<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
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
---------------------------------------
Aliant Communications Inc.
(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, 1996
$.25 par Value 36,543,820
<PAGE>
PART I - FINANCIAL INFORMATION
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
The following consolidated financial statements of Aliant Communications
Inc. 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 1995 Annual Report on Form 10-K and in this year's prior
Quarterly Reports on Form 10-Q, which are incorporated by reference. These
prior reports are filed under the former corporate name: Lincoln
Telecommunications Company.
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<PAGE>
Item 1 - Financial Statements
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sept. 30, 1996 Dec. 31, 1995
(Unaudited) (Audited)
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets $ 84,967 $ 84,102
Property and equipment less accumulated
depreciation and amortization 248,903 255,262
Other investments 50,259 47,078
Goodwill 122,416 124,022
Deferred charges 12,466 9,857
--------- ---------
Total assets $ 519,011 $ 520,321
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 0 $ 10,000
Accounts payable and accrued liabilities 65,715 64,764
--------- ---------
Total current liabilities 65,715 74,764
Deferred credits and other long-term liabilities 65,854 63,805
Long-term debt 107,810 117,708
Preferred stock, 5%, redeemable 4,499 4,499
Stockholders' equity 275,133 259,545
--------- ---------
Total liabilities and stockholders' equity $ 519,011 $ 520,321
========= =========
</TABLE>
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<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
(Dollars in Thousands Except Per Share Data)
<CAPTION>
<S> <C> <C> <C> <C>
Operating revenues:*
Telephone revenues:
Local network services $18,759 $18,026 $55,823 $53,222
Access services 13,857 14,073 42,302 40,136
Long distance services 7,829 7,504 23,963 23,328
Other wireline communications
services 6,231 6,088 19,091 18,046
------- ------- ------- -------
Total telephone operating
revenues 46,676 45,691 141,179 134,732
Wireless communications revenues 17,387 13,426 46,395 20,087
Telephone equipment sales and
services 4,426 4,794 13,920 14,392
Intercompany revenues (1,914) (1,730) (6,042) (5,256)
------- ------- ------- -------
Total operating revenues 66,575 62,181 195,452 163,955
------- ------- ------- -------
Operating expenses:*
Depreciation and amortization 11,513 10,442 34,273 26,881
Other operating expenses 34,706 31,532 105,543 87,212
Restructing charge -- 1,552 -- 1,552
Taxes, other than payroll
and income 1,082 932 3,023 2,638
Intercompany expenses (1,914) (1,730) (6,042) (5,256)
------- ------- ------- -------
Total operating expenses 45,387 42,728 136,797 113,027
------- ------- ------- -------
Operating income 21,188 19,453 58,655 50,928
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other
investments 1,565 1,819 5,132 4,991
Interest expense and other
deductions 2,365 2,698 7,452 5,981
------- ------- ------- -------
(Continued on following page)
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<PAGE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Cont'd)
(UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
(Dollars in Thousands Except Per Share Data)
Net non-operating expense 800 879 2,320 990
------- ------- ------- -------
Income before income taxes 20,388 18,574 56,335 49,938
Income taxes 8,223 7,344 22,735 19,493
------- ------- ------- -------
Net income 12,165 11,230 33,600 30,445
Preferred dividends 57 57 169 169
------- ------- ------- -------
Earnings available
for common shares 12,108 11,173 33,431 30,276
======= ======= ======= =======
Earnings per common share .33 .31 .91 .90
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 36,623 36,045 36,649 33,598
======= ======= ======= =======
Dividends declared per common share .15 .14 .45 .42
======= ======= ======= =======
*Certain reclassifications have been made to the historical consolidated
statements of earnings to conform to the current presentation.
</TABLE>
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<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
(UNAUDITED)
Nine Months Ended
Sept. 30, 1996 Sept. 30, 1995
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,600 $ 30,445
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 34,296 26,905
Restructuring charge -- 1,552
Net change in investments and other assets (2,810) (2,336)
Deferred income taxes 2,457 432
Changes in assets and liabilities resulting
from operating activities:
Receivables (5,832) (3,683)
Other assets (263) (860)
Accounts payable and accrued expenses (2,443) (6,890)
Other liabilities 1,196 (1,107)
-------- --------
Total adjustments 26,601 14,013
-------- --------
Net cash provided by operating
activities 60,201 44,458
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (25,269) (31,572)
Net salvage on retirements (48) 2,006
-------- --------
Net capital additions (25,317) (29,566)
Proceeds from sale of investments and other
assets 35 --
Purchases of investments and other assets (1,288) (2,711)
Acquisition, net of cash acquired -- (297)
Purchases of temporary investments (10,392) (1,811)
Maturities and sales of temporary investments 16,208 13,779
-------- --------
Net cash used for investing
activities (20,754) (20,606)
-------- --------
Cash flows from financing activities:
Dividends to stockholders (16,661) (13,756)
(Continued on following page)
-5-
<PAGE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Nine Months Ended
Sept. 30, 1996 Sept. 30, 1995
(Dollars in Thousands)
Proceeds from issuance of notes payable -- 3,350
Retirement of notes payable (10,000) (12,950)
Retirement of long term debt (8,111) (665)
Net purchases and sales of treasury stock (1,349) (127)
-------- --------
Net cash used in
financing activities (36,121) (24,148)
-------- --------
Net increase (decrease) in cash and cash
equivalents 3,326 (296)
Cash and cash equivalents at beginning of year 21,151 22,038
-------- --------
Cash and cash equivalents at end
of quarter $ 24,477 $ 21,742
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 6,382 $ 4,524
======== ========
Taxes paid $ 19,899 $ 20,540
======== ========
* Certain reclassifications have been made to the historical consolidated
statements of cash flows to conform to the current presentation.
</TABLE>
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<PAGE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
The consolidated Form 10-Q reflects the operations of Aliant Communications
Inc. (the "Company") and its wholly owned subsidiaries. The primary
subsidiary is Aliant Communications Co. (the "Telco") which provides local
and long distance telephone service in 22 southeastern counties of
Nebraska. It also provides cellular telecommunications services in the
Lincoln, Nebraska Metropolitan Statistical Area (MSA) (which includes all
of Lancaster County in Nebraska) under the trade name of Aliant Cellular-
Lincoln ("Lincoln MSA"). Aliant Cellular Inc., formerly Nebraska Cellular
Telephone Corporation, provides cellular service outside the Lincoln and
Omaha metropolitan areas in Nebraska. Nebraska Cellular Telephone
Corporation was acquired July 13, 1995, and this acquisition was accounted
for as a purchase. Aliant Systems Inc. ("Systems"), formerly LinTel
Systems Inc., provides toll services beyond the Telco's local service
territory, sells non-regulated telecommunications products and services and
provides 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. ("Centel") 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
Aliant Cellular-Omaha ("Omaha MSA"). 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. Effective October 1, 1995, the Company sold 30% of its interest in
Anixter-Lincoln, reducing its ownership to 20%.
The Telecommunications Act of 1996 (the "Act") was signed into effect in
February 1996. The bill facilitates the entry of new competitors into the
local exchange market by allowing companies to purchase and resell Local
Exchange Carrier (LEC) services, by requiring companies to unbundle their
networks, and by requiring LECs to negotiate interconnection agreements
with companies who want connection to LEC networks. The Federal
Communications Commission (FCC) released an Order to implement the
interconnection portion of the Act on August 8, 1996 (the "Interconnection
Order"). The Interconnection Order contains pricing proxies which are
unfavorable to LECs. Several LECs filed petitions to review the
Interconnection Order with the Federal Courts and requested that the
pricing provisions of the Interconnection Order be stayed. On October 15,
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<PAGE>
1996, the Eighth Circuit Court of Appeals entered an Order Granting Stay
Pending Judicial Review which did stay the effectiveness of the pricing and
the so-called "pick and choose" provisions of the Interconnection Order.
The FCC and certain telecommunications companies requested review of the
Eighth Circuit's Stay Order by the United States Supreme Court; however,
the Supreme Court declined to make such a review. The Telco has also filed
a Petition for Review of the Interconnection Order, and such Petition has
been consolidated with the other cases relating to the Interconnection
Order which are pending before the Eighth Circuit.
The Telco has not received a bona fide request to negotiate an agreement
for resale, unbundled network elements or interconnection at this time. In
addition, the Telco may apply to the Nebraska Public Service Commission
(NPSC) for a waiver or modification of such requirements pursuant to
Section 251(f)2 of the Act. The Telco is currently examining such a
request. The Act also provides new business opportunities for the Company,
such as entry into the cable television market, and entry into additional
geographic markets with either a full range of services or selected
services to niche markets.
On November 8, 1996, the Telco announced a 10% increase to residential
basic local service rates which will become effective March 23, 1997,
unless an adequate number of subscribers petition the NPSC to conduct a
hearing to review such increase. The Telco has not increased such rates
since 1991. The residential basic local exchange service increase will be
offset by an 8% to 10% reduction in the Telco's long distance rates within
its 22 county service area in southeast Nebraska, and by a reduction to
intrastate access service rates of approximately 16%. The passage of the
Act, which encourages local exchange competition, requires rate adjustments
by the Telco to bring prices for residential basic local exchange service
closer to actual costs. Because the Telco's rates for residential basic
local exchange service have historically been priced below costs, rate
adjustments are needed to more accurately reflect costs. Taken as a whole,
the projected annual revenue impact to the Company is expected to be a
reduction of approximately $1.1 million in operating revenues.
(2) Prior Year Accounting Changes
Financial Accounting Standard (FAS) 71, "Accounting for the Effects of
Certain Types of Regulation," generally applies to regulated companies that
meet certain requirements, including a requirement that a company be able
to recover its costs by charging its customers rates prescribed by regu-
lators and that competition will not threaten the recovery of those costs.
Having achieved price regulation and recognizing potential increased
competition, the Company concluded, in the fourth quarter of 1995, that the
principles prescribed by FAS 71 were no longer appropriate. As a result, a
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<PAGE>
non-cash, extraordinary charge of $16,516,000, net of an income tax benefit
of $9,352,000, was incurred by the Telco in December 1995.
On adoption of FAS 109, "Accounting for Income Taxes," in 1993, adjustments
were required to adjust excess deferred tax levels to the currently enacted
statutory rates as regulatory liabilities and regulatory assets were
recognized on the cumulative amount of tax benefits previously flowed
through to ratepayers. These tax-related regulatory assets and liabilities
were grossed up for the tax effect anticipated when collected at future
rates. At the time the application of FAS 71 was discontinued, the tax-
related regulatory assets and regulatory liabilities were eliminated and
the related deferred taxes were adjusted to reflect application of FAS 109
consistent with unregulated entities.
(3) Managed Cellular Markets
The Company manages all four cellular entities in which it has an ownership
interest. The Lincoln MSA and Aliant Cellular Inc. are wholly-owned
markets containing approximately 221,000 and 833,000 POPs (potential
customers), respectively. Through its general partnership with Centel, the
Company holds a 27.6% interest in the limited partnership, which operates
the Omaha MSA market, containing approximately 627,000 POPs. The Company
also holds an option to purchase an additional 27.6% interest in the
partnership commencing on December 31, 1996, and continuing for the two-
year period thereafter.
In addition, the Company has an 11.8% interest in Iowa Rural Service Area 1
(RSA 1) which is contiguous to the Company's telephone operating area in
Nebraska and to Omaha, and contains approximately 61,000 POPs. By the end
of third quarter 1996, penetration (subscribers compared to POPs) rates
achieved in these markets by the entities in which the Company holds
interests were 16.6% in the Lincoln MSA, 11.6% in Aliant Cellular Inc.,
9.3% in the Omaha MSA, and 5.8% in RSA 1.
The Company believes the use of proportionate operating data for these
managed cellular markets facilitates the understanding and assessment of
its consolidated financial statements. Reporting proportionate data for
the cellular markets is not in accordance with generally accepted
accounting principles. The proportionate data summarized below reflects
the Company's relative ownership interests in its managed markets.
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<PAGE>
Supplemental Proportionate Data For Managed Cellular Markets (1)
Third Quarter
(dollars in thousands)
Unaudited
Total
Total Total Not Proportionate
Consolidated(2) Consolidated(3) Data
Customer Lines 1996 133,194 16,571 149,765
1995 95,720 11,337 107,057
1994 17,825 8,096 25,921
Service Revenues 1996 $ 17,204 $ 2,147 $ 19,351
1995 13,270 1,580 14,850
1994 2,706 1,242 3,948
Operating Expenses 1996 $ 9,023 $ 1,082 $ 10,105
(before depreciation) 1995 6,569 963 7,532
1994 1,489 733 2,222
Net Operating Income 1996 $ 6,490 $ 780 $ 7,270
1995 5,217 396 5,613
1994 987 341 1,328
EBITDA (4) 1996 $ 8,181 $ 1,065 $ 9,246
1995 6,701 617 7,318
1994 1,217 509 1,726
(1) The Company's interest in Aliant Cellular Inc. is not included in
the proportionate data prior to acquisition in July 1995.
(2) Financial activities of the Lincoln MSA and Aliant Cellular Inc.
(since acquisition) are included in respective operating portions
of the Company's Consolidated Statements of Earnings.
(3) The Company's share of the financial activities of the Omaha
MSA (27.6%) and the Iowa RSA 1 (11.8%) are not included in
the operating portions of the Company's Consolidated
Statements of Earnings.
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<PAGE>
(4) Earnings before interest, income taxes, depreciation and
amortization (EBITDA) is commonly used in the cellular
communications industry to analyze cellular providers on the bases
of operating performance, and liquidity. EBITDA should not be
considered an alternate to (i) operating income (as determined in
accordance with generally accepted accounting principles) as an
indicator of the Company's operating performance or (ii) cash
flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of
liquidity.
(4) Restructuring Charges and Work Force Reduction
In 1995, the Telco, the local operating company, reduced its operator
services work force from 140 to approximately 50 employees. The current
work force handles 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 work force adjustment.
These actions resulted in a pre-tax non-recurring charge of $1,555,000 or
$937,000 after the income tax effect. Savings resulting from new procedures
are expected to offset this non-recurring charge within two years.
In addition, in November 1995, the Company announced its plans to reduce
its existing work force by offering a voluntary early retirement program to
eligible employees. The eligible employees are both management and non-
management employees who are employed by the Company, the Telco and
Systems. The Company implemented an enhancement to the Company's pension
plan by adding five years to both the age and net credited service for
eligible employees. The program also provides for the employees to receive
a lump-sum payment and a supplemental monthly income payment in addition to
their normal pension. As a result of 330 employees accepting this voluntary
early retirement offer, the Company recorded a reduction to the Company's
pension assets and recognized a restructuring charge of $20.1 million at
December 31, 1995. The charge reflected pension enhancements of $23.4
million less curtailment gains of $3.3 million. Retirements under the
program are being phased in and will become fully effective by December 31,
1997.
(5) Income Taxes
Total income tax expense for the three- and nine-month periods ended
September 30, 1996 and 1995 was $8,223,000 and $7,344,000; and $22,735,000
and $19,493,000, respectively, and was comprised solely of income taxes on
income from continuing operations. Income tax expense attributable to
income from continuing operations for the nine-month periods ended
September 30, 1996 and 1995 consists of the following:
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Nine Months Ended September 30,
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------
Current:
U.S. Federal $17,076 $16,364
State and local 3,777 3,465
--------- ---------
Total current tax expense 20,853 19,829
Deferred:
U.S. Federal 2,007 293
State and local 450 222
--------- ---------
Total deferred tax expense 2,457 515
Investment tax credits (575) (851)
--------- ---------
Total income tax expense $22,735 $19,493
========= =========
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,
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------
Computed "expected" tax expense $19,717 $17,478
Increase (reduction) in
income taxes resulting from:
State and local taxes, net
of Federal tax benefit 2,748 2,397
Amortization of goodwill 833 279
Non-taxable interest income (58) (51)
Amortization of regulatory
deferred charges 0 1,436
Amortization of regulatory
deferred liabilities 0 (1,343)
Amortization of investment
tax credits (575) (851)
Other, net 70 148
--------- ---------
Total income tax expense $22,735 $19,493
========= =========
The significant components of deferred income tax expense attributable to
income from continuing operations for the nine-month periods ended
September 30, 1996 and 1995 were the following:
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Nine Months Ended September 30,
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------
Deferred tax expense $ 2,457 $ 422
Amortization of regulatory
deferred charges 0 1,436
Amortization of regulatory
deferred liabilities 0 (1,343)
--------- ---------
Total deferred tax expense $ 2,457 $ 515
========= =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1996 and December 31, 1995 are presented below:
(Dollars in thousands) September 30, 1996 December 31, 1995
- ---------------------------------------------------------------------
Deferred tax assets:
Accumulated post-retirement
benefit cost $18,117 $17,493
Voluntary Early Retirement
Program 6,202 7,697
Other 2,910 3,091
--------- ---------
Total gross deferred
tax assets 27,229 28,281
Less valuation allowance -- --
--------- ---------
Net deferred tax assets $27,229 $28,281
========= =========
Deferred tax liabilities:
Plant and equipment,
principally due to
depreciation differences $33,812 $33,011
Other 3,986 3,382
--------- ---------
Total gross deferred tax
liabilities 37,798 36,393
--------- ---------
Net deferred tax
liabilities $10,569 $ 8,112
========= =========
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 is deemed necessary for 1996.
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(6) 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,
1995:
Accumulated Postretirement Benefit Obligation: (Dollars in thousands)
Retirees $29,520
Active plan participants - fully eligible 12,012
Active plan participants - other 10,161
---------
51,693
Unrecognized prior service cost (1,710)
Unrecognized net loss (5,660)
---------
Accrued postretirement benefit costs $44,323
=========
For purposes of measuring the benefit obligation, a discount rate of 8.0%
and an 11.3% annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) was assumed for 1995. The
projected rates for 1996 are 8.0% and 11.3%, respectively. The health care
cost trend 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, 1996 and 1995 include the following components:
Nine Months Ended September 30,
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------
Service cost $ 373 $ 289
Interest cost 3,028 2,946
Unrecognized prior service cost 85 8
Amortization of
unrecognized loss 24 146
--------- ---------
Net periodic postretirement
benefit costs $ 3,510 $ 3,389
========= =========
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For purposes of measuring the benefit cost, a discount rate of 8.0% and an
11.7% annual rate of increase in the health care cost trend rate were
assumed for 1996 and 1995. The 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.
(7) Temporary Investments
The Company applies the provisions of FAS 115, Accounting for Certain
Investments in Debt and Equity Securities.
FAS 115 requires fair value reporting for certain investments in debt and
equity securities. Pursuant to FAS 115, the Company has classified all of
its investments as "available for sale" at September 30, 1996 and December
31, 1995. This information is summarized as follows:
September 30, 1996
- ---------------------------------------------------------------------------
Estimated
Amortized Gross Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------
U.S. Government obligations $ 2,424 1 (41) 2,384
U.S. Government agency
obligations 4,061 27 (91) 3,997
Corporate debt securities 620 10 (39) 591
--------- ------ -------- ---------
$ 7,105 38 (171) 6,972
========= ====== ======== =========
December 31, 1995
- ---------------------------------------------------------------------------
Estimated
Amortized Gross Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------
Equity Securities $ 1,223 36 (44) 1,215
U.S. Government obligations 787 0 (11) 776
U.S. Government agency
obligations 7,523 127 (52) 7,598
Corporate debt securities 3,548 99 (72) 3,575
--------- ------ -------- ---------
$13,081 262 (179) 13,164
========= ====== ======== =========
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The net unrealized gain/(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, 1996 and
December 31, 1995.
The amortized cost and estimated market value of debt securities at
September 30, 1996 and December 31, 1995, by contractual maturity, are
shown in the following tables. Equity securities are excluded from these
tables. 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.
September 30, 1996
- -------------------------------------------------------------------------
Estimated
Amortized Market
(Dollars in thousands) Cost Value
- -------------------------------------------------------------------------
Due after three months through five years $ 1,638 $ 1,643
Due after five years through ten years 5,467 5,329
--------- ---------
$ 7,105 $ 6,972
========= =========
December 31, 1995
- -------------------------------------------------------------------------
Estimated
Amortized Market
(Dollars in thousands) Cost Value
- -------------------------------------------------------------------------
Due after three months through five years $ 8,242 $ 8,399
Due after five years through ten years 3,616 3,550
--------- ---------
$11,858 $11,949
========= =========
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements at September 30,
1996 and December 31, 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 1996 are projected
to be $51,498,000. During the nine-month period ended September 30, 1996,
cash provided by operating activities, less dividends paid, exceeded
capital expenditures.
The Company consummated the acquisition of the Nebraska Cellular Telephone
Corporation 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 124,609
Notes payable assumed (17,890)
Other assets and liabilities,
excluding cash and cash equivalents 2,167
Prior investment in Nebraska Cellular
Telephone Corporation (6,282)
Common stock issued (70,408)
Issuance of long-term debt (60,000)
---------
Decrease in cash $ 297
=========
This acquisition is reflected in the investing activities of the Company's
consolidated statement of cash flows.
As of September 30, 1996, the Company had $107,810,000 of long-term debt,
consisting of the following:
- $44,000,000 of First Mortgage Bonds due June 1, 2000.
- A $30,000,000 variable rate term loan due in 13 consecutive quarterly
installments commencing on September 15, 1997.
- A $24,000,000 variable rate revolving loan with principal due July 6,
1998, and interest currently due monthly.
- $14,438,000 of various variable rate Rural Telephone Finance
Cooperative (RTFC) loan agreements maturing through 2002.
- Less current installments of long-term debt of $4,628,000.
-17-
<PAGE>
Results of Operations
Revenues
Third Quarter 1996 Nine Months 1996
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1995 Months 1995
------------------- -------------------
Operating revenues:
Telephone revenues:
Local network services 4.1% 4.9%
Access services (1.5%) 5.4%
Long distance services 4.3% 2.7%
Other wireline communications 2.3% 5.8%
services
Total telephone revenues 2.2% 4.8%
Wireless communications services 29.5% 131.0%
Telephone equipment sales and (7.7%) (3.3%)
services
Intercompany revenues (10.6%) (15.0%)
Total operating revenues 7.1% 19.2%
All comparisons hereinafter made are of the third quarter and nine-month
periods for 1996 with the same periods in 1995. The adjustments included
are all of a normal recurring nature except when noted as extraordinary or
nonrecurring.
Local network services revenue increased $733,000 (4.1%) and $2,601,000
(4.9%), respectively. Basic local services revenue increased $602,000
(4.6%) and $1,862,000 (4.8%) led by growth in revenue from business and
Centrex services for the three- and nine-month periods. Residential and
business telephone access lines in service grew by 8,400 (3.3%) from
September 30, 1995. Expanded area services revenue increased $16,000 (.8%)
and $411,000 (7.4%) due to increased usage.
Access services revenue decreased $216,000 (1.5%) and increased $2,166,000
(5.4%), respectively. In 1995, these revenues had benefited from an out-
of-period adjustment of $624,000 related to prior years. Overall minutes
of access use increased by 6.5% and 7.7%, respectively.
Other wireline communications services revenues, consisting of directory
advertising and sales, carrier billing and collections, data
communications, and miscellaneous items, increased $143,000 (2.3%) and
$1,045,000 (5.8%), respectively. Data communications growth has been
strong, mainly due to the introduction in 1995 of NAVIX, the Company's
Internet access service.
-18-
<PAGE>
Wireless communications services revenues increased $3,961,000 (29.5%) and
$26,308,000 (131.0%), respectively, for the three- and nine-month periods,
due to an increased customer base. For the nine-month period, $23,013,000
of the increase was due to the acquisition of Nebraska Cellular Telephone
Corporation in July 1995. Lincoln MSA revenues increased $1,243,000
(35.8%) and $3,224,000 (32.8%) for the three- and nine-month periods, and
10,533 customer lines were added between September 30, 1995, and September
30, 1996. Aliant Cellular Inc.'s revenues increased $2,691,000 (27.5%) for
the three-month period, and 26,941 customer lines were added between
September 30, 1995, and September 30, 1996. Customer penetration rates
reached 16.6% for the Lincoln MSA and 11.6% for Aliant Cellular Inc. at the
end of September 1996.
Telephone equipment sales and services revenues decreased $368,000 (7.7%)
and $472,000 (3.3%) for the three- and nine-month periods. The third
quarter decrease was offset by record first quarter sales revenues,
resulting in a smaller decrease for the first nine months of 1996.
Overall, total operating revenues increased $4,394,000 (7.1%) and
$31,497,000 (19.2%) for the three- and nine-month periods ended September
30, 1996, compared to the same periods in 1995.
Operating Expenses
Third Quarter 1996 Nine Months 1996
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1995 Months 1995
------------------- -------------------
Depreciation and amortization 10.3% 27.5%
Other operating expenses 10.1% 21.0%
Restructuring charge (100.0%) (100.0%)
Taxes, other than payroll
and income 16.1% 14.6%
Intercompany expenses (10.6%) (15.0%)
Total operating expenses 6.2% 21.0%
All comparisons hereinafter made are of the third quarter and nine-month
periods for 1996 with the same periods in 1995. The adjustments included
are all of a normal recurring nature except when noted as extraordinary or
nonrecurring.
Depreciation and amortization increased $1,071,000 (10.3%) and $7,392,000
(27.5%). This is partly a result of discontinuance of FAS 71, as
depreciation expense for the Telco is now based on estimated economic
useful lives rather than those prescribed by regulatory commissions,
-19-
<PAGE>
causing an increase in depreciation of $678,000 and $2,019,000.
Depreciation increased $2,689,000 for the nine-month period due to the
acquisition of Nebraska Cellular Telephone Corporation, while amortization
associated with the acquisition increased by $1,581,000 for the nine-month
period.
Other operating expenses increased by $3,174,000 (10.1%) and $18,331,000
(21.0%) for the three- and nine-month periods, as a result of the
acquisition and the cost of increased cellular equipment sales. The
inclusion of Nebraska Cellular Telephone Corporation operating expenses
after acquisition led to an increase of $12,960,000 for the nine-month
period.
Overall, total operating expenses increased $2,659,000 (6.2%) and
$23,770,000 (21.0%) for the three- and nine-month periods ended September
30, 1996, compared to the same periods in 1995.
Non-Operating Income (Expense)
Third Quarter 1996 Nine Months 1996
Increase (Decrease) Increase (Decrease)
Over Third Over Nine
Quarter 1995 Months 1995
------------------- -------------------
Income from interest and
other investments (14.0%) 2.8%
Interest expense and other
deductions (12.3%) 24.6%
Net non-operating expense (9.0%) 134.3%
Income from interest and other investments decreased $254,000 (14.0%) for
the three-month period ended September 30, 1996, over the same period in
1995, and increased $141,000 (2.8%) for the nine-month period. The
decrease for the three-month period is the result of using short-term
investments to reduce long-term debt.
Interest expense and other deductions decreased $333,000 (12.3%) and
increased $1,471,000 (24.6%), respectively. The increase results from the
acquisition in July 1995.
Income Taxes
Income taxes increased $879,000 (12.0%) and $3,242,000 (16.6%) for the
three- and nine-month periods. The increase is attributable to increased
taxable income compared to the third quarter and first nine months of 1995.
-20-
<PAGE>
PART II - OTHER INFORMATION
Item 1-3 - Not applicable
Item 4 - Name Change
Stockholders approved the amendment to the articles of
incorporation changing the name of the Company from Lincoln
Telecommunications Company to Aliant Communications Inc. at
the annual stockholders' meeting April 24, 1996. The name
change was approved by a vote of 27,444,469 for the name
change, and 2,048,846 against, for a total of 29,493,315
votes. The name change became effective on September 3, 1996.
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 September 30, 1996, 380,926 shares had been purchased.
As of November 12, 1996, an additional 122,500 shares have
been purchased, thereby bringing to 503,426 the total number
of shares purchased. These purchases are in addition to the
purchases which the Company has been making for purposes of
satisfying participant requirements under the Employee and
Stockholder Dividend Reinvestment and Stock Purchase Plan,
satisfying Employer Matching and Stock Bonus Contributions
under the Company's 401(k) Savings and Stock Ownership Plan
and satisfying participant requirements under the Company's
1989 Stock and Incentive Plan.
Item 6 - a) See Exhibit Index.
b) On August 1, 1996, Registrant filed a Form 8-K to report
the Registrant's corporate name change from Lincoln
Telecommunications Company to Aliant Communications Inc.
and certain related subsidiary name changes.
-21-
<PAGE>
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.
Aliant Communications Inc.
------------------------------
(Registrant)
November 14, 1996 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
November 14, 1996 /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.
-22-
<PAGE>
Form 10-Q
Exhibit Index
Exhibit Title Page No.
27 Financial Data Schedule
-23-
<PAGE>
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<PERIOD-END> SEP-30-1996
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4499
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