<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 June 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
---------------------------------------
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, 1996
$.25 par Value 36,639,471
<PAGE>
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 1995 Annual
Report on Form 10-K and in this year's prior Quarterly Report on Form 10-Q,
which are incorporated by reference.
-1-
<PAGE>
Item 1 - Financial Statements
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1996 Dec. 31, 1995
(Unaudited) (Audited)
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets $ 78,664 $ 84,102
Property and equipment less accumulated
depreciation and amortization 250,722 255,262
Other investments 49,058 47,078
Goodwill 123,206 124,022
Deferred charges 11,955 9,857
--------- ---------
Total assets $ 513,605 $ 520,321
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note(s) payable to bank(s) $ 0 $ 10,000
Accounts payable and accrued liabilities 60,709 64,764
--------- ---------
Total current liabilities 60,709 74,764
Deferred credits and other long-term liabilities 65,592 63,805
Long-term debt 112,495 117,708
Preferred stock, 5%, redeemable 4,499 4,499
Stockholders' equity 270,310 259,545
--------- ---------
Total liabilities and stockholders' equity $ 513,605 $ 520,321
========= =========
</TABLE>
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<PAGE>
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 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 $18,616 $17,808 $37,064 $35,322
Access services 14,375 12,866 28,445 26,063
Long distance services 7,793 7,743 16,134 15,813
Other wireline communications
services 6,535 5,938 12,860 11,843
------- ------- ------- -------
Total telephone operating
revenues 47,319 44,355 94,503 89,041
Wireless communications revenues 15,790 3,502 28,809 6,661
Telephone equipment sales and
services 4,496 5,355 9,494 9,598
Intercompany revenues (2,071) (1,769) (4,128) (3,526)
------- ------- ------- -------
Total operating revenues 65,534 51,443 128,678 101,774
------- ------- ------- -------
Operating expenses:*
Depreciation and amortization 11,428 8,348 22,760 16,439
Other operating expenses 35,020 27,887 70,937 55,680
Taxes, other than payroll
and income 825 832 1,642 1,706
Intercompany expenses (2,071) (1,769) (4,128) (3,526)
------- ------- ------- -------
Total operating expenses 45,202 35,298 91,211 70,299
------- ------- ------- -------
Operating income 20,332 16,145 37,467 31,475
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other
investments 1,536 1,727 3,567 3,172
Interest expense and other
deductions 2,436 1,584 5,087 3,283
------- ------- ------- -------
Net non-operating expense 900 (143) 1,520 111
------- ------- ------- -------
(Continued on following page)
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<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENT OF EARNINGS (Cont'd)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
(Dollars in Thousands Except Per Share Data)
Income before income taxes $19,432 $16,288 $35,947 $31,364
Income taxes 7,815 6,313 14,512 12,149
------- ------- ------- -------
Net income 11,617 9,975 21,435 19,215
Preferred dividends 56 56 112 112
------- ------- ------- -------
Earnings available
for common shares $11,561 $ 9,919 $21,323 $19,103
======= ======= ======= =======
Earnings per common share $ .32 $ .31 $ .58 $ .59
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 36,655 32,337 36,651 32,354
======= ======= ======= =======
Dividends declared per common share $ .15 $ .14 $ .30 $ .28
======= ======= ======= =======
*Certain reclassifications have been made to the historical consolidated
statement of earnings to conform to the current presentation.
</TABLE>
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<PAGE>
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS*
(UNAUDITED)
Six Months Ended
June 30, 1996 June 30, 1995
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,435 $ 19,215
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 22,775 16,454
Net change in investments and other assets (1,720) (1,178)
Deferred income taxes 2,824 236
Changes in assets and liabilities resulting
from operating activities:
Receivables 168 (2,890)
Other assets 1,129 (2,492)
Accounts payable and accrued expenses (5,150) (4,183)
Other liabilities 2,229 (724)
-------- --------
Total adjustments 22,255 5,223
-------- --------
Net cash provided by operating
activities 43,690 24,438
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (16,586) (22,039)
Net salvage on retirements 101 296
-------- --------
Net capital additions (16,485) (21,743)
Proceeds from sale of investments and other
assets 31 --
Purchases of investments and other assets (1,137) (1,382)
Purchases of temporary investments (3,600) (288)
Maturities and sales of temporary investments 4,935 11,450
-------- --------
Net cash used for investing
activities (16,256) (11,963)
-------- --------
Cash flows from financing activities:
Dividends to stockholders (11,105) (9,175)
Proceeds from issuance of notes payable -- 1,350
Retirement of notes payable (10,000) (8,250)
(Continued on following page)
-5-
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)*
(UNAUDITED)
Six Months Ended
June 30, 1996 June 30, 1995
(Dollars in Thousands)
Retirement of long term debt $ (7,393) $ --
Net purchases and sales of treasury stock 444 (341)
-------- --------
Net cash used in
financing activities (28,054) (16,416)
-------- --------
Net increase/(decrease) in cash and cash
equivalents (620) (3,941)
Cash and cash equivalents at beginning of year 21,151 22,038
-------- --------
Cash and cash equivalents at end
of quarter $ 20,531 $ 18,097
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 5,296 $ 2,883
======== ========
Taxes paid $ 9,354 $ 13,720
======== ========
* 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>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
The consolidated Form 10-Q reflects the operations of Lincoln
Telecommunications Company (the Company) and its wholly owned subsidiaries.
The primary subsidiary is The Lincoln Telephone and Telegraph Company
(LT&T) which provides local and long distance telephone service in 22
southeastern counties of Nebraska. It provides cellular telecommunications
services in the Lincoln, Nebraska Metropolitan Statistical Area (MSA)
(which includes all of Lancaster County in Nebraska) under the name of
Lincoln Telephone Cellular. Nebraska Cellular Telephone Corporation (NCTC)
provides cellular service outside the Lincoln and Omaha metropolitan areas
in Nebraska. NCTC was acquired July 13, 1995, and this acquisition was
accounted for as a purchase and is further described in Part II, Item 5 of
this report. LinTel Systems Inc. (LinTel) provides toll services beyond
LT&T's local service territory, 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 First Cellular Omaha (FCO). A joint
venture with Anixter Bros., Inc., doing business as Anixter-Lincoln,
warehouses and distributes electrical wire, cable, and communications
products in a six-state area which includes Nebraska, North and South
Dakota, Wyoming, Montana and Idaho. Effective October 1, 1995, the Company
sold 30% of its interest in Anixter-Lincoln, reducing its ownership to 20%.
The Telecommunications Act of 1996 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 LEC's to negotiate interconnection agreements with companies who
want connection to LEC networks. The Company has not received a bona fide
request to negotiate an agreement for resale, unbundled network elements or
interconnection at this time. In addition, the Company may apply to the
Nebraska Public Service Commission (NPSC) for a waiver or modification of
the requirements listed previously. The Company is currently examining the
opportunities for filing such a request. The Telecommunications Act of
1996 also provides opportunities for the Company, such as entry into the
cable television market, and entry into new geographic markets with either
a full range of services or selected services to niche markets.
-7-
<PAGE>
(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
regulators 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 non-cash, extraordinary charge of $16,516,000, net of an
income tax benefit of $9,352,000, was incurred by LT&T 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 NCTC are wholly-owned markets containing
approximately 221,000 and 883,000 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 second quarter 1996, penetration (subscribers compared to POPs) rates
achieved in these markets by the entities in which the Company holds
interests were 15.4% in the Lincoln MSA, 11.0% in NCTC RSA's, 8.9% in the
Omaha MSA, and 5.4% in RSA 1.
-8-
<PAGE>
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.
Supplemental Proportionate Data For Managed Cellular Markets (1)
Second Quarter
(dollars in thousands)
Unaudited
Total
Total Total Not Proportionate
Consolidated(2) Consolidated(3) Data
Customer Lines 1996 125,890 15,719 141,609
1995 24,556 10,576 35,132
1994 16,263 7,528 23,791
Service Revenues 1996 $ 15,676 $ 1,993 $ 17,669
1995 3,351 1,506 4,857
1994 2,413 1,177 3,590
Operating Expenses 1996 $ 8,414 $ 1,178 $ 9,592
(before depreciation) 1995 2,282 961 3,243
1994 1,327 775 2,102
Net Operating Income 1996 $ 5,573 $ 549 $ 6,122
1995 687 258 945
1994 857 244 1,101
EBITDA (4) 1996 $ 7,262 $ 815 $ 8,077
1995 1,069 545 1,614
1994 1,086 402 1,488
(1) The Company's interest in NCTC is not included in the
proportionate data prior to acquisition in July 1995.
(2) Financial activities of the Lincoln MSA and NCTC (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.
-9-
<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, LT&T, 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, LT&T and LinTel. 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 will
become effective on or before December 31, 1997.
(5) Income Taxes
Total income tax expense for the three- and six-month periods ended June
30, 1996 and 1995 was $7,815,000 and $6,313,000; and $14,512,000 and
$12,149,000, respectively, and was comprised solely of income taxes on
income from continuing operations. Income tax expense attributable to
income from continuing operations for the six-month periods ended June 30,
1996 and 1995 consists of the following:
-10-
<PAGE>
Six Months Ended June 30,
(Dollars in thousands) 1996 1995
- ---------------------------------------------------------------
Current:
U.S. Federal $10,034 $10,150
State and local 2,207 2,269
--------- ---------
Total current tax expense 12,241 12,419
Deferred:
U.S. Federal 2,167 95
State and local 487 203
--------- ---------
Total deferred tax expense 2,654 298
Investment tax credits (383) (568)
--------- ---------
Total income tax expense $14,512 $12,149
========= =========
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:
Six Months Ended June 30,
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------
Computed "expected" tax expense $12,581 $10,977
Increase (reduction) in
income taxes resulting from:
State and local taxes, net
of Federal tax benefit 1,751 1,607
Amortization of goodwill 556 0
Non-taxable interest income (41) (61)
Amortization of regulatory
deferred charges 0 957
Amortization of regulatory
deferred liabilities 0 (895)
Amortization of investment
tax credits (383) (568)
Other, net 48 132
--------- ---------
Total income tax expense $14,512 $12,149
========= =========
The significant components of deferred income tax expense attributable to
income from continuing operations for the six-month periods ended June 30,
1996 and 1995 were the following:
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<PAGE>
Six Months Ended June 30,
(Dollars in thousands) 1996 1995
- ---------------------------------------------------------------
Deferred tax expense $ 2,654 $ 236
Amortization of regulatory
deferred charges 0 957
Amortization of regulatory
deferred liabilities 0 (895)
--------- ---------
Total deferred tax expense $ 2,654 $ 298
========= =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1996 and December 31, 1995 are presented below:
(Dollars in thousands) June 30, 1996 December 31, 1995
- ---------------------------------------------------------------------
Deferred tax assets:
Accumulated post-retirement
benefit cost $17,936 $17,493
Voluntary Early Retirement
Program 6,613 7,697
Other 2,753 3,091
--------- ---------
Total gross deferred
tax assets 27,302 28,281
Less valuation allowance -- --
--------- ---------
Net deferred tax assets $27,302 $28,281
========= =========
Deferred tax liabilities:
Plant and equipment,
principally due to
depreciation differences $35,126 $33,011
Other 3,112 3,382
--------- ---------
Total gross deferred tax
liabilities 38,238 36,393
--------- ---------
Net deferred tax
liabilities $10,936 $ 8,112
========= =========
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<PAGE>
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.
(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 six-month periods ended June
30, 1996 and 1995 include the following components:
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<PAGE>
Six Months Ended June 30,
(Dollars in thousands) 1996 1995
- ---------------------------------------------------------------
Service cost $ 248 $ 193
Interest cost 2,019 1,964
Unrecognized prior service cost 57 5
Amortization of
unrecognized loss 16 98
--------- ---------
Net periodic postretirement
benefit costs $ 2,340 $ 2,260
========= =========
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 was
assumed for 1996, 8.0% and 11.7% for 1995. 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.
(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 June 30, 1996 and December 31,
1995. This information is summarized as follows:
June 30, 1996
- ---------------------------------------------------------------------------
Estimated
Amortized Gross Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------
Equity Securities $ 242 0 (2) 240
U.S. Government obligations 1,994 0 (66) 1,928
U.S. Government agency
obligations 5,914 49 (93) 5,870
Corporate debt securities 3,011 52 (131) 2,932
--------- ------ -------- ---------
$11,161 101 (292) 10,970
========= ====== ======== =========
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<PAGE>
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
========= ====== ======== =========
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, 1996 and December 31, 1995.
The amortized cost and estimated market value of debt securities at June
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.
June 30, 1996
- -------------------------------------------------------------------------
Estimated
Amortized Market
(Dollars in thousands) Cost Value
- -------------------------------------------------------------------------
Due after three months through five years $ 4,753 $ 4,731
Due after five years through ten years 6,166 5,999
--------- ---------
$10,919 $10,730
========= =========
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<PAGE>
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 June 30, 1996 and
December 31, 1995. The Company does not invest in securities classified as
held to maturity or traded securities.
-16-
<PAGE>
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 six-month period ended June 30, 1996, cash
provided by operating activities, less dividends paid, exceeded capital
expenditures.
The Company consummated the acquisition of NCTC on July 13, 1995. In
connection with this acquisition, the following assets were acquired,
liabilities assumed/incurred and common stock issued (in thousands):
Property, plant and equipment $ 28,101
Excess cost of net assets acquired 124,609
Notes payable assumed (17,890)
Other assets and liabilities,
excluding cash and cash equivalents 2,167
Prior investment in NCTC (6,282)
Common stock issued (70,408)
Issuance of long-term debt (60,000)
---------
Decrease in cash $ 297
=========
As of June 30, 1996, the Company had $112,495,000 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.
- $15,156,000 of various variable rate Rural Telephone Finance
Cooperative (RTFC) loan agreements maturing through 2002.
- Less current installments of long-term debt of $661,000.
-17-
<PAGE>
Results of Operations
Revenues
Second Quarter 1996 Six Months 1996
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1995 Months 1995
------------------- -------------------
Operating revenues:
Telephone revenues:
Local network services 4.5% 4.9%
Access services 11.7% 9.1%
Long distance services .6% 2.0%
Other wireline communications 10.1% 8.6%
services
Total telephone revenues 6.7% 6.1%
Wireless communications services 350.9% 332.5%
Telephone equipment sales and (16.0%) (1.1%)
services
Intercompany revenues (17.1%) (17.1%)
Total operating revenues 27.4% 26.4%
All comparisons hereinafter made are of the second quarter and six-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 $808,000 (4.5%) and $1,742,000
(4.9%), respectively. Basic local services revenue increased $640,000
(5.0%) and $1,260,000 (4.9%) led by growth in revenue from business and
Centrex services for the three- and six-month periods. Residential and
business telephone access lines in service grew by 8,172 (3.3%) from June
30, 1995. Expanded area services revenue increased $113,000 (6.0%) and
$395,000 (10.8%) due to increased usage. Local private line services
increased $113,000 (28.7%) and $155,000 (18.5%), primarily due to increased
demand for frame relay service.
Access services revenue increased $1,509,000 (11.7%) and $2,382,000 (9.1%),
respectively. Overall minutes of access use increased by 6.6% 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 $597,000 (10.1%) and
$1,017,000 (8.6%), 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 dramatically for the
three- and six-month periods, principally due to the acquisition of NCTC.
These revenues increased $12,288,000 (350.9%) and $22,148,000 (332.5%),
respectively, of which $11,157,000 and $20,121,000 are revenues from NCTC.
Lincoln Telephone Cellular revenues increased $1,109,000 (33.1%) and
$1,981,000 (31.1%) for the three- and six-month periods and added 9,536
customer lines between June 30, 1995, and June 30, 1996. Customer
penetration rates reached 15.4% for Lincoln Telephone Cellular and 11.0%
for NCTC at the end of June 1996.
Telephone equipment sales and services revenues decreased $859,000 (16.0%)
and $104,000 (1.1%) for the three- and six-month periods. The second
quarter decrease was offset by record first quarter sales revenues,
resulting in a smaller decrease for the first six months of 1996.
Overall, total operating revenues increased $14,091,000 (27.4%) and
$26,904,000 (26.4%) for the three- and six-month periods ended June 30,
1996 compared to the same periods in 1995.
Operating Expenses
Second Quarter 1996 Six Months 1996
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1995 Months 1995
------------------- -------------------
Depreciation and amortization 36.9% 38.5%
Other operating expenses 25.6% 27.4%
Taxes, other than payroll
and income (.8%) (3.8%)
Intercompany expenses (17.1%) (17.1%)
Total operating expenses 28.1% 29.7%
All comparisons hereinafter made are of the second quarter and six-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 $3,080,000 (36.9%) and $6,321,000
(38.5%). This is due principally to the integration of NCTC's depreciation
expense of $1,269,000 and $2,529,000, and amortization of $790,000 and
$1,589,000 associated with the acquisition of NCTC. Also, as a result of
discontinuance of FAS 71, depreciation expense for LT&T is now based on
estimated economic useful lives rather than those prescribed by regulatory
commissions, causing an increase in depreciation of $673,000 and
$1,341,000.
-19-
<PAGE>
Other operating expenses increased by $7,133,000 (25.6%) and $15,257,000
(27.4%) for the three- and six-month periods. The acquisition of NCTC and
inclusion of its operating expenses of $5,867,000 and $11,469,000 led to
this increase. Excluding NCTC, other operating expenses grew by 4.5% and
6.8% for the three- and six-month periods, as a result of the cost of
increased sales.
Overall, total operating expenses increased $9,904,000 (28.1%) and
$20,912,000 (29.7%) for the three- and six-month periods ended June 30,
1996.
Non-Operating Income (Expense)
Second Quarter 1996 Six Months 1996
Increase (Decrease) Increase (Decrease)
Over Second Over Six
Quarter 1995 Months 1995
------------------- -------------------
Income from interest and
other investments (11.1%) 12.5%
Interest expense and other
deductions 53.8% 54.9%
Net non-operating expense 729.4% --
Income from interest and other investments decreased $191,000 (11.1%) for
the three-month period ended June 30, 1996, over the same period in 1995,
and increased $395,000 (12.5%) for the six-month period. The decrease for
the three-month period is because short-term investments were used to
reduce long-term debt. The six-month increase is attributable to three
factors: 1) the Company's portion of the loss from Omaha Cellular General
Partnership decreased by $213,000 compared to last year; 2) interest income
of $243,000 contributed from new acquisitions; and 3) an increase in income
arising from interest-bearing cash equivalents.
Interest expense and other deductions increased $852,000 (53.8%) and
$1,804,000 (54.9%), respectively. The increase is due to additional
outstanding debt resulting from the acquisition of NCTC in July 1995.
Income Taxes
Income taxes increased $1,502,000 (23.8%) and $2,363,000 (19.5%) for the
three- and six-month periods. The increase is attributable to increased
taxable income compared to the second quarter and first six 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 will become 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 June 30, 1996, 290,926 shares have been 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) During the quarter ended June 30, 1996, the Registrant did
not file a Form 8-K.
-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.
Lincoln Telecommunications Company
----------------------------------
(Registrant)
August 14, 1996 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
August 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.
3(i) Lincoln Telecommunications Company Articles of Incorporation and
Amendment thereto, effective September 3, 1996.
27 Financial Data Schedule
-23-
<PAGE>
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<ARTICLE> 5
<CIK> 0000320446
<NAME> LINCOLN TELECOMMUNICATIONS COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 20531
<SECURITIES> 11745
<RECEIVABLES> 38200
<ALLOWANCES> 939
<INVENTORY> 8647
<CURRENT-ASSETS> 78664
<PP&E> 527651
<DEPRECIATION> 276929
<TOTAL-ASSETS> 513605
<CURRENT-LIABILITIES> 60709
<BONDS> 112495
0
4499
<COMMON> 9312
<OTHER-SE> 260998
<TOTAL-LIABILITY-AND-EQUITY> 513605
<SALES> 9494
<TOTAL-REVENUES> 128678
<CGS> 7780
<TOTAL-COSTS> 91211
<OTHER-EXPENSES> 1520
<LOSS-PROVISION> 185
<INTEREST-EXPENSE> 5087
<INCOME-PRETAX> 35947
<INCOME-TAX> 14512
<INCOME-CONTINUING> 21435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21323
<EPS-PRIMARY> .582
<EPS-DILUTED> .582
<PAGE>
</TABLE>
ARTICLE OF INCORPORATION
OF
LINCOLN TELECOMMUNICATIONS COMPANY
(As amended through April 25, 1990)
ARTICLE 1
Name
The name of the corporation is
LINCOLN TELECOMMUNICATIONS COMPANY
ARTICLE 2
Duration
The period of duration of the corporation is perpetual.
ARTICLE 3
Purposes and Powers
3.1 The purposes for which this corporation is organized are to engage in
such businesses and occupations as may be from time to time determined by
the Board of Directors and are not otherwise forbidden by the laws of the
State of Nebraska, including but not limited to the following:
(a) To own, engage in, operate and carry on a general communications
business; to buy, own, hold, acquire, lease, sell, exchange, operate and
manage telephone exchanges, properties, rural and urban lines, and
telegraph, data, video, community antenna, closed circuit, microwave, radio
and electronic systems, properties and businesses, or any interest therein;
and to buy, own, hold, acquire, sell, and exchange stocks, bonds,
debentures, notes, contracts and other securities of corporations engaged
in the ownership or operation of any of the foregoing exchanges, lines,
systems, properties and businesses.
(b) To manufacture, purchase or otherwise acquire, own, mortgage,
pledge, sell, assign and transfer, or otherwise dispose of, to invest,
trade, deal in and deal with, goods, wares and merchandise and real and
personal property of every class and description.
(c) To have one or more offices, to carry on all or any of its
operations and business and without restriction or limit as to amount, to
purchase or otherwise acquire, hold, own, mortgage, sell, convey or
otherwise dispose of real and personal property of every class and
description in any of the States, Districts, Territories, or Colonies of
the United States, and in any and all foreign countries, subject to all the
laws of such States, Districts, Territories, Colonies or Countries.
3.2 The corporation shall have and exercise all powers and rights
conferred upon corporations by the Nebraska Business Corporation Act, and
any enlargement of such powers conferred by subsequent legislative acts.
ARTICLE 4
Authorized Shares
The aggregate number of shares which the corporation shall have authority
to issue is 120,000,000 shares amounting in the aggregate to $35,000,000 of
par value, which shall be divided into two classes: common stock and
preferred stock.
A. The aggregate number of shares of common stock which the
corporation shall have authority to issue is 100,000,000 shares of common
stock of $0.25 par value per share amounting in the aggregate to
$25,000,000 of par value.
(1) Dividends
The holders of the common stock will receive such dividends when
and if declared by the Board of Directors out of any funds legally
<PAGE>
available for the payment of such dividends remaining after payment or
provision for payment of all accumulated and current dividends on the
preferred stock of the corporation.
(2) Liquidation or Dissolution
In case of any voluntary or involuntary liquidation or dissolution
of the corporation, and after the holders of the preferred stock shall have
received the liquidation amount for their stock, plus all accrued, but
unpaid dividends thereon, then the holders of the common stock shall be
entitled to receive the remaining assets of the corporation of the proceeds
thereof.
(3) Voting Rights
Each outstanding share of common stock shall be entitled to one
vote on each matter submitted to a vote at a meeting of the common
stockholders.
B. The aggregate number of shares of preferred stock which the
corporation shall have authority to issue is 20,000,000 shares of preferred
stock of $0.50 par value per share amounting in the aggregate to
$10,000,000 of par value with such designations, preferences, limitations,
and relative rights as may be authorized in accordance with this Section B.
(1) Redemption and Conversion Rights
Any shares of preferred stock may be issued:
(a) Subject to the right of the corporation to redeem any of
such shares, including by exchange for other securities of the corporation,
at the price specified in a particular series; and
(b) Convertible into shares of common stock or into shares of
any other series of the preferred stock as specified in a particular series.
(2) Dividends
Before any dividends shall be paid or set apart for payment upon the
common stock, the holders of each series of preferred stock shall be
entitled to receive dividends at the rate per annum specified in the
particular series payable quarterly in each year out of any funds legally
available for the payment of such dividends, when and if declared by the
Board of Directors. Such dividends shall accumulate on each share of
preferred stock from the date of issue. All dividends on preferred stock
shall be cumulative so that if the corporation shall not pay the quarterly
dividend, or any part thereof, on the preferred stock then issued and
outstanding, such deficiency shall thereafter be fully paid, but without
interest, before any dividend shall be paid or set apart for payment on the
common stock.
Any dividend paid upon the preferred stock at a time when any
accumulated dividends for any prior period are delinquent shall be
expressly declared as a dividend in whole or in part payment of the
accumulated dividend for the earliest dividend period or periods for which
dividends are then delinquent, and shall be so designated to each
stockholder to whom payment is made. All shares of preferred stock shall
rank equally and shall share rateably, in proportion to the rate of the
dividend fixed pursuant hereto in respect to each such share, in all
dividends paid or set aside for payment for any dividend period or part
thereof upon any such shares.
(3) Liquidation or Dissolution
In case of voluntary or involuntary liquidation or dissolution of
the corporation, the holders of each series of preferred stock shall be
entitled to receive out of the assets of the corporation in money or
money's worth the liquidation amount specified in the particular series for
each share at the time outstanding, together with all accrued but unpaid
dividends thereon, before any of such assets shall be paid or distributed
to holders of common stock. In case of the voluntary or involuntary
liquidation or dissolution of the corporation, if the assets of the
corporation shall be insufficient to pay the holders of all shares of
<PAGE>
preferred stock then outstanding the entire amounts to which they may be
entitled, the holders of each outstanding series of the preferred stock
shall share rateably in such assets in proportion to their respective
liquidation amounts.
(4) Authority to Establish Series
The Board of Directors is authorized and empowered from time to
time to establish one or more series of preferred stock, each series to be
designated as to distinguish the shares thereof from the shares of all
other series, and to authorize the issuance of shares of preferred stock in
any such series; and to fix and determine, in respect to any particular
series, variations in the relative rights and preferences as between
different series so established, up to the maximum extent authorized by the
Nebraska Business Corporation Act, as such Act now exists or may from time
to time be amended.
(5) Voting Rights
To the extent that any series of preferred stock established by
the Board of Directors has voting rights, such rights may be in addition to
any voting rights accorded to the holders of Common Stock by these Articles
or the Nebraska Business Corporation Act, as such Act now exists or may
from time to time be amended.
ARTICLE 5
Management of the Corporation
5.1 Board of Directors. The affairs of the corporation shall be conducted
by a Board of Directors which shall have and shall exercise all the powers
of the corporation. Directors of the corporation need not be stockholders.
The number of Directors which shall constitute the whole Board of Directors
shall be such as from time to time shall be fixed in the manner provided in
the By-Laws; provided, however, the number of Directors which shall
constitute the whole Board shall be not less than twelve (12) or more than
eighteen (18). The Directors shall be divided into three classes. Each
class shall consist, as nearly as may be possible, of one-third of the
total number of Directors constituting the whole Board of Directors. At
the annual meeting of stockholders to be held in 1985, one-third of the
Directors shall be elected for a one year term, one-third of the Directors
for a two year term and one-third of the Directors for a three year term.
At each succeeding annual meeting of stockholders beginning in 1986,
successors to the class of Directors whose term expires at that annual
meeting shall be elected for a three year term. A Director shall hold
office until the annual meeting in the year in which the Director's term
expires and until the Director's successor shall be elected and qualified,
subject however, to prior death, resignation, retirement, disqualification
or removal from office.
If the number of Directors is changed, any increase or decrease shall
be appropriated among the classes so as to maintain the number of Directors
in each class as nearly equal as possible, and any additional Director of
any class elected to fill a vacancy resulting from an increase in such
class shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of
Directors shorten the term of any Director then in office. Any vacancy on
the Board of Directors may be filled by the affirmative vote of the
majority of the Directors then in office, although less than a quorum, and
the person filling such vacancy shall have the same remaining term as that
of his predecessor.
The members constituting the entire Board of Directors shall be
removed from office only by an affirmative vote of the holders of at least
seventy percent (70%) of the outstanding shares of common stock entitled to
vote thereon at an annual meeting of stockholders or special meeting of
stockholders called for such purpose.
<PAGE>
Approval of a merger, consolidation, exchange of all outstanding
shares, or sale, lease, exchange or other disposition of all or
substantially all of the corporation's assets shall require the affirmative
vote of the holders of at least seventy percent (70%) of the outstanding
shares of common stock entitled to vote thereon at an annual meeting of
stockholders or special meeting of stockholders called for such purpose.
The amendment or repeal of all or any part of this Article 5.1 shall
require the affirmative vote of the holders of at least seventy percent
(70%) of the outstanding shares of common stock entitled to vote thereon at
an annual meeting of stockholders or special meeting of stockholders called
for such purpose.
5.2 Officers. The officers of the corporation shall be a President,
Vice President (one of whom may be designated the Executive Vice
President), Secretary, Treasurer, Controller, and such other officers as
may be appointed by the Board of Directors. The officers shall be
appointed by the Board of Directors in such manner and for such terms as
may be provided in the By-Laws.
5.3 The incorporators shall have the direction of the affairs and of
the organization of the corporation, until the directors are elected, any
may issue the corporate stock to the subscribers thereto, subscribing prior
to the election of the initial Board of Directors.
5.4 The initial By-Laws of the Corporation shall be adopted by the
stockholders. Thereafter By-Laws, unless otherwise provided under the
Nebraska Business Corporation Act, may be adopted, amended or repealed
either by the stockholders or by the Board of Directors at any regular or
special meeting.
ARTICLE 6
Stockholders' Property
The private property of the stockholders shall not be subject to the
payment of the corporate debts of the corporation to any extent whatsoever.
ARTICLE 7
No Pre-emptive Rights
No holder of shares of stock of the corporation of any class or holder of
any bond, debenture or other security convertible into shares of stock of
the corporation of any class shall have any pre-emptive right to subscribe
for, purchase or otherwise acquire shares of stock of the corporation of
any class, whether now or hereafter authorized, or bonds, debentures or
other securities, whether or not convertible into shares of stock of the
corporation of any class.
ARTICLE 8
Registered Office and Registered Agent
8.1 The initial registered office of the corporation is located at
1440 "M" Street, Lincoln, Lancaster County, Nebraska.
8.2 The name of the initial registered agent of the corporation at
such address is Houghton Furr.
ARTICLE 9
Incorporators
The name and address of each incorporator is:
Allen L. Overcash
1500 Sharp Building
Lincoln, Nebraska 68508
J. Taylor Greer
1500 Sharp Building
Lincoln, Nebraska 68508
<PAGE>
The undersigned, being all of the incorporators herein designated, do
hereby adopt and sign the foregoing Articles of Incorporation for the
purpose of forming this corporation under the Nebraska Business Corporation
Act.
Dated this 24th day of November, 1980.
/s/ Allen L. Overcash
---------------------
/s/ J. Taylor Greer
---------------------
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
LINCOLN TELECOMMUNICATIONS COMPANY
Pursuant to Section 21-20,121 of the Business Corporation Act, the
undersigned officer of Lincoln Telecommunications Company, a Nebraska
corporation (the "Corporation"), states as follows:
1. The name of the Corporation is Lincoln Telecommunications
Company.
2. Article I of the Articles of Incorporation of the Corporation
is amended, as of the effective time and date set forth below, to delete
the original text in its entirety and insert in its place the following
Article I (the "Amendment"):
ARTICLE 1
Name
The name of the corporation is
Aliant Communications Inc.
3. The only class of shares of the Corporation entitled to vote on
the approval of the Amendment is Common Stock, of which thirty six million six
hundred fifty thousand six hundred eleven (36,650,611) shares are issued and
outstanding and entitled to vote on the approval of the Amendment. At the
annual meeting of the Stockholders of the Corporation held on April 24, 1996,
a total of twenty seven million four hundred forty three thousand four
hundred sixty nine (27,443,469) of such shares were voted in favor of, and a
total of two million forty eight thousand eight hundred forty six (2,048,846)
shares were voted against, approval of the Amendment. The foregoing
affirmative vote is sufficient to approve the Amendment in accordance with
the Act.
4. The effective time and date of the Amendment shall be 12:01 a.m.,
September 3, 1996.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed as of the 18th day of July, 1996.
Lincoln Telecommunications Company
/s/ Michael J. Tavlin
By: .............................
(Signature)
Michael J. Tavlin, Vice
President-Treasurer and
Secretary
