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, 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 June 30, 1995
$.25 par Value 32,326,647
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 Report on Form 10-Q,
which are incorporated by reference.
-1-
Item 1 - Financial Statements
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, 1995 Dec. 31, 1994
(Unaudited) (Audited)
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current assets $ 68,131 $ 79,957
Property and equipment less accumulated
depreciation and amortization 247,221 241,770
Investments and other assets 55,065 52,578
Deferred charges 20,896 18,879
--------- ---------
Total assets $ 391,313 $ 393,184
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks 16,100 23,000
Accounts payable and accrued liabilities 33,934 39,324
--------- ---------
Total current liabilities 50,034 62,324
--------- ---------
Deferred credits and other long-term liabilities 86,642 85,926
--------- ---------
Long-term debt 44,000 44,000
--------- ---------
Preferred stock, 5%, redeemable 4,499 4,499
--------- ---------
Stockholders' equity 206,138 196,435
--------- ---------
Total liabilities and stockholders' equity $ 391,313 $ 393,184
========= =========
</TABLE>
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<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
(Dollars in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Telephone operating revenues:
Local network services $20,865 $19,187 $41,245 $37,893
Access services 12,866 12,540 26,063 25,318
Long distance services 3,729 3,595 7,320 7,127
Directory advertising, billing
and other services 4,274 4,222 8,464 8,351
Other operating revenues 3,517 3,651 7,027 7,278
------- ------- ------- -------
Total telephone operating
revenues 45,251 43,195 90,119 85,967
------- ------- ------- -------
Diversified operations revenues
and sales:
Long distance services 4,393 4,642 9,166 9,424
Product sales 3,342 2,593 5,717 4,795
Other revenues 94 86 187 172
------- ------- ------- -------
Total diversified operations
revenues and sales 7,829 7,321 15,070 14,391
------- ------- ------- -------
Intercompany revenues (1,769) (1,843) (3,526) (3,672)
------- ------- ------- -------
Total operating revenues 51,311 48,673 101,663 96,686
------- ------- ------- -------
Operating expenses:
Depreciation 8,275 7,982 16,293 15,940
Additional non-recurring depreci-
ation on cellular equipment -- -- -- 3,398
Cost of goods and services 4,808 4,544 9,138 9,074
Other operating expenses 23,021 21,962 46,578 44,298
Taxes, other than payroll
and income 832 898 1,706 1,848
Intercompany expenses (1,769) (1,843) (3,526) (3,672)
------- ------- ------- -------
Total operating expenses 35,167 33,543 70,189 70,886
------- ------- ------- -------
Operating income 16,144 15,130 31,474 25,800
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other
investments 1,727 1,203 3,172 2,357
(Continued on following page)
-3-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (Cont'd)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
(Dollars in Thousands Except Per Share Data)
Charge for additional non-
recurring depreciation on
cellular equipment in limited
partnership -- -- -- 2,179
Interest expense and other
deductions 1,584 1,684 3,283 3,333
------- ------- ------- -------
Net non-operating expense (143) 481 111 3,155
------- ------- ------- -------
Income before income taxes 16,287 14,649 31,363 22,645
Income taxes 6,312 5,683 12,148 8,701
------- ------- ------- -------
Net income 9,975 8,966 19,215 13,944
Preferred dividends 56 56 112 112
------- ------- ------- -------
Earnings available
for common shares 9,919 8,910 19,103 13,832
======= ======= ======= =======
Earnings per common share .31 .28 .59 .43
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 32,337 32,354 32,354 32,464
Dividends declared per common share .14 .13 .28 .26
</TABLE>
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<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30, 1995 June 30, 1994
(Dollars in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,215 $ 13,944
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 16,380 19,353
Net change in investments and other assets (1,178) 1,835
Deferred income taxes 236 (1,962)
Changes in assets and liabilities resulting
from operating activities:
Receivables (2,890) (6,694)
Materials, supplies and other assets (2,343) (274)
Accounts payable and accrued expenses (4,183) 2,698
Other Liabilities (724) 2,029
-------- --------
Total adjustments 5,298 16,985
-------- --------
Net cash provided by operating
activities 24,513 30,929
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (22,039) (12,282)
Net salvage on retirements 296 547
-------- --------
Net capital additions (21,743) (11,735)
-------- --------
Proceeds from sale of investments and other
assets -- 27
Purchases of investments and other assets (1,382) (1,242)
Purchases of temporary investments (363) (12,444)
Maturities and sales of temporary investments 11,450 16,920
-------- --------
Net cash used for investing
activities (12,038) (8,474)
-------- --------
Cash flows from financing activities:
Dividends to stockholders (9,175) (8,556)
Proceeds from issuance of notes payable 1,350 1,800
Retirement of notes payable (8,250) (11,600)
Net purchases and sales of treasury stock (341) (3,803)
-------- --------
Net cash used in financing
activities (16,416) (22,159)
-------- --------
(Continued on following page)
-5-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Six Months Ended
June 30, 1995 June 30, 1994
(Dollars in Thousands)
Net increase(decrease) in cash and
cash equivalents (3,941) 296
Cash and cash equivalents at beginning of year 22,038 15,341
-------- --------
Cash and cash equivalents at end
of quarter $ 18,097 $ 15,637
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 2,883 $ 2,849
======== ========
Taxes paid $ 13,720 $ 9,762
======== ========
</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 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 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). Capital
Acquisition Corporation, a Nebraska corporation and wholly-owned subsidiary
of the Company, was organized March 21, 1995, for the sole purpose of
acquiring Nebraska Cellular Telephone Company as further described in Part
II, Item 5 of this report. 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.
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
$12,310,000 and $14,224,000 at June 30, 1995 and 1994, respectively, and
regulatory liabilities of approximately $9,950,000 and $11,791,000 at June
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.
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 32,354,287 for the
six-month period ended June 30, 1995 and 32,464,212 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 in Lincoln Telephone Cellular
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
non-recurring non-cash reduction of 1994 earnings is approximately
$3,581,000 or $.11 per share.
Set forth in the following table is certain financial and operating data
regarding the cellular operations of the Company.
-8-
Operating Characteristics of Cellular Properties
Proportionate Data - Unaudited
Second Lincoln Omaha
Quarter MSA (5) MSA (6) Iowa RSA (7)
Ownership 100.0% 27.6% 11.8%
POPS 1995 221,000 172,224 7,316
1994 221,000 172,224 7,316
1993 221,000 172,224 6,820
Customer lines 1995 24,556 10,308 268
1994 16,263 7,352 176
1993 9,546 4,604 72
Service revenues (1) 1995 $ 3,351 $ 1,464 $ 43
in thousands 1994 $ 2,413 $ 1,147 $ 30
1993 $ 1,535 $ 763 $ 19
Operating expenses (2) 1995 $ 2,282 $ 924 $ 37
in thousands 1994 $ 1,327 $ 748 $ 26
1993 $ 1,025 $ 493 $ 19
Net operating income 1995 $ 1,069 $ 540 $ 6
in thousands 1994 $ 1,086 $ 399 $ 4
1993 $ 510 $ 270 $ 0
Operating margin (3) 1995 31.9% 36.9% 14.0%
1994 45.0% 34.8% 13.3%
1993 33.2% 35.4% --
Penetration rate 1995 11.1% 6.0% 3.7%
1994 7.4% 4.3% 2.4%
1993 4.3% 2.7% 1.1%
Average monthly 1995 $ 47.51 $ 49.08 $ 54.92
customer revenue (4) 1994 $ 51.99 $ 54.70 $ 60.42
1993 $ 56.90 $ 58.56 $ 107.34
NOTES:
(1) Represents all service revenues net of out-bound roamer expenses and
excludes equipment sales. The proportionate data for Omaha MSA and
Iowa RSA summarized above reflects the Company's ownership levels in
these markets.
(2) Operating expenses exclude depreciation, amortization, income tax and
interest.
(3) Operating margin represents net operating income as a percent of
service revenues.
(4) Represents service revenue divided by 3 in relation to average
customer lines (beginning and end of quarter average).
(5) Financial activities of the Lincoln MSA are included in respective
operating portions of the Company's Consolidated Statements of
Earnings.
-9-
(6) The Company's share of the financial activities of the Omaha MSA is
included in the non-operating income and expense portions of the
Company's Consolidated Statements of Earnings.
(7) The Company's interest in Iowa RSA 1 was 11.8% in 1995 and 1994 and
11% in 1993. The Company uses the cost method of accounting for its
interest in Iowa RSA 1.
(3) Operator Services Force Reduction
On July 17, 1995, LT&T announced its decision to significantly reduce
Operator Service employees by the beginning of 1996. Local directory
assistance work will be outsourced and the AT&T contract that provides
interLATA operator services will be terminated. Approximately 50 of the now
140 employees in Operator Services will remain to handle the company's long
distance operator service needs. This work force reduction eliminates the
need for major capital expenditures for operator services equipment, avoids
projected revenue losses in the long distance operator services unit, and
will save $3.5 million in salaries and benefits over the next five years.
Retirement and separation incentives are being offered to the affected
employees.
(4) Income Taxes
Total income tax expense for the three- and six-month periods ended June
30, 1995 and 1994 was $6,312,000 and $5,683,000; and $12,148,000 and
$8,701,000, 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, 1995 and 1994 consists of:
Six Months Ended June 30,
1995 1994
------------ ------------
Current
U.S. Federal $10,149,000 $ 9,151,000
State and local 2,269,000 2,030,000
------------ ------------
12,418,000 11,181,000
Deferred
U.S. Federal 95,000 (1,765,000)
State and local 203,000 (185,000)
------------ ------------
298,000 (1,950,000)
Investment tax credits (568,000) (530,000)
------------ ------------
$12,148,000 $ 8,701,000
============ ============
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:
-10-
Six Months Ended June 30,
1995 1994
------------ ------------
Computed "expected" tax
expense $10,977,000 $ 7,926,000
Increase (reduction) in
income taxes resulting from:
State and local taxes, net
of Federal tax benefit 1,606,000 1,199,000
Non-taxable interest income (61,000) (46,000)
Amortization of regulatory
deferred charges 957,000 957,000
Amortization of regulatory
deferred liabilities (895,000) (945,000)
Amortization of investment
tax credits (568,000) (530,000)
Other, net 132,000 140,000
------------ ------------
$12,148,000 $ 8,701,000
============ ============
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the six-month periods
ended June 30, 1995 and 1994 were the following:
Six Months Ended June 30,
1995 1994
------------ ------------
Deferred tax expense (benefit) $ 236,000 $(1,962,000)
Amortization of regulatory
deferred charges 957,000 957,000
Amortization of regulatory
deferred liabilities (895,000) (945,000)
------------ ------------
$ 298,000 $(1,950,000)
============ ============
-11-
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1995 and December 31, 1994 are presented below:
June 30, 1995 December 31, 1994
------------- -----------------
Deferred tax assets:
Accumulated post-retirement
benefit cost $17,134,000 $16,739,000
Regulatory deferred credits 4,394,000 4,857,000
Other 2,369,000 2,537,000
------------ ------------
Total gross deferred
tax assets 23,897,000 24,133,000
Less valuation allowance 0 0
------------ ------------
Net deferred tax assets $23,897,000 $24,133,000
============ ============
Deferred tax liabilities:
Plant and equipment,
principally due to
depreciation differences $38,526,000 $38,534,000
Regulatory deferred charges 3,272,000 3,527,000
Other 2,877,000 2,614,000
------------ ------------
Total gross deferred tax
liabilities 44,675,000 44,675,000
------------ ------------
Net deferred tax
liabilities $20,778,000 $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, no valuation allowance for deferred tax
assets as of December 31, 1994 and June 30, 1995 was necessary.
(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 six-month periods ended June
30, 1995 and 1994 include the following components:
Six Months Ended June 30,
1995 1994
------------ ------------
Service cost $ 193,000 $ 214,000
Interest cost 1,964,000 1,848,000
Unrecognized prior service cost 5,000 --
Amortization of
unrecognized loss 98,000 84,000
------------ ------------
Net periodic postretirement
benefit costs $ 2,260,000 $ 2,146,000
============ ============
For purposes of measuring the benefit cost, 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.
(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.
-13-
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 June 30, 1995. This
information is summarized as follows:
Estimated
Amortized Gross Unrealized Market
Cost Gains Losses Value
--------- ----- ------ ---------
Equity Securities $ 1,156,000 24,000 (48,000) 1,132,000
U.S. Government obligations 796,000 -- (30,000) 766,000
U.S. Government agency
obligations 6,486,000 108,000 (129,000) 6,465,000
Corporate debt securities 5,259,000 73,000 (279,000) 5,053,000
----------- ------- --------- ----------
$13,697,000 205,000 (486,000) 13,416,000
=========== ======= ========= ==========
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 June 30, 1995.
The amortized cost and estimated market value of debt securities at June
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 $10,290,000 $10,185,000
Due after five years through ten years 2,251,000 2,100,000
----------- -----------
$12,541,000 $12,285,000
=========== ============
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements for the six months
ended June 30, 1995. The Company does not invest in securities classified
as held to maturity or traded securities.
-14-
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Total capital additions to telephone facilities for 1995 are now projected
to be $42,435,000. During the three- and six-month periods ended June 30,
1995, capital additions exceeded cash provided by operating activities,
less dividends paid. Short-term borrowings and temporary investments are
used to fund the additions in excess of cash provided by operating
activities. These capital additions included $11,005,000 of the cost of
the new cellular telephone system purchased by Lincoln Telephone Cellular
and put in operation in April 1995.
At June 30, 1995, the Company had consolidated short-term borrowings of
$16,100,000. LT&T previously 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. Short-term debt related to the
LT&T borrowings was reduced to $12,000,000 by June 30, 1995. At that date,
the Company had other short-term bank borrowings of $4,100,000. The
Company utilized short-term bank credit facilities to fund the cash portion
of the purchase price paid in connection with the merger of Nebraska
Cellular Telephone Corporation (NCTC) into a wholly-owned subsidiary of the
Company. The transaction was completed on July 13, 1995. Cash amounting
to approximately $61,600,000 (including $60,000,000 borrowed under the
short-term facilities referred to above) was paid to NCTC shareholders as a
result of the transaction.
Results of Operations
Revenues
Second Quarter 1995 Six Months 1995
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1994 Months 1994
------------------- -------------------
Telephone Operating Revenues:
Local network services 8.7% 8.8%
Access services 2.6% 2.9%
Long distance services 3.7% 2.7%
Directory advertising, billing
and other services 1.2% 1.4%
Other operating revenue (3.7%) (3.4%)
Total telephone operating
revenues 4.8% 4.8%
Diversified Operations Revenues and Sales:
Long distance services (5.4%) (2.7%)
Product sales 28.9% 19.2%
Other revenue 9.3% 8.7%
Total diversified operations
revenues and sales 6.9% 4.7%
Intercompany revenues 4.0% 4.0%
Total operating revenues 5.4% 5.1%
-15-
All comparisons hereinafter made are of the second quarter and six-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 $1,678,000 (8.7%) and $3,352,000
(8.8%), respectively. An important element is the growth in revenue from
LT&T's cellular services. Cellular service revenue increased $872,000
(38.9%) and $1,634,000 (38.1%) for the three- and six-month periods.
Cellular access lines grew 6,239 (38.4%) between June 30, 1994 and June 30,
1995. Basic local services revenue increased $584,000 (4.8%) and
$1,162,000 (4.8%) led by growth in revenue from residence and small
business services for the three- and six-month periods. Residential and
business telephone access lines in service grew 4.6% from June 30, 1994.
Revenue from Custom Calling-CLASS services increased $86,000 (30.4%) and
$172,000 (29.6%), respectively.
Access services revenue increased $326,000 (2.6%) and $745,000 (2.9%),
respectively. Intrastate access services revenues significantly increased
principally due to increased traffic, while interstate access service
revenues remained constant.
Other operating revenue decreased $134,000 (3.7%) and $251,000 (3.4%),
respectively. Data communications services increased $356,000 (59.2%)
and $548,000 (44.6%), CPE margin on sales decreased $161,000 (62.7%) and
$273,000 (54.8%), private network/transport services decreased $224,000
(35.4%)and $458,000 (21.4%) and all other revenues increased $90,000 (4.4%)
and $136,000 (3.3%) for the second quarter and six-month periods.
Total revenues from diversified operations grew by $508,000 (6.9%) and
$679,000 (4.7%), respectively, led by a growth of $749,000 (28.9%) and
$922,000 (19.2%) from sales of telecommunications products and services by
LinTel. Revenues from Lincoln Telephone Long Distance services declined as
compared to the second quarter and first six months of 1994, while minutes
of use remained constant.
Overall, total operating revenues for telephone operations and diversified
operations increased $2,638,000 (5.4%) and $4,977,000 (5.1%) for the three-
and six-month periods ended June 30, 1995 over the same periods in 1994.
Operating Expenses
Second Quarter 1995 Six Months 1995
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1994 Months 1994
------------------- -------------------
Depreciation 3.7% 2.2%
Additional nonrecurring
depreciation on cellular
equipment -- (100.0%)
Cost of goods and services 5.8% .7%
Other operating expenses 4.8% 5.1%
Taxes, other than payroll
and income (7.3%) (7.7%)
Intercompany expenses 4.0% 4.0%
Total operating expenses 4.8% (1.0%)
-16-
All comparisons hereinafter made are of the second quarter and six-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.
Cost of goods and services increased $264,000 (5.8%) during the second
quarter, resulting primarily from LinTel Systems' increase in sales of
telecommunications products and services.
Other operating expenses increased by $1,059,000 (4.8%) and $2,280,000
(5.1%), respectively. Expenses related to cellular services and product
advertising led these increases.
Taxes, other than payroll and income, decreased $66,000 (7.3%) and $142,000
(7.7%), respectively.
Overall, total operating expenses increased $1,624,000 (4.8%) for the
three-month period ended June 30, 1995, over the same period in 1994, and
decreased $697,000 (1.0%) for the six-month period.
Non-Operating Income (Expense)
Second Quarter 1995 Six Months 1995
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1994 Months 1994
------------------- -------------------
Income from interest and
other investments 43.6% 34.6%
Charge for additional nonrecurring
depreciation on cellular equipment
in limited partnership -- (100.0%)
Interest expense and other
deductions (5.9%) (1.5%)
Net non-operating expense (129.7%) (96.5%)
Income from interest and other investments increased $524,000 (43.6%) and
$815,000 (34.6%), respectively. The increase is attributable to two
factors; 1) the Company's interest income from Omaha Cellular General
Partnership increased $220,000 to $2,012,000 in the first six months of the
year; and 2) the Company's net of tax income from Anixter-Lincoln increased
$331,000 (357.7%) over the first six months of 1994.
Income Taxes
Income taxes increased $1,638,000 (11.2%) and $8,718,000 (38.5%) for the
three- and six-month periods. The increase is attributable to increased
revenues over the second quarter and first six months of 1994, and
decreased expenses, including the 1994 additional non-recurring
depreciation on cellular equipment.
-17-
PART II - OTHER INFORMATION
Item 1-4 - Not applicable
Item 5 - Purchase of Common Stock
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, 1995, 289,376 shares have been purchased. No
shares were purchased during the first six months of 1995.
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.
Acquisition
On July 13, 1995, the Company completed the acquisition of all
of the issued and outstanding common stock of Nebraska
Cellular Telephone Corporation, a Nebraska corporation
("NCTC"). 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. Prior to the acquisition, the Company owned
approximately 16% of NCTC's outstanding common stock. As
consideration for the remaining 84%, the Company issued to the
shareholders of NCTC an aggregate of 4,267,146 shares of
Company Common Stock and paid approximately $61.6 million in
cash. NCTC will operate as a wholly-owned subsidiary of the
Company.
Labor Agreements
Three-year agreements between LT&T and the Communications
Workers of America (CWA) will expire on October 14, 1995. A
three-year agreement between LinTel and the CWA expired on May
19, 1995, and a new three-year agreement was reached and
became effective on May 20, 1995. The agreements concern
wages and general working conditions.
Item 6 - a) See Exhibit Index.
b) During the quarter ended June 30, 1995 the
Registrant did not file a Form 8-K to report
materially important events, as described in
said Form, occurring during such period.
-18-
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 14, 1995 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
August 14, 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.
-19-
Form 10-Q
Exhibit Index
Exhibit Title Page No.
2 Agreement and Plan of Reorganization, dated as of
March 21, 1995, and completed July 13, 1995, by and
among the Company, Capital Acquisition Corp., a
Nebraska corporation and a wholly-owned subsidiary
of the Company and Nebraska Cellular Telephone
Corporation, a Nebraska corporation. (Incorporated
by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, and
to the Company's Form 8-K, dated July 27, 1995.) *
27 Financial Data Schedule
*Incorporated by reference.
-20-
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