, "Accounting for
the Effects of Certain Types of Regulation." Under FAS No. 71, the Company
records certain assets and liabilities because of the actions of
regulators. Amounts charged to operations for depreciation expense reflect
estimated useful lives and methods prescribed by regulators rather than
those that might otherwise apply to unregulated enterprises. In the event
the Company determines that it no longer meets the criteria for following
FAS No. 71, the accounting impact to the Company would be a one-time non-
cash charge to operations of an amount which would be material to the
consolidated financial statements. Criteria that give rise to the
discontinuance of FAS No. 71 include increasing competition, which
restricts the Company's ability to establish prices to recover specific
-7-
costs, possible obsolescence driven by accelerating technology, and a
significant change in the manner in which rates are set by regulators from
cost-based regulation to another form of regulation. The Company
periodically reviews these criteria to ensure that continuing application
of FAS No. 71 is appropriate.
Certain amounts previously reported for prior periods have been
reclassified to conform to the current period presentation in the
accompanying consolidated statements of earnings. The reclassifications
had no effect on the results of operations or shareholders' equity as
previously reported..
Earnings Per Share
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 33,597,845 for the
nine-month period ended September 30, 1995 and 32,427,046 for the same
period in 1994.
Stock Dividend
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.
(2) Cellular Activities
Due to changes in technology, customer growth, and usage demand for
cellular services in their respective markets, Lincoln Telephone Cellular
and FCO have purchased new cellular telephone systems to replace certain
existing analog systems serving these markets. These systems increased
capacity and performance in these markets. The FCO system was operational
in April 1994, and the Lincoln system became operational in April 1995.
The implementation of these system upgrades caused 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.
During the fourth quarter 1994, the Company recognized an additional charge
of approximately $363,000 after evaluating updated information related to
this analog equipment. The aggregate after-tax impact of these non-
recurring non-cash charges to earnings was $2,267,000. In March 1994, the
Company's share of a similar charge for FCO was $2,179,000, producing an
after-tax impact of $1,314,000. The aggregate non-recurring non-cash
reduction of 1994 earnings is approximately $3,581,000 or $.11 per share.
-8-
The following table sets forth unaudited supplemental financial and
operating data for the Company's cellular investments. The proportionate
results presented reflect the Company's ownership percentage of cellular
interests in which the Company exercises significant influence. This
supplemental information is not required by generally accepted accounting
principles; however, the Company believes that proportionate financial and
operating data facilitate the understanding and analysis of its cellular
operations.
OPERATING RESULTS(1) THIRD QUARTER YEAR TO DATE
(Dollars in thousands) 1995 1994 1993 1995 1994 1993
Service revenues (2) $14,850 $3,948 $2,609 $24,018 $10,669 $6,831
Operating income (3) 5,615 1,331 676 8,040 (2,201) 1,661
EBITDA (4) 7,318 1,726 946 10,844 4,479 2,395
EBITDA Margin (4) 49.3% 43.7% 36.3% 45.1% 42.0% 35.1%
OPERATING DATA (1)
POPs (5) 1,234,250 400,540 400,044 1,234,250 400,540 400,044
Cellular customers 107,057 25,921 16,059 107,057 25,921 16,059
Penetration rate 8.7% 6.5% 4.0% 8.7% 6.5% 4.0%
Average monthly
revenue (6) $47.53 $52.39 $56.73 $46.82 $51.68 $55.27
NOTES:
(1) At September 30, 1995, the Company's proportionate ownership
interests in the following managed entities were: Lincoln Telephone
Cellular (100%), Nebraska Cellular Telephone Corporation (100%,
effective in July, 1995), First Cellular Omaha (27.6%) and Iowa RSA 1
(11.8%, 11% in 1993). The proportionate data reflects the Company's
ownership interests in these markets. Those interests that are 100%
owned are consolidated and the other interests are accounted for on
the equity or cost method in the Company's consolidated financial
statements.
(2) Represents all service revenues net of out-bound roamer expenses and
excludes equipment sales
(3) Operating income excludes income taxes and interest expense.
(4) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA does not represent cash flow from operations or
cash available to the Company.
(5) POPs are the estimated market populations multiplied by the Company's
ownership interest in these markets.
(6) Represents average monthly service revenue per customer for the
quarter and nine months ended September 30 of each year presented.
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(3) Operator Services Force Reduction
During third quarter, LT&T, the local operating company, announced its
decision to reduce its operator service workforce from 140 to approximately
50 employees by the beginning of 1996. The remaining force will handle the
Company's long distance operator service needs. The Company offered
retirement and separation incentives along with out-placement services to
those employees affected by the force adjustment. These actions resulted in
a pre-tax non-recurring charge of $1,552,000 or $936,000 after the income
tax effect, reducing third quarter earnings per share by $0.03. Savings
resulting from new procedures are expected to offset this non-recurring
charge within two years.
(4) Income Taxes
Total income tax expense for the three- and nine-month periods ended
September 30, 1995 and 1994 was $7,345,000 and $6,085,000; and $19,493,000
and $14,786,000, 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, 1995 and 1994 consists of the following:
Nine Months Ended September 30,
1995 1994
------------ ------------
Current
U.S. Federal $16,364,000 $14,383,000
State and local 3,465,000 3,213,000
------------ ------------
19,829,000 17,596,000
Deferred
U.S. Federal 293,000 (1,893,000)
State and local 222,000 (121,000)
------------ ------------
515,000 (2,014,000)
Investment tax credits (851,000) (795,000)
------------ ------------
$19,493,000 $14,786,000
============ ============
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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,
1995 1994
------------ ------------
Computed "expected" tax
expense $17,478,000 $13,451,000
Increase (reduction) in
income taxes resulting from:
State and local taxes, net
of Federal tax benefit 2,397,000 (2,010,000)
Non-taxable interest income (51,000) (95,000)
Amortization of regulatory
deferred charges 1,436,000 1,436,000
Amortization of regulatory
deferred liabilities (1,343,000) (1,418,000)
Amortization of investment
tax credits (851,000) (795,000)
Other, net 427,000 197,000
------------ ------------
$19,493,000 $14,786,000
============ ============
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the nine-month
periods ended September 30, 1995 and 1994 were the following:
Nine Months Ended September 30,
1995 1994
------------ ------------
Deferred tax expense (benefit) $ 422,000 $(2,032,000)
Amortization of regulatory
deferred charges 1,436,000 1,436,000
Amortization of regulatory
deferred liabilities (1,343,000) (1,418,000)
------------ ------------
$ 515,000 $(2,014,000)
============ ============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1995 and December 31, 1994 are presented in the following:
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September 30, 1995 December 31, 1994
------------------ -----------------
Deferred tax assets:
Accumulated post-retirement
benefit cost $17,308,000 $16,739,000
Regulatory deferred credits 4,163,000 4,857,000
Other 5,223,000 2,537,000
------------ ------------
Total gross deferred
tax assets 26,694,000 24,133,000
Less valuation allowance (1,827,000) 0
------------ ------------
Net deferred tax assets $24,867,000 $24,133,000
============ ============
Deferred tax liabilities:
Plant and equipment,
principally due to
depreciation differences $40,395,000 $38,534,000
Regulatory deferred charges 3,145,000 3,527,000
Other 2,734,000 2,614,000
------------ ------------
Total gross deferred tax
liabilities 46,274,000 44,675,000
------------ ------------
Net deferred tax
liabilities $21,407,000 $20,542,000
============ ============
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, there is no valuation allowance for
deferred tax assets as of December 31, 1994. The September 30, 1995
valuation allowance of ($1,827,000) is the result of LB 775 economic
incentives acquired with the NCTC merger.
(5) 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.
-12-
The following table presents the Plan's status reconciled with amounts
recognized in the Company's consolidated balance sheet at December 31,
1994:
Accumulated Postretirement Benefit Obligation:
Retirees $30,872,000
Fully eligible active plan participants 11,994,000
Other active plan participants 7,622,000
------------
$50,488,000
Plan assets at fair market value --
Unrecognized prior service cost (170,000)
Unrecognized net loss (8,001,000)
------------
Accrued postretirement benefit cost
recognized in the balance sheet $42,317,000
============
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 1994. The
projected rates for 1995 are 8.0% and 11.8%, respectively. 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, 1995 and 1994 include the following components:
Nine Months Ended September 30,
1995 1994
------------ ------------
Service cost $ 289,000 $ 321,000
Interest cost 2,946,000 2,771,000
Unrecognized prior service cost 8,000 --
Amortization of
unrecognized loss 146,000 125,000
------------ ------------
Net periodic postretirement
benefit costs $ 3,389,000 $ 3,217,000
============ ============
For purposes of measuring the benefit costs, a discount rate of 8.0% and an
11.8% annual rate of increase in the health care cost trend rate was
assumed for 1995, 8.0% and 11.7% for 1994. This rate of increase was
assumed to decrease gradually to 5.5% by the year 2004. The health care
cost trend rate assumptions have a significant effect on the amounts
reported.
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(6) Temporary Investments
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Company will apply the provisions of this
accounting standard prospectively.
FAS No. 115 requires fair value reporting for certain investments in debt
and equity securities. Pursuant to FAS No. 115, the Company has classified
all of its investments as "available for sale" at September 30, 1995. This
information is summarized as follows:
Estimated
Amortized Gross Unrealized Market
Cost Gains Losses Value
--------- ----- ------ ---------
Equity Securities $ 1,415,000 41,000 (31,000) 1,425,000
U.S. Government obligations 797,000 -- (35,000) 762,000
U.S. Government agency
obligations 6,350,000 118,000 (154,000) 6,314,000
Corporate debt securities 4,415,000 58,000 (277,000) 4,196,000
----------- ------- --------- ----------
$12,977,000 217,000 (497,000) 12,697,000
=========== ======= ========= ==========
The net unrealized loss on investments available for sale is not reported
separately as a component of stockholders' equity due to its insignificance
to the consolidated balance sheet at September 30, 1995.
The amortized cost and estimated market value of debt securities at
September 30, 1995, by contractual maturity, are shown in the following.
Expected maturities will differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Amortized Market
Cost Value
--------- ---------
Due after three months through five years $ 9,560,000 $ 9,304,000
Due after five years through ten years 2,002,000 1,968,000
----------- -----------
$11,562,000 $11,272,000
=========== ============
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements for the nine months
ended September 30, 1995. The Company does not invest in securities
classified as held to maturity or traded securities.
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Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Total capital additions to communications facilities for 1995 are now
projected to be $54,735,000. During the nine-month period ended
September 30, 1995, capital expenditures exceeded cash provided by
operating activities, less dividends paid. Short-term borrowings and
temporary investments are used to fund the expenditures in excess of cash
provided by operating activities. These capital expenditures included
$11,396,000 of the cost of the new cellular telephone system purchased by
Lincoln Telephone Cellular and put in operation in April 1995.
The Company consummated the acquisition of NCTC on July 13, 1995. In
connection with this acquisition, the following assets were acquired,
liabilities assumed/incurred and common stock issued (in thousands):
Property, plant and equipment $ 28,101
Excess cost of net assets acquired 126,702
Notes payable assumed (17,890)
Other assets and liabilities,
excluding cash and cash equivalents 74
Prior investment in NCTC (6,282)
Common stock issued (70,408)
Notes payable incurred (30,000)
Long-term debt incurred due 07/01/00 (30,000)
---------
Decrease in cash $ 297
=========
This acquisition is reflected in the investing activities of the Company's
consolidated statement of cash flows and further explained in Part II,
Item 5.
As of September 30, 1995, the Company had consolidated notes payable of
$60,624,000 consists primarily of $30,000,000 used in financing the NCTC
merger; $17,890,000 assumed from NCTC as a result of the merger; and
$9,000,000 remains from borrowings of $35,000,000 used to fund the call of
long-term mortgage bonds. The Company utilized short and long-term bank
credit facilities to fund the cash portion of the purchase price paid in
connection with the cash-election merger of NCTC into a wholly-owned
subsidiary of the Company.
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Results of Operations
Revenues
Third Quarter 1995 Nine Months 1995
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1994 Months 1994
------------------- -------------------
Telephone Operating Revenues:
Local network services 5.2% 5.3%
Access services 11.8% 5.9%
Long distance services (8.0%) (3.8%)
Other wireline communications (4.6%) (2.0%)
services
Total telephone operating 3.2% 2.8%
revenues
Wireless communications revenues 350.6% 150.5%
Telephone equipment sales and 1.5% 8.5%
services
Intercompany revenues 16.7% 8.6%
Total operating revenues 25.0% 12.0%
All comparisons hereinafter made are of the third quarter and nine-month
periods for 1995 with the same periods in 1994. The adjustments included
are all of a normal recurring nature except when noted as extraordinary or
nonrecurring.
Local network services revenue increased $883,000 (5.2%) and $2,644,000
(5.3%), respectively. Basic local services revenue increased $666,000
(5.4%) and $1,828,000 (5.0%) led by growth in revenue from residence and
small business services for the three- and nine-month periods. Residential
and business telephone access lines in service grew by 7,640 (3.1%) from
September 30, 1994. Revenue from Custom Calling-CLASS services increased
$109,000 (38.3%) and $282,000 (32.5%), respectively.
Access services revenue increased $1,480,000 (11.8%) and $2,225,000 (5.9%),
respectively. Interstate access services revenues increased $1,235,000
(16.5%) and $1,254,000 (5.4%), respectively, principally due to the
expiration of a liability for the 1991-92 monitoring period and new tariffs
which became effective in the third quarter. Intrastate access revenues
have increased uniformly due to increased traffic $235,000 (4.6%) and
$971,000 (6.5%) for the three- and nine-month periods. Overall minutes of
access use increased by 7.1% and 7.3%, respectively.
Long distance services revenues decreased $652,000 (8.0%) and $909,000
(3.8%), respectively. Revenues from LinTel's long distance division
decreased $356,000 (7.8%) and $614,000 (4.4%). Minutes of use remained
constant; competition forced rates to decrease, and thus, decreased
revenues. LT&T's long distance revenue decreased $296,000 (8.4%) for the
third quarter and decreased $296,000 (2.9%) for the nine-month period
compared to the same periods in 1994.
Other wireline communications services revenues, consisting of directory
advertising and sales, carrier billing and collections, data
communications, and miscellaneous items, decreased $293,000 (4.6%) and
$357,000 (2.0%), respectively.
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Wireless communications revenues increased dramatically for the three- and
nine-month periods, principally due to the merger with NCTC. These
revenues increased $10,607,000 (350.6%) and $12,391,000 (150.5%), of which,
$9,800,000 are revenues from NCTC. Lincoln Telephone Cellular revenues
increased $2,593,000 (31.5%) for the nine-month period and added 8,236 new
customers. Customer penetration rates reached 11.8% for Lincoln Telephone
Cellular and 8.4% for NCTC at the end of September 1995.
Telephone equipment sales and services revenues increased $1,132,000 (8.5%)
for the nine-month period. LinTel's sales of telecommunication products
and services increased $1,111,000 (14.5%).
Overall, total operating revenues increased $12,445,000 (25.0%) and
$17,620,000 (12.0%) for the three- and nine-month periods ended September
30, 1995 over the same periods in 1994.
Operating Expenses
Third Quarter 1995 Nine Months 1995
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1994 Months 1994
------------------- -------------------
Depreciation and amortization 30.7% 12.0%
Additional non-recurring
depreciation on cellular
equipment -- (100.0%)
Other operating expenses 17.5% 9.0%
Restructuring charge -- --
Taxes, other than payroll
and income (7.6%) (7.6%)
Intercompany expenses 16.7% 8.6%
Total operating expenses 26.7% 8.1%
All comparisons hereinafter made are of the third quarter and nine-month
periods for 1995 with the same periods in 1994. The adjustments included
are all of a normal recurring nature except when noted as extraordinary or
nonrecurring.
Depreciation and amortization increased $2,455,000 (30.7%) and $2,879,000
(12.0%), respectively. This is due principally to the integration of
NCTC's depreciation expense and amortization associated with the merger
with NCTC.
Other operating expenses increased by $4,709,000 (17.5%) and $7,179,000
(9.0%), respectively. Incorporation of NCTC led to these significant
increases.
The restructuring charge of $1,552,000 is due to the Operator Services
workforce reduction discussed previously on page 10.
Overall, total operating expenses increased $8,994,000 (26.7%) and
$8,494,000 (8.1%) for the three- and nine-month periods ended September 30,
1995, over the same periods in 1994.
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Non-Operating Income (Expense)
Third Quarter 1995 Nine Months 1995
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1994 Months 1994
------------------- -------------------
Income from interest and
other investments 26.9% 31.7%
Charge for additional non-recurring
depreciation on cellular equipment
in limited partnership -- (100.0%)
Interest expense and other
deductions 63.6% 20.1%
Net non-operating expense 306.9% (70.6%)
Income from interest and other investments increased $386,000 (26.9%) and
$1,201,000 (31.7%), respectively. The increase is primarily attributable
to two factors; 1) the Company's interest income from Omaha Cellular
General Partnership increased $320,000 to $3,078,000 in the first nine
months of the year; and 2) the Company's net of tax income from Anixter-
Lincoln increased $543,000 (276.1%) over the first nine months of 1994.
Interest expense and other deductions increased $1,049,000 (63.6%) and
$999,000 (20.1%) respectively. The increases are a result of interest
expense in the third quarter from short- and long-term debt related to the
NCTC merger.
Income Taxes
Income taxes increased $1,259,000 (20.7%) and $4,707,000 (31.8%) for the
three- and nine-month periods. The increase is attributable to increased
revenues and operating income over the third quarter and first nine months
of 1994.
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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)
November 29, 1995 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
November 29, 1995 /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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