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 March 31, 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. 000-10516
---------------------------------------
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 March 31, 1995
$.25 par Value 32,379,508
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, which are incorporated by reference.
-1-
Item 1 - Financial Statements
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1995 December 31, 1994
(Unaudited) (Audited)
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets $ 81,685 $ 79,957
Property and equipment less
accumulated depreciation and
amortization 247,132 241,770
Investments and other assets 53,867 52,578
Deferred charges 18,261 18,879
--------- ---------
Total assets $ 400,945 $ 393,184
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks 20,350 23,000
Accounts payable and accrued liabilities 44,399 39,324
--------- ---------
Total current liabilities 64,749 62,324
--------- ---------
Deferred credits and other long-term
liabilities 86,128 85,926
--------- ---------
Long-term debt 44,000 44,000
--------- ---------
Preferred stock, 5%, redeemable 4,499 4,499
Stockholders' equity 201,569 196,435
--------- ---------
Total liabilities and stockholders'
equity $ 400,945 $ 393,184
========= =========
</TABLE>
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<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended
March 31, 1995 March 31, 1994
(Dollars in Thousands Except Per Share Data)
<CAPTION>
<S> <C> <C>
Telephone operating revenues:
Local network services $ 20,380 $ 18,706
Access services 13,197 12,778
Long distance services 3,591 3,532
Directory advertising, billing
and other services 4,190 4,129
Other operating revenues 3,510 3,627
--------- ---------
Total telephone operating revenues 44,868 42,772
--------- ---------
Diversified operations revenues and sales:
Long distance services 4,773 4,782
Product sales 2,375 2,202
Other revenues 93 86
--------- ---------
Total diversified operations
revenues and sales 7,241 7,070
--------- ---------
Intercompany revenues (1,757) (1,829)
--------- ---------
Total operating revenues 50,352 48,013
--------- ---------
Operating expenses:
Depreciation 8,018 7,959
Additional non-recurring depreciation
on cellular equipment* -- 3,398
Cost of goods and services 4,330 4,530
Other operating expenses 23,557 22,336
Taxes, other than payroll and income 874 949
Intercompany expenses (1,757) (1,829)
--------- ---------
Total operating expenses 35,022 37,343
--------- ---------
Operating income 15,330 10,670
--------- ---------
Non-operating income and expense:
Income from interest and other
investments 1,445 1,154
Charge for additional non-recurring
depreciation on cellular equipment
in limited partnership* -- 2,179
Interest expense and other deductions 1,699 1,649
--------- ---------
Net non-operating expense 254 2,674
--------- ---------
(Continued on following page)
-3-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (Cont.)
(UNAUDITED)
Three Months Ended
March 31, 1995 March 31, 1994
(Dollars in Thousands Except Per Share Data)
Income before income taxes 15,076 7,996
Income taxes 5,836 3,018
--------- ---------
Net income 9,240 4,978
Preferred dividends 56 56
--------- ---------
Earnings available for common shares $ 9,184 $ 4,922
========= =========
Earnings per common share $ .28 $ .15
========= =========
Weighted average common shares outstanding
(in thousands) 32,372 32,576
Dividends declared per common share $ .14 $ .13
*See comments under "Cellular Activities," page 8
</TABLE>
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<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, 1995 March 31, 1994
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,240 $ 4,978
--------- ---------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 8,061 11,364
Net change in investments and other assets (118) 2,365
Deferred income taxes 247 (1,979)
Changes in assets and liabilities resulting
from operating activities:
Receivables (26) (2,014)
Materials, supplies and other assets (169) (574)
Accounts payable and accrued expenses 916 2,727
Other Liabilities 4,111 3,274
--------- ---------
Total adjustments 13,022 15,163
--------- ---------
Net cash provided by operating
activities 22,262 20,141
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment (13,280) (5,892)
Net salvage on retirements (100) 265
--------- ---------
Net capital additions (13,380) (5,627)
Proceeds from sale of investments and other
assets -- 27
Purchases of investments and other assets (1,208) (830)
Purchases of temporary investments (405) (5,300)
Maturities and sales of temporary investments 2,095 10,710
--------- ---------
Net cash used for investing
activities (12,898) (1,020)
--------- ---------
Cash flows from financing activities:
Dividends to stockholders (4,585) (4,294)
Proceeds from issuance of notes payable 1,350 1,000
Retirement of notes payable (4,000) (6,500)
Net purchases and sales of treasury stock 483 (3,825)
--------- ---------
Net cash used in financing
activities (6,752) (13,619)
--------- ---------
(Continued on following page)
-5-
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
(UNAUDITED)
Three Months Ended
March 31, 1995 March 31, 1994
(Dollars in Thousands)
Net increase in cash and cash equivalents 2,612 5,502
Cash and cash equivalents at beginning of year 22,038 15,341
--------- ---------
Cash and cash equivalents at end
of quarter $ 24,650 $ 20,843
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 359 $ 296
========= =========
Taxes paid $ 1,780 $ 2,470
========= =========
</TABLE>
-6-
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
$12,788,000 and $14,703,000 at March 31, 1995 and 1994, respectively, and
regulatory liabilities of approximately $10,398,000 and $12,263,000 at
March 31, 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
costs, possible obsolescence driven by accelerating technology, and a
-7-
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 32,371,842 for the
three-month period ended March 31, 1995 and 32,576,008 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 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
First 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 7,316
Customer lines 1995 22,469 9,576 254
1994 14,680 6,627 155
1993 8,440 4,082 46
Service revenues (1) 1995 $ 3,019 $ 1,255 $ 37
in thousands 1994 $ 2,147 $ 959 $ 25
1993 $ 1,288 $ 603 $ 13
Operating expenses (2) 1995 $ 1,576 $ 665 $ 32
in thousands 1994 $ 1,171 $ 664 $ 31
1993 $ 766 $ 455 $ 16
Net operating income 1995 $ 1,443 $ 590 $ 5
in thousands 1994 $ 976 $ 295 $ (6)
1993 $ 522 $ 148 $ (3)
Operating margin (3) 1995 47.8% 47.0% 13.5%
1994 45.5% 30.8% --
1993 40.5% 24.5% --
Penetration rate 1995 10.2% 5.6% 3.5%
1994 6.6% 3.8% 2.1%
1993 3.8% 2.4% 0.6%
Average monthly 1995 $ 46.56 $ 45.06 $ 49.53
customer revenue (4) 1994 $ 51.44 $ 50.74 $ 58.69
1993 $ 53.62 $ 51.62 $ 114.04
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 portion of the Company's Consolidated Statements of
Earnings.
(6) The Company's share of the financial activities of the Omaha MSA is
included in the non-operating income and expense portion of the
Company's Consolidated Statements of Earnings.
-9-
(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) Income Taxes
Total income tax expense for the three-month period ended March 31, 1995
and 1994 was $5,836,000 and $3,018,000, 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
three-month periods ended March 31, 1995 and 1994 consists of:
Three Months Ended March 31,
1995 1994
------------ ------------
Current
U.S. Federal $ 4,776,000 $ 4,290,000
State and local 1,066,000 958,000
------------ ------------
5,842,000 5,248,000
Deferred
U.S. Federal 152,000 (1,682,000)
State and local 126,000 (283,000)
------------ ------------
278,000 (1,965,000)
Investment tax credits (284,000) (265,000)
------------ ------------
$ 5,836,000 $ 3,018,000
============ ============
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:
Three Months Ended March 31,
1995 1994
------------ ------------
Computed "expected" tax
expense $ 5,277,000 $ 2,798,000
Increase (reduction) in
income taxes resulting from:
State and local taxes, net
of Federal tax benefit 775,000 439,000
Non-taxable interest income (31,000) (30,000)
Amortization of regulatory
deferred charges 479,000 479,000
Amortization of regulatory
deferred liabilities (448,000) (473,000)
Amortization of investment
tax credits (284,000) (265,000)
Other, net 68,000 70,000
------------ ------------
$ 5,836,000 $ 3,018,000
============ ============
-10-
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the three-month
period ended March 31, 1995 and 1994 were the following:
Three Months Ended March 31,
1995 1994
------------ ------------
Deferred tax expense (benefit) $ 247,000 $(1,971,000)
Amortization of regulatory
deferred charges 479,000 479,000
Amortization of regulatory
deferred liabilities (448,000) (473,000)
------------ ------------
$ 278,000 $(1,965,000)
============ ============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March
31, 1995 and December 31, 1994 are presented below:
March 31, 1995 December 31, 1994
-------------- -----------------
Deferred tax assets:
Accumulated post-retirement
benefit cost $16,940,000 $16,739,000
Regulatory deferred credits 4,626,000 4,857,000
Other 2,376,000 2,537,000
------------ ------------
Total gross deferred
tax assets 23,942,000 24,133,000
Less valuation allowance 0 0
------------ ------------
Net deferred tax assets $23,942,000 $24,133,000
============ ============
Deferred tax liabilities:
Plant and equipment,
principally due to
depreciation differences $38,599,000 $38,534,000
Regulatory deferred charges 3,400,000 3,527,000
Other 2,732,000 2,614,000
------------ ------------
Total gross deferred tax
liabilities 44,731,000 44,675,000
------------ ------------
Net deferred tax
liabilities $20,789,000 $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 March 31, 1995 was necessary.
-11-
(4) 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.
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 and 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 three-month periods ended
March 31, 1995 and 1994 include the following components:
Three Months Ended March 31,
1995 1994
------------ ------------
Service cost $ 96,000 $ 107,000
Interest cost 982,000 924,000
Unrecognized prior service cost 3,000 --
Amortization of
unrecognized loss 49,000 42,000
------------ ------------
Net periodic postretirement
benefit costs $ 1,130,000 $ 1,073,000
============ ============
For purposes of measuring the benefit cost, a discount rate of 8.0% and a
11.7% annual rate of increase in the health care cost trend rate was
assumed for 1994, 9.5% and 12.0% for 1993. 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.
-12-
(5) 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 March 31, 1995. This
information is summarized as follows:
Estimated
Amortized Gross Unrealized Market
Cost Gains Losses Value
--------- ----- ------ ---------
Equity Securities $ 1,275,000 1,000 (61,000) 1,215,000
U.S. Government obligations 795,000 -- (70,000) 725,000
U.S. Government agency
obligations 9,388,000 94,000 (135,000) 9,347,000
Corporate debt securities 10,565,000 64,000 (426,000) 10,203,000
----------- ------- --------- ----------
$22,023,000 159,000 (692,000) 21,490,000
=========== ======= ========= ==========
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 March 31, 1995.
The amortized cost and estimated market value of debt securities at March
31, 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 $18,137,000 $17,980,000
Due after five years through ten years 2,611,000 2,294,000
----------- -----------
$20,748,000 $20,274,000
=========== ============
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements for the quarter
ended March 31, 1995. The Company does not invest in securities classified
as held to maturity or traded securities.
-13-
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 1995 are now projected to be
$42,435,000. During the three-month period ended March 31, 1995 and 1994,
cash provided by operating activities, less dividends paid, exceeded
capital additions.
At March 31, 1995, the Company had consolidated short-term borrowings of
$20,350,000. 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. Short-term debt related to the LT&T
borrowings was reduced to $14,000,000 by March 31, 1995. At that date, the
Company had other short-term bank borrowings of $6,350,000. The Company
anticipates utilizing a combination of short-term and long-term bank
borrowings to fund the cash portion of the purchase price to be paid in
connection with the merger of Nebraska Cellular Telephone Corporation
(NCTC) into a wholly-owned subsidiary of the Company. This transaction is
expected to close in mid-second quarter of 1995. Amount to be financed is
expected to be $60,000,000 to $70,000,000, depending on the amount of
shares subject to a cash election by NCTC shareholders.
Results of Operations
Revenues
First Quarter 1995
Increase (Decrease)
Over First
Quarter 1994
-------------------
Telephone Operating Revenues:
Local network services 8.9%
Access services 3.3%
Long distance services 1.7%
Directory advertising, billing
and other services 1.5%
Other operating revenues (3.2)%
Total telephone operating
revenues 4.9%
Diversified Operations Revenues
and Sales:
Long distance services (.2%)
Product sales 7.9%
Other revenue 8.1%
Total diversified operations
revenues and sales 2.4%
Intercompany revenues 3.9%
Total operating revenues 4.9%
-14-
All comparisons hereinafter made are of the first quarter for 1995 with the
same period in 1994. The adjustments included are all of a normal
recurring nature except when noted as extraordinary or nonrecurring.
Local network services revenue increased $1,674,000 (8.9%). An important
element is the growth in revenue from LT&T's cellular services. Cellular
service revenue increased $762,000 (37.2%) for the three-month period.
Cellular access lines grew 7,789 (53.1%) between March 31, 1994 and March
31, 1995. Basic local services revenue increased $578,000 (4.8%) led by
growth in revenue from centrex and small business services for the three-
month period. Residential and business telephone access lines in service
grew 3.6% from March 31, 1994. Revenue from Custom Calling-CLASS services
increased $86,000 (28.6%).
Access services revenue increased $419,000 (3.3%). Intrastate access
services revenues significantly increased principally due to increased
traffic.
Long distance services revenue increased a modest $59,000 (1.7%).
Other operating revenue decreased $117,000 (3.2%). Data communications
services increased $189,000 (56.3%), CPE margin on sales decreased $112,000
(46.8%), private network/transport services decreased $238,000 (23.1%) and
all other revenues increased $44,000 (2.2%).
Total revenues from diversified operations grew by $171,000 (2.4%), led by
a growth of $173,000 (7.9%) from sales of telecommunications products and
services by LinTel. Revenues and minutes of use from Lincoln Telephone
Long Distance services remained steady as compared to the first quarter
1994.
Overall, total operating revenues for telephone operations and diversified
operations increased $2,339,000 (4.9%) for the three-month period ended
March 31, 1995 over the same period in 1994.
Operating Expenses
First Quarter 1995
Increase (Decrease)
Over First
Quarter 1994
-------------------
Depreciation .7%
Additional nonrecurring
depreciation on cellular
equipment (100.0%)
Cost of goods and services (4.4%)
Other operating expenses 5.5%
Taxes, other than payroll
and income (7.9%)
Intercompany expenses 3.9%
Total operating expenses (6.2%)
All comparisons hereinafter made are of the first quarter for 1995 with the
same period in 1994. The adjustments included are all of a normal
recurring nature except when noted as extraordinary or nonrecurring.
-15-
Depreciation expense increased just slightly as the new depreciation rates
for telephone plant, authorized by the Nebraska Public Service Commission
have been in effect for a full year.
Cost of goods and services decreased $200,000 (4.4%) resulting primarily
from Lincoln Telephone Long Distance's reduced costs of providing long
distance services.
Taxes, other than payroll and income, decreased $75,000 (7.9%).
Overall, total operating expenses decreased $2,321,000 (6.2%) for the
three-month period ended March 31, 1995, over the same period in 1994.
Non-Operating Income (Expense)
First Quarter 1995
Increase (Decrease)
Over First
Quarter 1994
-------------------
Income from interest and
other investments 25.2%
Charge for additional nonrecurring
depreciation on cellular equipment
in limited partnership (100.0%)
Interest expense and other
deductions 3.0%
Net non-operating expense (90.5%)
Income from interest and other investments increased $291,000 (25.2%).
The increase is attributable to a combination of factors; 1) LT&T's income
from interest and other investments increased $55,000 (13.5%) over the
first three months of 1994 as a result of changing from the cash method to
the accrual method for interest in the third quarter of 1994; 2) the
Company's interest income from Omaha Cellular General Partnership increased
$110,000 to $1,006,000 in the first three months of the year; and 3) the
Company's income from Anixter-Lincoln increased $146,000 (186.3%) over the
first three months of 1994.
Interest expense and other deductions increased $50,000 (3.0%) for the
first quarter generally attributable to small increases in interest rates
on short-term borrowings.
Income Taxes
Income taxes increased $2,818,000 (93.4%) for the three-month period. The
increase is attributable to increased revenues over the first quarter 1994,
and decreased expenses, specifically the 1994 additional non-recurring
depreciation on cellular equipment.
-16-
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 March 31, 1995, 289,376 shares have been purchased. No
shares were purchased in the first quarter 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 March 21, 1995, the Company, Capital Acquisition
Corporation, a Nebraska corporation and wholly-owned
subsidiary of the Company (Subsidiary) and Nebraska Cellular
Telephone Corporation, a Nebraska corporation (NCTC) entered
into an Agreement and Plan of Reorganization (the Merger
Agreement) pursuant to which NCTC will merge with and into the
Subsidiary and thereby the Company will acquire the
approximately 84% of NCTC Common Stock not currently owned by
the Company (the Merger). Immediately following the Merger,
Subsidiary will change its name to "Nebraska Cellular
Telephone Corporation". 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.
The Merger Agreement provides, among other things, that at the
effective time of the Merger, each share of NCTC Common Stock,
other than shares owned by the Company, will be converted into
the right to receive, at the election of the holder, either
(i) one share of Company Common Stock, plus $4.00 in cash, or
(ii) $20.00 cash, subject to certain provisions limiting
the amount of Company Common Stock to be issued in the merger
to 5,196,000 shares. Total consideration of Company Common
Stock and cash to be issued in the Merger is valued at
approximately $130 million.
On May 2, 1995 the transaction was approved by the
shareholders of NCTC. Closing of the transaction remains
subject to the approval of the Federal Communications
Commission and the expiration of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as well as certain other
conditions set forth in the Merger Agreement. NCTC may
terminate the Merger Agreement if the average of the last
-17-
Item 5 - reported sales price per share of Company Common Stock as
(continued) reported on the NASDAQ National Market for the twenty (20)
consecutive trading days immediately preceding the fifth
business day prior to the closing of the Merger is less than
$13.75 per share.
Labor Contracts
Three-year agreements between LT&T and the Communications
Workers of America (CWA) will expire on October 14, 1995.
Similarly, a three-year agreement between LinTel and the CWA
will expire on May 19, 1995. Each contract concerns wages and
general working conditions.
Item 6 - a) See Exhibit Index.
b) During the quarter ended March 31, 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)
May 11, 1995 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
May 11, 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 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 for reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994) *
27 Financial Data Schedule
*Incorporated by reference.
-20-
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