<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 March 31, 1997
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. 2-39373
---------------------------------------
Aliant Communications Co.
(Exact name of registrant as specified in its charter)
Delaware 47-0223220
(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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at March 31, 1997
$3.125 par value 1,000 Shares
<PAGE>
PART I - FINANCIAL INFORMATION
ALIANT COMMUNICATIONS CO.
The following financial statements of Aliant Communications Co. 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 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
financial statements should be read in conjunction with the financial
statements and notes thereto in the 1996 Annual Report on Form 10-K, which
is incorporated by reference.
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<TABLE>
Item 1 - Financial Statements
ALIANT COMMUNICATIONS CO.
BALANCE SHEETS
Mar. 31, 1997 Dec. 31, 1996
(Unaudited) (Audited)
------------- -------------
(Dollars in Thousands)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets $ 67,452 $ 58,903
Property and equipment less accumulated
depreciation and amortization 215,578 221,905
Investments and other assets 396 409
Deferred charges 12,852 12,427
------- -------
Total assets $ 296,278 $ 293,644
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities $ 61,299 $ 61,022
Deferred credits and other long-term liabilities 55,257 55,176
Long-term debt 44,000 44,000
Preferred stock, 5%, redeemable 4,499 4,499
Stockholder's equity 131,223 128,947
------- -------
Total liabilities and stockholder's
equity $ 296,278 $ 293,644
======= =======
</TABLE>
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<TABLE>
ALIANT COMMUNICATIONS CO.
STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
Mar. 31, 1997 Mar. 31, 1996
------------- -------------
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Operating revenues:
Telephone revenues:
Local network services $ 19,342 $ 18,448
Access services 14,809 14,070
Long distance services 2,891 3,245
Other wireline communications services 6,738 6,216
------ ------
Total telephone revenues 43,780 41,979
------ ------
Wireless communications services 5,039 4,053
Telephone equipment sales and services 1,570 1,738
------ ------
Total operating revenues 50,389 47,770
------ ------
Operating expenses:
Depreciation 9,548 9,103
Other operating expenses 23,888 23,444
Taxes, other than payroll and income 791 796
------ ------
Total operating expenses 34,227 33,343
------ ------
Operating income 16,162 14,427
------ ------
Non-operating income and expense:
Income from interest and other investments 379 669
Other deductions 325 283
Interest expense 1,140 1,171
------ ------
Net non-operating expense 1,086 785
------ ------
Income before income taxes 15,076 13,642
Income taxes 5,744 5,228
------ ------
Net income 9,332 8,414
Preferred dividends 56 56
------ ------
Earnings available for common shares $ 9,276 $ 8,358
====== ======
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</TABLE>
<TABLE>
ALIANT COMMUNICATIONS CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
Mar. 31, 1997 Mar. 31, 1996
------------- -------------
(Dollars in Thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,332 $ 8,414
------ ------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,555 9,111
Deferred income taxes (259) 1,224
Changes in assets and liabilities resulting
from operating activities:
Receivables 1,271 3,645
Other assets (733) (574)
Accounts payable and accrued expenses (3,304) (5,382)
Other liabilities 3,921 3,694
------ ------
Total adjustments 10,451 11,718
------ ------
Net cash provided by operating
activities 19,783 20,132
------ ------
Cash flows from investing activities:
Expenditures for property and equipment (3,821) (7,147)
Net salvage on retirements 599 (13)
------ ------
Net capital additions (3,222) (7,160)
Purchases and sales of investments and other
assets, net 12 (123)
Purchases of temporary investments (299) (1,667)
Maturities and sales of temporary investments 265 2,010
------ ------
Net cash used for investing
activities (3,244) (6,940)
------ ------
(Continued on following page)
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<PAGE>
ALIANT COMMUNICATIONS CO.
STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Three Months Ended
Mar. 31, 1997 Mar. 31, 1996
------------- -------------
(Dollars in Thousands)
Cash flows used for financing activities:
Dividends to stockholders (7,056) (6,556)
Payments on note payable to bank -- (8,000)
------ ------
Net cash used in financing
activities (7,056) (14,556)
------ ------
Net increase (decrease) in cash and
cash equivalents 9,483 (1,364)
Cash and cash equivalents, beginning of year 17,865 13,496
------ ------
Cash and cash equivalents, end of quarter $ 27,348 $ 12,132
====== ======
Supplemental disclosure of cash flow information:
Interest paid $ 13 $ 99
======= ======
Income taxes paid $ 2,894 $ --
======= ======
</TABLE>
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<PAGE>
ALIANT COMMUNICATIONS CO.
NOTES TO FINANCIAL STATEMENTS
(1) Business
The Form 10-Q reflects the operations of Aliant Communications Co. (the
"Company", herein sometimes called "Telco"). The Company is a wholly-
owned subsidiary of Aliant Communications Inc. The Company provides local
and long distance telephone service in 22 southeastern counties of
Nebraska. It further provides cellular telecommunications services in the
Lincoln Metropolitan Statistical Area ("MSA") (which includes all of
Lancaster County in Nebraska) under the name of Aliant Cellular-Lincoln
("Lincoln MSA").
The Telecommunications Act of 1996 (the "Act") was signed into effect in
February 1996. The Act facilitates the entry of new competitors into the
local exchange market by allowing companies to purchase and resell
Incumbent Local Exchange Carrier ("ILEC") services, by requiring
companies to unbundle their networks, and by requiring ILECs to negotiate
interconnection agreements with companies desiring connection to ILEC
networks. 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. Telco has not received a bona fide request to
negotiate an agreement for resale, unbundled network elements or
interconnection with a Competitive Local Exchange Carrier ("CLEC"). 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.
The FCC released an Order (the "Interconnection Order") on August 8,
1996, to implement the interconnection portion of the Act. The
Interconnection Order contains pricing proxies which are unfavorable to
ILECs. Several ILECs, including Telco, 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,
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 a review of the
Eighth Circuit's Stay Order by the United States Supreme Court; however,
the Supreme Court declined to make such a review. While briefing and oral
arguments have been completed, the case is pending for final decision by
the Eighth Circuit.
On November 8, 1996, Telco announced a 10% increase to residential basic
local service rates effective March 23, 1997. Telco had not increased such
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rates since 1991. The residential basic local exchange service increase is
offset by an 8% to 10% reduction in Telco's long distance rates within its
service area, and by a reduction to intrastate access service rates of
approximately 16%. The passage of the Act, which encourages local exchange
competition, necessitates rate adjustments by Telco to bring prices for
residential basic local exchange service closer to actual 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.
Also effective March 23, 1997, Telco raised rates for two additional
services. Pay phone rates increased from 25 cents to 35 cents per call,
and directory assistance calls increased from 40 cents per call with two
free calls per month to 60 cents per call with one free call per month, and
no free calls for businesses. Telco is anticipating rate changes for some
other services, which could take effect as early as the third quarter of
1997.
(2) Cellular Activities
The Company's wireless services include cellular operations and wide area
paging services. The Company operates a cellular telecommunications system
in the Lincoln MSA. In recent years, the Company has expanded its wireless
operations considerably. The Company also sells cellular equipment.
The data summarized below reflects the Company's cellular operations.
Supplemental Data for Lincoln MSA Cellular Operations
First Quarter
Lincoln MSA
Acquisition Date (1) April 23, 1987
Percent Ownership 100.0
POPs (potential subscribers) 1997 229,000
1996 229,000
1995 221,000
Customer Lines 1997 42,799
1996 31,506
1995 22,469
(1) The date the Company's operating license was granted in the
Lincoln MSA.
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(3) Restructuring Charges and Work Force Reduction
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 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
319 employees accepting this voluntary early retirement offer, the Company
recorded a reduction to its pension assets and recognized a restructuring
charge of $19.7 million at December 31, 1995. Retirements under the
program are being phased in and will become fully effective by December 31,
1997. It is anticipated that approximately 100 positions will need to be
replaced by new hires at a lower cost.
Because the entire restructuring charge for the work force reduction was
recorded in December 1995, and because the enhanced pension payments are
paid through the Company pension fund, there has been no further financial
impact to the Company. As of the end of first quarter 1997, 92 employees
have retired under the voluntary early retirement program, including 13
retirements during first quarter 1997.
(4) Income Taxes
Total income tax expense for the three-month periods ended March 31, 1997
and 1996 was $5,744,000 and $5,228,000, respectively, and was comprised
solely of income taxes on income from continuing operations. Income tax
expense attributable to income from continuing operations for the three-
month periods ended March 31, 1997 and 1996 consists of the following:
Three Months Ended March 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------
Current
U.S. Federal $ 5,075 $ 3,756
State and local 1,095 876
--------- ---------
Total current tax expense 6,170 4,632
Deferred
U.S. Federal (234) 676
State and local (12) 111
--------- ---------
Total deferred tax expense (246) 787
Investment tax credits (180) (191)
--------- ---------
Total income tax expense $ 5,744 $ 5,228
========= =========
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(5) Postretirement Benefits
In addition to the Company's defined benefit pension plan, the Company
sponsors a health care plan (the "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 balance sheet at December 31, 1996:
Accumulated Postretirement Benefit Obligation (Dollars in thousands):
Retirees $33,212
Active plan participants - fully eligible 11,929
Active plan participants - other 6,677
---------
51,818
Unrecognized prior service cost (1,531)
Unrecognized net loss (5,324)
---------
Accrued postretirement benefit costs $44,963
=========
For purposes of measuring the benefit obligation, a discount rate of 8.0%
and a 10.8% annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) was assumed for 1996. The
projected rates for 1997 are 10.0% 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 three-month periods ended
March 31, 1997 and 1996 include the following components:
Three Months Ended March 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------
Service cost $ 129 $ 115
Interest cost 1,004 990
Unrecognized prior service cost 27 27
Amortization of unrecognized loss 2 8
--------- ---------
Net periodic postretirement
benefit costs $ 1,162 $ 1,140
========= =========
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<PAGE>
For purposes of measuring the benefit cost, a discount rate of 8.0% and an
11.3% annual rate of increase in the health care cost trend rate were
assumed for 1996. The projected rates for 1997 are 8.0% and 10.8%,
respectively. The health care cost trend rate of increase was assumed to
decrease gradually to 5.5% by the year 2004. The health care cost trend
rate assumptions have a significant effect on the amounts reported.
(6) Temporary Investments
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 March 31, 1997 and December 31,
1996. This information is summarized as follows:
March 31, 1997
- ----------------------------------------------------------------------
Estimated
Amortized Gross Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------
U.S. Government
obligations $ 2,961 2 (44) 2,919
U.S. Government agency
obligations 3,136 17 (92) 3,061
Corporate debt
securities 624 14 (22) 616
--------- ------- --------- --------
$ 6,721 33 (158) 6,596
========= ======= ========= ========
December 31, 1996
- ----------------------------------------------------------------------
Estimated
Amortized Gross Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------
U.S. Government
obligations 2,663 14 (12) 2,665
U.S. Government agency
obligations 3,400 32 (60) 3,372
Corporate debt
securities 624 15 (32) 607
--------- ------- --------- --------
$ 6,687 61 (104) 6,644
========= ======= ========= ========
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<PAGE>
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 balance sheet at March 31, 1997 and December 31,
1996.
The amortized cost and estimated market value of debt securities at
March 31, 1997 and December 31, 1996, by contractual maturity, are shown in
the following 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.
March 31, 1997
- ----------------------------------------------------------------
Estimated
Amortized Market
(Dollars in thousands) Cost Value
- ----------------------------------------------------------------
Due after three months through
five years $ 1,232 $ 1,235
Due after five years through
ten years 3,804 3,676
Thereafter 1,685 1,685
--------- ---------
$ 6,721 $ 6,596
========= =========
December 31, 1996
- ----------------------------------------------------------------
Estimated
Amortized Market
(Dollars in thousands) Cost Value
- ----------------------------------------------------------------
Due after three months through
five years $ 1,182 $ 1,192
Due after five years through
ten years 3,801 3,725
Thereafter 1,704 1,727
--------- ---------
$ 6,687 $ 6,644
========= =========
The gross realized gains and losses on the sale of securities were
insignificant to the financial statements at March 31, 1997 and December
31, 1996. The Company does not invest in securities classified as held to
maturity or traded securities.
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<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Total capital additions to telephone plant for 1997 are projected to be
$52,799,000. During the three-month period ended March 31, 1997, cash
provided by operating activities, less dividends paid, exceeded capital
additions.
No long-term borrowings are anticipated for the balance of 1997.
RESULTS OF OPERATIONS
Revenues
- --------
Three Months Ended March 31
----------------------------------
(Dollars in thousands) 1997 1996 Change %
- ---------------------- ---- ---- ------ ---
Operating revenues:
Telephone revenues:
Local network services $19,342 $18,448 $ 894 4.8%
Access services 14,809 14,070 739 5.3%
Long distance services 2,891 3,245 (354) (10.9%)
Other wireline communications services 6,738 6,216 522 8.4%
-------- -------- -------
Total telephone revenues 43,780 41,979 1,801 4.3%
Wireless communications services 5,039 4,053 986 24.3%
Telephone equipment sales and services 1,570 1,738 (168) (9.7%)
-------- -------- ------
Total operating revenues $50,389 $47,770 $2,619 5.5%
All comparisons hereinafter made are of first quarter 1997 with the same
period in 1996. The adjustments included are all of a normal recurring
nature except when noted as extraordinary or nonrecurring.
Local network services revenue increased $894,000 (4.8%). Basic local
services revenue increased $883,000 (6.6%) led by growth in residential,
business, and Centrex services revenue. Telephone access lines in service
grew by 9,485 (3.7%) from March 31, 1996. Enhanced services revenue
continued its strong growth with a 15.5% increase over first quarter 1996.
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Access services revenue increased $739,000 (5.3%). This increase resulted
primarily from increased volume of access minutes, which reached a total of
251.1 million minutes in first quarter 1997. Overall minutes of access use
increased by 4.2%.
Long distance services revenue decreased $354,000 (10.9%), mainly due to
continued competition for residential customers.
Other wireline communications services revenues, consisting of directory
advertising and sales, carrier billing and collections, data
communications, and miscellaneous items, increased $522,000 (8.4%). A
significant part of the growth, $270,000, is due to increased directory
advertising and sales revenue, as directory advertising continues to be
actively promoted in our second year with our directory services provider.
Data communications growth continues to be strong, mainly due to the growth
of NAVIX, the Company's Internet access service.
Wireless communications services revenues increased $986,000 (24.3%) due to
expansion of the customer base, with more significant increases being seen in
access revenue opposed to usage. The number of cellular customer lines
increased by 11,293 (35.8%) since March 31, 1996.
Telephone equipment sales and service revenue decreased $168,000 (9.7%).
The decrease is partly due to the sporadic nature of equipment sales; first
quarter 1996 revenue was high relative to average quarterly revenue. Another
factor causing the decrease was the reduction in the variety of phones and
accessories included in the retail inventory in the phone centers.
Total operating revenues increased $2,619,000 (5.5%) for the three-month
period ended March 31, 1997.
Operating Expenses
- ------------------
Three Months Ended March 31
----------------------------------
(Dollars in thousands) 1997 1996 Change %
- ---------------------- ---- ---- ------ ---
Depreciation and amortization $ 9,548 $ 9,103 $ 445 4.9%
Other operating expenses 23,888 23,444 444 1.9%
Taxes, other than payroll and income 791 796 (5) (0.6%)
-------- -------- -------
Total operating expenses $34,227 $33,343 $ 884 2.7%
All comparisons hereinafter made are of first quarter 1997 with the same
period in 1996. The adjustments included are all of a normal recurring
nature except when noted as extraordinary or nonrecurring.
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<PAGE>
Depreciation increased $445,000 (4.9%). The increase is resulting from
the addition of depreciable assets.
Total operating expenses increased $884,000 (2.7%) for the three-month
period ended March 31, 1997, compared to the same period in 1996.
Non-Operating Income and Expense
- --------------------------------
Three Months Ended March 31
----------------------------------
(Dollars in thousands) 1997 1996 Change %
- ---------------------- ---- ---- ------ ---
Income from interest and other
investments $ 379 $ 669 $(290) (43.3%)
Other deductions 325 283 42 14.8%
Interest expense 1,140 1,171 (31) (2.6%)
-------- -------- ------
Net non-operating expense $ 1,086 $ 785 $ 301 38.3%
Income from interest and other investments decreased $290,000 (43.3%),
primarily as a result of a gain on the sale of some long-held common stock
in first quarter 1996, which was not duplicated in first quarter 1997.
Income Taxes
- ------------
Income taxes increased $516,000 (9.9%), which is proportionate to the
increase in taxable income.
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PART II - OTHER INFORMATION
Item 1-5 - Not applicable
Item 6 - a) Not applicable
b) During the quarter ended March 31, 1997, the Registrant
did not file a Form 8-K.
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<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 Co.
------------------------------
(Registrant)
May 15, 1997 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
May 15 1997 /s/ Michael J. Tavlin
Date..................... ......................................
(Signature)
Michael J. Tavlin, Vice President-
Treasurer
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<PAGE>
Form 10-Q
Exhibit Index
Exhibit Title Page No.
27 Financial Data Schedule *
-17-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000059584
<NAME> ALIANT COMMUNICATIONS CO.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 27348
<SECURITIES> 6721
<RECEIVABLES> 25977
<ALLOWANCES> 281
<INVENTORY> 5743
<CURRENT-ASSETS> 67452
<PP&E> 497395
<DEPRECIATION> 281817
<TOTAL-ASSETS> 296278
<CURRENT-LIABILITIES> 61299
<BONDS> 44000
0
4499
<COMMON> 3
<OTHER-SE> 131220
<TOTAL-LIABILITY-AND-EQUITY> 296278
<SALES> 1570
<TOTAL-REVENUES> 50389
<CGS> 772
<TOTAL-COSTS> 34227
<OTHER-EXPENSES> 1086
<LOSS-PROVISION> 122
<INTEREST-EXPENSE> 1140
<INCOME-PRETAX> 15076
<INCOME-TAX> 5744
<INCOME-CONTINUING> 9332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9276
<EPS-PRIMARY> 9276.159
<EPS-DILUTED> 9276.159
</TABLE>
