<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
--------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
0-10516 ALIANT COMMUNICATIONS INC. 47-0632436
(A Nebraska Corporation)
1440 M Street
Lincoln, NE 68508
402-436-5289
2-39373 ALIANT COMMUNICATIONS CO. 47-0223220
(A Delaware Corporation)
1440 M Street
Lincoln, NE 68508
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.
ALIANT COMMUNICATIONS INC. Yes [x] No [ ]
ALIANT COMMUNICATIONS CO. 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.
ALIANT COMMUNICATIONS INC. Common stock, $.25 par value
36,182,155 shares outstanding at
July 31, 1997
ALIANT COMMUNICATIONS CO. Common stock, $3.125 par value
1,000 shares outstanding at
July 31, 1997
<PAGE>
ALIANT COMMUNICATIONS INC. AND
ALIANT COMMUNICATIONS CO.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
CONTENTS
Page
INTRODUCTION 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALIANT COMMUNICATIONS INC.
Consolidated Statements of Earnings 2-3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5-6
ALIANT COMMUNICATIONS CO.
Statements of Earnings 7
Balance Sheets 8
Statements of Cash Flows 9-10
CONDENSED NOTES TO FINANCIAL STATEMENTS OF
Aliant Communications Inc. and
Aliant Communications Co. 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for
Aliant Communications Inc. and
Aliant Communications Co. 12-22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of
Security Holders 23
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 23
- --------------------
* Denotes none or not applicable.
SIGNATURES 24-25
<PAGE>
INTRODUCTION
The unaudited interim financial statements presented herein include the
consolidated statements of Aliant Communications Inc. and its subsidiaries
(the Company), as well as separate financial statements for Aliant
Communications Co. (Telco). The unaudited statements have been prepared by
the Company and Telco, respectively, pursuant to the rules and regulations
of the Securities and Exchange Commission. 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 rules and regulations. The Company
and Telco believe, however, that the disclosures are adequate to make the
information presented not misleading. The Company's and Telco's financial
statements should be read in conjunction with the financial statements and
notes thereto incorporated by reference in the respective Annual Reports on
Form 10-K of the Company and Telco for the year ended December 31, 1996,
and the current year's previously issued Forms 10-Q.
In the opinion of the Company and Telco, their respective interim financial
statements filed as part of this Form 10-Q reflect all adjustments
necessary to present fairly the results for the respective periods.
-1-
<PAGE>
<TABLE>
Item 1 - Financial Statements
ALIANT COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Operating revenues:
Telephone revenues:
Local network services $19,840 $18,616 $39,183 $37,064
Access services 13,803 14,375 28,612 28,445
Long distance services 7,873 7,793 15,724 16,134
Other wireline communications services 7,556 6,535 14,408 12,860
------- ------- ------- -------
Total telephone revenues 49,072 47,319 97,927 94,503
Wireless communications services 19,631 15,850 36,377 29,008
Telephone equipment sales and services 4,193 4,496 8,733 9,494
Intercompany revenues (2,260) (2,071) (4,213) (4,128)
------- ------- ------- -------
Total operating revenues 70,636 65,594 138,824 128,877
------- ------- ------- -------
Operating expenses:
Depreciation and amortization 12,594 11,429 24,600 22,760
Other operating expenses 36,666 34,940 73,500 70,847
Taxes, other than payroll and income 1,134 964 2,101 1,931
Intercompany expenses (2,260) (2,071) (4,213) (4,128)
------- ------- ------- -------
Total operating expenses 48,134 45,262 95,988 91,410
------- ------- ------- -------
Operating income 22,502 20,332 42,836 37,467
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other
investments 1,938 1,536 3,948 3,567
Other deductions 173 159 498 442
Interest expense 2,223 2,277 4,402 4,645
------- ------- ------- -------
Net non-operating expense 458 900 952 1,520
------- ------- ------- -------
Income before income taxes 22,044 19,432 41,884 35,947
Income taxes 8,856 7,815 16,718 14,512
------- ------- ------- -------
Net income 13,188 11,617 25,166 21,435
Preferred dividends 56 56 112 112
------- ------- ------- -------
(Continued on next page)
-2-
<PAGE>
ALIANT COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF EARNINGS (Cont'd)
(UNAUDITED)
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands Except Per Share Data)
Earnings available for common shares $13,132 $11,561 $25,054 $21,323
======= ======= ======= =======
Earnings per common share $ .36 $ .32 $ .69 $ .58
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 36,248 36,655 36,342 36,651
======= ======= ======= =======
Dividends declared per common share $ .16 $ .15 $ .32 $ .30
======= ======= ======= =======
</TABLE>
-3-
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
- ------
Current assets $ 86,042 $ 81,218
Property and equipment less accumulated
depreciation and amortization 249,029 255,020
Investments and other assets 176,980 171,684
Deferred charges 15,990 13,480
-------- --------
Total assets $528,041 $521,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued liabilities $ 75,753 $ 73,594
Deferred credits and other long-term liabilities 59,492 61,662
Long-term debt 100,000 103,080
Preferred stock, 5%, redeemable 4,499 4,499
Stockholders' equity 288,297 278,567
-------- --------
Total liabilities and stockholders' equity $528,041 $521,402
======== ========
</TABLE>
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<PAGE>
<TABLE>
ALIANT COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30
----------------
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,166 $ 21,435
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 24,615 22,775
Net change in investments and other assets (2,375) (1,720)
Deferred income taxes (2,505) 2,824
Changes in assets and liabilities resulting
from operating activities:
Receivables (1,713) 168
Other assets (6,007) 1,129
Accounts payable and accrued expenses 2,179 (5,150)
Other liabilities (369) 2,229
-------- --------
Total adjustments 13,825 22,255
-------- --------
Net cash provided by operating activities 38,991 43,690
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (17,261) (16,586)
Net salvage on retirements 283 101
-------- --------
Net capital additions (16,978) (16,485)
Proceeds from sale of investments and other assets 299 31
Purchases of investments and other assets (2,828) (1,137)
Purchases of temporary investments (698) (3,600)
Maturities and sales of temporary investments 865 4,935
-------- --------
Net cash used for investing activities (19,340) (16,256)
-------- --------
Cash flows from financing activities:
Dividends to stockholders (11,770) (11,105)
Retirement of notes payable -- (10,000)
Proceeds from issuance of long-term debt 11,000 --
Payments of long term debt (13,362) (7,393)
Net purchases and sales of treasury stock (3,700) 444
-------- --------
Net cash used in financing activities (17,832) (28,054)
-------- --------
(Continued on next page)
-5-
<PAGE>
ALIANT COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Six Months Ended
June 30
----------------
1997 1996
---- ----
(Dollars in Thousands)
Net increase (decrease) in cash and cash equivalents $ 1,819 $ (620)
Cash and cash equivalents at beginning of year 25,290 21,151
-------- --------
Cash and cash equivalents at end of quarter $ 27,109 $ 20,531
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 4,411 $ 4,710
======== ========
Taxes paid $ 21,139 $ 9,354
======== ========
</TABLE>
-6-
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS CO.
STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands Except Share Data)
<S> <C> <C> <C> <C>
Operating revenues:
Telephone revenues:
Local network services $19,841 $18,616 $39,183 $37,064
Access services 13,803 14,375 28,612 28,445
Long distance services 2,667 3,005 5,558 6,250
Other wireline communications services 7,438 6,421 14,176 12,637
------- ------- ------- -------
Total telephone revenues 43,749 42,417 87,529 84,396
Wireless communications services 5,744 4,634 10,783 8,687
Telephone equipment sales and services 1,424 1,728 2,994 3,466
------- ------- ------- -------
Total operating revenues 50,917 48,779 101,306 96,549
------- ------- ------- -------
Operating expenses:
Depreciation 10,003 9,194 19,551 18,297
Other operating expenses 23,597 22,548 47,485 45,992
Taxes, other than payroll and income 955 811 1,746 1,607
------- ------- ------- -------
Total operating expenses 34,555 32,553 68,782 65,896
------- ------- ------- -------
Operating income 16,362 16,226 32,524 30,653
------- ------- ------- -------
Non-operating income and expense:
Income from interest and other investments 398 403 777 1,072
Other deductions 173 159 498 442
Interest expense 1,123 1,111 2,263 2,282
------- ------- ------- -------
Net non-operating expense 898 867 1,984 1,652
------- ------- ------- -------
Income before income taxes 15,464 15,359 30,540 29,001
Income taxes 5,924 5,874 11,668 11,102
------- ------- ------- -------
Net income 9,540 9,485 18,872 17,899
Preferred dividends 56 56 112 112
------- ------- ------- -------
Earnings available for common shares $ 9,484 $ 9,429 $18,760 $17,787
======= ======= ======= =======
-7-
<PAGE>
</TABLE>
<TABLE>
ALIANT COMMUNICATIONS CO.
BALANCE SHEETS
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
- ------
Current assets $ 67,085 $ 58,903
Property and equipment less accumulated
depreciation and amortization 213,475 221,905
Investments and other assets 383 409
Deferred charges 14,435 12,427
-------- --------
Total assets $295,378 $293,644
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
Accounts payable and accrued liabilities $ 59,681 $ 61,022
Deferred credits and other long-term liabilities 53,992 55,176
Long-term debt 44,000 44,000
Preferred stock, 5%, redeemable 4,499 4,499
Stockholder's equity 133,206 128,947
-------- --------
Total liabilities and stockholder's equity $295,378 $293,644
======== ========
</TABLE>
-8-
<PAGE>
<TABLE>
ALIANT COMMUNICATIONS CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30
----------------
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,872 $ 17,899
-------- --------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 19,566 18,313
Deferred income taxes (1,579) 2,163
Changes in assets and liabilities resulting
from operating activities:
Receivables (2,219) 2,902
Other assets (7,250) (403)
Accounts payable and accrued expenses (377) (6,543)
Other liabilities (1,070) 592
-------- --------
Total adjustments 7,071 17,024
-------- --------
Net cash provided by operating activities 25,943 34,923
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (11,391) (13,488)
Net salvage on retirements 270 77
-------- --------
Net capital additions (11,121) (13,411)
Purchases and sales of investments and other assets, net 24 (275)
Purchases of temporary investments (698) (3,596)
Maturities and sales of temporary investments 865 4,935
-------- --------
Net cash used for investing activities (10,930) (12,347)
-------- --------
Cash flows from financing activities:
Dividends to stockholders (14,112) (13,112)
Payments on note payable to bank -- (8,000)
-------- --------
Net cash used in financing activities (14,112) (21,112)
-------- --------
(Continued on next page)
-9-
<PAGE>
ALIANT COMMUNICATIONS CO.
STATEMENTS OF CASH FLOWS (Cont'd)
(UNAUDITED)
Six Months Ended
June 30
----------------
1997 1996
---- ----
(Dollars in Thousands)
Net increase (decrease) in cash and cash equivalents $ 901 $ 1,464
Cash and cash equivalents at beginning of year 17,865 13,496
-------- --------
Cash and cash equivalents at end of quarter $ 18,766 $ 14,960
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 2,206 $ 2,293
======== ========
Taxes paid $ 15,585 $ 7,705
======== ========
</TABLE>
-10-
<PAGE>
ALIANT COMMUNICATIONS INC. AND SUBSIDIARIES
ALIANT COMMUNICATIONS CO.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The unaudited interim financial statements include the consolidated
statements of the Company, as well as separate financial statements for
Telco, the primary subsidiary. Additionally, the Company has the following
wholly-owned subsidiaries: Aliant Cellular Inc. (Cellular); Aliant Systems
Inc. (Systems); Prairie Communications, Inc. (Prairie); Aliant Midwest Inc.
(Midwest); and Aliant Network Services Inc. (Network Services). In the
opinion of management of the Company and of Telco, their respective
financial statements reflect all adjustments necessary for a fair
presentation of results of operations, financial position, and cash flows.
All such adjustments made are of a normal recurring nature except when
noted as extraordinary or nonrecurring.
(2) CHANGE IN LONG-TERM DEBT STRUCTURE
The Company made several changes in its long-term debt structure during
second quarter 1997. Cellular previously had variable rate notes owed to
Rural Telephone Finance Cooperative (RTFC) totaling $12.4 million. On
April 23, 1997, the Company increased its borrowings under a variable rate
revolving loan by $11.0 million and used those proceeds to extend an inter-
company loan to Cellular. The inter-company loan plus internal funds on
hand allowed Cellular to retire its RTFC notes. Further information about
the new long-term debt structure is presented under the section entitled
"Liquidity and Capital Resources" in Management's Discussion and Analysis
below.
-11-
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following tables summarize information from the Company's statements of
earnings. The Telco portion of Company operations is identified separately
in the following paragraphs. Whenever Telco is discussed, it should be
assumed that the Company is also affected, since Telco constitutes
approximately 56 percent and 73 percent of the Company's assets and
revenues, respectively.
<TABLE>
Revenues
- --------
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------------- -----------------------------
(Dollars in 000s) 1997 1996 Change % 1997 1996 Change %
- ----------------- ---- ---- -------------- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telephone revenues:
Local network $19,841 $18,616 $1,225 6.6 $ 39,183 $ 37,064 $2,119 5.7
Access 13,803 14,375 (572) (4.0) 28,612 28,445 167 0.6
Long distance 7,873 7,793 80 1.0 15,724 16,134 (410) (2.5)
Other wireline 7,556 6,535 1,021 15.6 14,408 12,860 1,548 12.0
------ ------ ----- ------- ------- -----
Total telephone
revenues 49,072 47,319 1,753 3.7 97,927 94,503 3,424 3.6
Wireless 19,631 15,850 3,781 23.9 36,377 29,008 7,369 25.4
Equipment sales
and service 4,193 4,496 (303) (6.7) 8,733 9,494 (761) (8.0)
Intercompany (2,260) (2,071) (189) (9.1) (4,213) (4,128) (85) (2.1)
------ ------ ----- ------- ------- -----
Total operating
revenues $70,636 $65,594 $5,042 7.7 $138,824 $128,877 $9,947 7.7
</TABLE>
Local network services revenue, attributable entirely to Telco, increased
$1,225,000 (6.6%) and $2,119,000 (5.7%), respectively, for the three and
six months of 1997 compared to 1996. Basic local services revenue
constituted $1,599,000 and $2,483,000, respectively, of the increases. The
basic local revenue increase was due to several factors. First,
residential revenue grew due to the increase in residential basic local
service rates effective March 23, 1997 (further described in the section
below entitled "Competition and Regulatory Environment"). Second,
additional installations of second phone lines contributed to the rise in
residential revenues. Third, business and Centrex services continued to
contribute to the growth in basic local revenue. Telephone access lines in
service increased to 266,769, up 9,578 lines (3.7%) from June 30, 1996.
The local network services revenue increase was also due to several other
factors. Private line revenue increased 16.9% for the second quarter and
9.9% for the six months of 1997 compared to 1996, due to new Integrated
Services Digital Network (ISDN) revenue and to normal growth. Enhanced
services revenue, consisting of custom calling features, Custom Local Area
Signaling Services (CLASS) and voice mail, continued its strong growth with
17.8% and 16.6% increases, respectively. The public telephone portion of
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<PAGE>
local network services revenue decreased $283,000 and $369,000,
respectively, due to deregulation of public paystations mandated by the
Federal Communications Commission (FCC). This revenue is now reflected in
other wireline communications services revenues.
Telco's access services revenue decreased $572,000 (4.0%) and increased
$167,000 (.6%) for the three and six months of 1997, respectively, when
compared to the same periods in 1996. The three-month decrease resulted
primarily from a 16% decrease in intrastate access service rates, which
occurred concurrently with the previously mentioned residential basic local
service rate increase. The six-month increase was mainly due to increased
volume of access minutes, which reached a total of 503.6 million minutes in
the six months of 1997, compared to 478.6 million minutes for the same
period in 1996, a 6.3% increase for the comparative quarter and a 5.2%
year-to-date increase.
Long distance services are provided by Telco (which serves the traditional
Telco territory of southeast Nebraska), and Systems (which serves calling
areas beyond Telco's operating territory). Long distance services revenue
increased $80,000 (1.0%) for the three months ended June 30, 1997, compared
to the same period in 1996. This overall net increase resulted from a
$338,000 decrease for Telco and a $418,000 increase for Systems. Year-to-
date long distance revenues decreased $410,000 (2.5%). This overall
decrease resulted from a $692,000 decrease for Telco and a $282,000
increase for Systems. The Telco decreases are due to the impact of a
decrease in long distance rates which occurred concurrently with the
previously mentioned residential basic local service rate increase. The
Systems increases are due to an ongoing marketing effort to gain market
share from residential subscribers and larger business long distance users.
Other wireline communications services revenues includes directory
advertising and sales, carrier billing and collections, data
communications, public paystations, and miscellaneous items. This revenue
category, substantially all of which is attributable to Telco operations,
increased $1,021,000 (15.6%) and $1,548,000 (12.0%) for the three and six
months of 1997, respectively, compared to 1996. The previously mentioned
deregulation of public paystations contributed $437,000 of the three-month
increase and $559,000 of the six-month increase. Telco's non-regulated
public paystation business began billing interexchange carriers an interim
$45.85 per paystation monthly access charge in March 1997. The permanent
35 cents per call charge, to be implemented in October 1997, will cause a
significant decrease in this revenue. Both of these charges were
determined by the FCC and were contested and returned to the FCC for
reconsideration. Part of the increase in other wireline communications
services revenue is a combination of a rate increase in local paystation
calls from 25 cents to 35 cents per call, effective March 23, 1997, and the
movement of that paystation usage revenue from Telco's regulated to its
non-regulated activity. Data communications growth continues to be very
strong, mainly due to the growth of Navix, the Company's Internet access
service. Data communications revenue is up $242,000 (18.5%) and $465,000
(18.2%) for the three- and six-month periods, respectively.
Wireless communications services revenues increased $3,781,000 (23.9%) and
$7,369,000 (25.4%) for the three and six months of 1997, respectively,
compared to the same periods in 1996. This was due to continued expansion
of the customer base. The Lincoln, Nebraska Metropolitan Statistical Area
(Lincoln MSA), held by Telco, recorded revenue increases of $1,078,000
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<PAGE>
(24.2%) and $2,030,000 (24.3%) for the three and six months, respectively,
and 11,209 customer lines were added between June 30, 1996, and June 30,
1997. Cellular's revenues increased $2,671,000 (23.8%) and $5,273,000
(25.9%), respectively, and 24,377 customer lines were added between June
30, 1996, and June 30, 1997.
Telephone equipment sales and services revenues decreased $303,000 (6.7%)
for the three months, attributable almost entirely to Telco. Year-to-date
equipment sales and service revenues decreased $761,000 (8.0%), made up of
a $472,000 decrease for Telco and a $289,000 decrease for Systems. The
six-month decrease reflects the sporadic nature of equipment sales; first
quarter 1996 revenue was high relative to average quarterly revenue.
Another factor causing the decrease was a reduction in the variety of
phones and accessories included in the retail product lines.
Overall, Company operating revenues increased $5,042,000 (7.7%) and
$9,947,000 (7.7%) for the three- and six-month periods, respectively, of
which $2,138,000 and $4,757,000, respectively, was due to Telco operations.
<TABLE>
Operating Expenses
- ------------------
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------------- -----------------------------
(Dollars in 000s) 1997 1996 Change % 1997 1996 Change %
- ----------------- ---- ---- -------------- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization $12,594 $11,429 $1,165 10.2 $24,600 $22,760 $1,840 8.1
Other operating 36,666 34,940 1,726 4.9 73,500 70,847 2,653 3.7
Other taxes 1,134 964 170 17.6 2,101 1,931 170 8.8
Intercompany (2,260) (2,071) (189) (9.1) (4,213) (4,128) (85) (2.1)
------ ------ ----- ------ ------ -----
Total $48,134 $45,262 $2,872 6.3 95,988 91,410 4,578 5.0
</TABLE>
Depreciation and amortization increased $1,165,000 (10.2%) and $1,840,000
(8.1%) for the three and six months, respectively, of which $809,000 and
$1,254,000, respectively, was attributed to Telco. The increases result
from the addition of depreciable assets, particularly among asset
categories with shorter depreciable lives.
Other operating expenses increased by $1,726,000 (4.9%) and $2,653,000
(3.7%) for the second quarter and six-month periods, respectively, with
$1,049,000 and $1,493,000, respectively, due to Telco. The growth is
primarily a result of the greater costs associated with cellular operations
and Navix Internet service. Cellular operations expenses grew by $879,000
and $2,377,000 for the three- and six-month periods, respectively, of which
$519,000 and $1,277,000, respectively, was due to Telco. Telco's Navix
expenses grew by $338,000 for the second quarter and $786,000 for the six
months.
Overall, Company operating expenses increased $2,872,000 (6.3%) and
$4,578,000 (5.0%) for the three- and six-month periods, respectively, of
which $2,002,000 and $2,886,000, respectively, were due to Telco
operations.
-14-
<PAGE>
<TABLE>
Non-Operating Income and Expense
- --------------------------------
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------------- -----------------------------
(Dollars in 000s) 1997 1996 Change % 1997 1996 Change %
- ----------------- ---- ---- ------------- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income $1,938 $1,536 $ 402 26.2 $3,948 $3,567 $ 381 10.7
Other deductions 173 159 14 8.8 498 442 56 12.7
Interest expense 2,223 2,277 (54) (2.4) 4,402 4,645 (243) (5.2)
----- ----- --- ----- ----- --- ----
Net $ 458 $ 900 $(442) (49.1) 952 1,520 (568) (37.4)
</TABLE>
Company investment income increased $402,000 (26.2%) and $381,000 (10.7%)
for the three and six months, respectively, of which decreases of $5,000
(1.2%) and $295,000 (27.5%), respectively, were attributable to Telco. The
Company increases are due to an increase in cellular profits for the
Company's managed partnership in the Omaha cellular market; this profit
flows into the investment income category. The Telco decreases are due to
less income arising from a reduced temporary cash investment base, which
was used to fund long-term debt reductions.
Interest expense decreased $54,000 (2.4%) and $243,000 (5.2%), and Telco's
portion was a slight increase of $12,000 (1.1%) for the second quarter and
a decrease of $19,000 (.8%) for the six months. The decreases were
primarily a result of debt reductions.
Income Taxes
- ------------
Income taxes increased $1,041,000 (13.3%) and $2,206,000 (15.2%) for the
second quarter and six months, of which $50,000 (.9%) and $566,000 (5.1%)
was attributed to Telco. The increases are proportionate to the increases
in taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company defines liquidity as its ability to generate resources to
finance business expansion, construct capital assets, pay its current
obligations, and pay dividends. Telco's operations have historically
provided a stable source of cash flow which has helped the Company make
capital improvements. The Company expects to continue to meet the majority
of its liquidity needs from internally generated funds, but it can also
obtain external financing through existing committed bank lines of credit.
Consequently, no funding difficulties are anticipated in the foreseeable
future.
Net cash provided by Company operating activities was $38,991,000 for the
first six months of 1997 compared to $43,690,000 for the first six months
of 1996. The principal factors involved in the decline in net cash
provided by operating activities were changes in deferred tax accounts, an
increase in accounts receivable and a reduction in other liabilities. Cash
from operating activities is the Company's primary source of liquidity, and
-15-
<PAGE>
it funds primarily capital expenditures and dividends. During the six-
month period ended June 30, 1997, cash provided by operating activities,
less dividends paid, exceeded capital expenditures for both the Company and
Telco.
Net cash used in Company investing activities was $19,340,000 and
$16,256,000 for the six months ended June 30, 1997 and 1996, respectively.
The increase was due primarily to the acquisition of Telebeep, a reseller
of Cellular service, at $2,828,000 (see "Managed Cellular Markets"
below).
Capital expenditures for the first six months of 1997 were $11,391,000 for
Telco, $4,284,000 for Cellular, and $575,000 for Systems. These
expenditures were financed through cash provided by operating activities.
Total capital additions for both new and updated networks and
communications facilities for 1997 are projected to be $64,928,000 for the
Company, of which $52,799,000 is attributable to Telco.
Net cash used in Company financing activities was $17,832,000 and
$28,054,000 for the six months ended June 30, 1997 and 1996, respectively.
The decrease is primarily due to the 1996 payment of an $8,000,000 note
payable.
Telco's 9.91% Series K Bonds (issued in a private placement) are rated AAA
by Standard and Poor's Corporation and AA2 by Moody's. The Company's
consolidated debt to cash flow ratio was 0.79 to 1.00, its consolidated
debt to capital ratio was 1.00 to 3.64 and its EBITDA to Interest Expense
ratio was 15.67 to 1.00.
At June 30, 1997, the Company had $100.0 million of long-term debt,
consisting of the following:
- $44.0 million of Telco Series K First Mortgage Bonds due June 1,
2000.
- A $30.0 million variable rate term loan due July 6, 2000, with 13
consecutive quarterly installments commencing on September 15, 1997.
- A $34.0 million variable rate revolving loan with principal due July
6, 1998, and interest currently due monthly. Approximately $11.0
million was added to this loan in second quarter 1997, which replaced
the retirement of Cellular's RTFC notes.
- Less current installments of long-term debt of $8.0 million.
The Company will require cash for Network Services to build and operate
fiber optic transmission facilities outside of Telco's traditional service
area. Capacity on the network will be leased to long distance and wireless
carriers. The Company expects to finance these planned expenditures
primarily through internally provided sources.
On May 28, 1997, the Board of Directors authorized the Company to purchase
500,000 shares of its common stock from time to time as market conditions
warrant, bringing to 1,500,000 the number of shares authorized to be
purchased by the Company since April 24, 1991. As of June 30, 1997, a
total of 714,970 shares remain available for purchase. These
purchases are in addition to the purchases which the Company has been
making for purposes of satisfying participant requirements under the
-16-
<PAGE>
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.
Four Statements of Financial Accounting Standards (SFAS) have been issued
in 1997. SFAS 128, "Earnings per Share", was issued in February 1997 and
establishes standards for computing and presenting earnings per share.
SFAS 129, "Disclosure of Information about Capital Structure", was issued
in February 1997 and establishes standards for disclosing information about
an entity's capital structure. SFAS 130, "Reporting Comprehensive
Income", was issued in June 1997. It establishes standards for reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information", was issued in June
1997. It establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company
does not believe that adoption of any of these standards will have a
significant effect on its consolidated financial statements.
COMPETITION AND REGULATORY ENVIRONMENT
Federal Telecommunications Rulings
- ----------------------------------
The Telecommunications Act of 1996 (the Act) was signed in February 1996.
The Act facilitates the entry of new competitors into the local exchange
market by allowing competing companies to purchase and resell Incumbent
Local Exchange Carrier (ILEC) services, by requiring ILECs 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.
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 that are unfavorable to ILECs. Several
ILECs, including Telco, filed petitions to review the Interconnection Order
with the Eight Circuit Court of Appeals and requested that the pricing
provisions of the Interconnection Order be invalidated. 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.
On July 18, 1997, the Eighth Circuit struck down the FCC's pricing
guidelines, "pick and choose" rule, and other FCC Rules contained in the
Interconnection Order. The Eighth Circuit also recognized the authority of
state regulatory commissions to approve interconnection agreements. As a
result of the Court's ruling, the FCC does not have the option to
reconsider these issues, but can appeal to the United States Supreme Court.
-17-
<PAGE>
The FCC released orders concerning the Federal Universal Service Fund and
Access Charge Reform in May 1997. Under the Universal Service Order, Telco
would be part of a group of companies which will not receive Federal
universal service funding until a new FCC plan for larger companies is
completed. This plan is not expected before 1999. The FCC also adopted a
plan, as part of the universal service proceeding, to make $2.25 billion
available annually to fund discounts on telecommunications for schools,
libraries, and rural health care providers. Because the FCC is planning to
fund these discounts, there will be no revenue impact on Telco. The
program, which will begin on January 1, 1998, will offer discounts on all
telecommunications services, and recipients will be chosen based on need.
The Access Charge Reform Order applies only to companies under price cap
regulation, which includes Telco. Two issues in the Order that will affect
Telco include the following: an increase by the FCC in the Subscriber Line
Charge (SLC) on additional residential lines, and changes which will cause
a rapid reduction in access charges to long distance companies.
Nebraska Telecommunications Activity
- ------------------------------------
Two Nebraska telecommunications bills were passed in June 1997. LB 660
provides a framework for the changes necessary to implement competition in
local exchange service in Nebraska. It allows telecommunications companies
the flexibility required to adjust rates between different classes of
consumers, such as business and residential customers, and it also provides
for total forbearance from rate regulation in the presence of local
competition. LB 686 established a Nebraska Universal Service Fund and a
Nebraska Lifeline service program to ensure continued local service to
high-cost areas and low-income consumers. Since the Company serves many
high-cost rural areas, a number of its rural exchanges may be eligible for
funding. LB 660 was effective June 3, 1997, while LB 686 will become
effective in mid-September.
A Nebraska Universal Service Fund Task Force, made up of representatives of
telecommunications companies and user groups appointed by the NPSC, has
been studying ways to make basic telephone service available to all
Nebraskans in an era of federal telephone deregulation. The Task Force
concluded that the State of Nebraska will eventually have to provide a
large part of the money needed to subsidize the cost of basic telephone
service in rural areas of the State. Subsidies for high-cost phone
service, currently provided by access fees from long distance companies and
inflated charges for business phone service, will likely disappear with
telephone deregulation and competition. Consequently, the Nebraska
Universal Service Fund established by LB 686 may replace all or part of
these subsidies. Since the FCC plans to provide only 25 percent of the
increment between the cost of basic service and an FCC-determined
affordable charge for that service, the State will need to provide funding
for the remainder of that increment. Nebraska will not be in a position to
determine the amount required until the FCC and NPSC determine the
affordable charges for basic service and until access charge reform is
accomplished, which may be in late 1998. The Task Force recommended that
the high-cost portion of the State Universal Service Fund not begin until
January 1, 1999.
-18-
<PAGE>
Rate Changes
- ------------
On November 8, 1996, Telco announced a 10% increase to residential basic
local service rates effective March 23, 1997. Telco had not increased such
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 Telco is expected to be a
reduction of approximately $1.1 million in operating revenues. Also
effective March 23, Telco raised rates for paystation calls and directory
assistance calls.
Rates for several optional business and residential services increased July
1, 1997. Services affected include several custom calling services,
Extended Area Service (EAS), Enhanced Local Calling Area Plans (ELCAP),
some directory listings, and inside wire maintenance. The rates for some
leased telephones also increased. These rate increases should result in
increased annual revenues of approximately $1 million.
Cellular rates were reduced and simplified in June 1997. Formerly,
separate rate plans had existed for Lincoln, Omaha, and Nebraska statewide
customers. The new plan consolidates the former plans to only two sets of
rates--one for the metropolitan areas of Lincoln and Omaha, and one for
statewide customers. The rate decreases accompanying the new rate plan
will result in an annual revenue reduction of approximately $6 million;
however, it is anticipated that the lower rates will stimulate demand to
partially offset the revenue reduction, and the impact of recently negotiated
interconnection agreements will also help to offset the reduction (see
"Interconnection Agreements" below).
Competitive Local Exchange Carrier
- ----------------------------------
Midwest, the Company's Competitive Local Exchange Carrier (CLEC), began
limited operations outside the Company's traditional southeast Nebraska
service area in June. Midwest is currently providing residential service
to certain customers in the Omaha metropolitan area, and it is marketing
its service to Omaha business customers.
Cellular Competition
- --------------------
Sprint PCS has begun operations in the Lincoln and Omaha areas. The
Company expects to remain competitive with Sprint PCS and all cellular
providers by developing new marketing programs and by continuing to expand
its network so that high-quality customer service is maintained.
Interconnection Agreements
- --------------------------
On July 31, 1997, the Company received a bona fide request for
interconnection from a CLEC, Nebraska Technology and Telecommunications
Company, Inc. The Company intends to respond to the request in accordance
with the requirements of the Act.
-19-
<PAGE>
Several other agreements to interconnect facilities and to exchange traffic
have been recently completed or are in progress. Telco has completed
wireless interconnection agreements with Cellular and Western Wireless,
both effective May 1, 1997, which are expected to decrease Telco revenues.
Telco has also completed an EAS agreement with US West effective June 30,
1997, and a wireless agreement with Sprint PCS is in progress. Midwest has
completed an interconnection agreement with US West in Nebraska effective
June 16, 1997, and an agreement with US West in Iowa is pending approval by
the Iowa Utilities Board. An agreement between Midwest and GTE for
Nebraska is pending approval by the NPSC. Cellular has interconnection
agreements with Telco (effective July 1997), US West (effective June 1997),
and GTE Midwest (effective third quarter 1997). An agreement with Sprint is
expected to be completed in third quarter 1997. The decreased rates to be
realized under these agreements should result in cost savings of
approximately $2.2 million per year for Cellular, which will help to offset
the revenue reductions expected from the new cellular rate plan (see "Rate
Changes" above). The Cellular agreements are the only interconnection
agreements expected to have a material impact on the Company at this time.
MANAGED CELLULAR MARKETS
The Company manages all four cellular entities in which it has an ownership
interest. The Lincoln MSA (held by Telco) and Cellular are wholly-owned
markets containing approximately 229,000 and 844,000 POPs (potential
customers), respectively. Through its general partnership with Centel, the
Company holds a 27.6% interest in the limited partnership that operates the
Omaha MSA market, containing approximately 628,000 POPs. The Company also
holds an option to purchase an additional 27.6% interest in the limited
partnership during the two-year period ending December 31, 1998.
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 62,000 POPs. By the end
of second quarter 1997, penetrations (subscribers compared to POPs) rates
achieved in these markets by the entities in which the Company holds
interests were 19.8% in the Lincoln MSA, 13.8% in Cellular, 11.5% in the
Omaha MSA, and 6.3% in RSA 1.
Effective May 15, 1997, Cellular acquired approximately 10,000 customer
service agreements between Telebeep and its customers who had previously
received cellular telecommunications services provided by Cellular through
Telebeep on a resold basis. These customers are located principally in
northeastern Nebraska. As a result of the acquisition of this additional
customer base, Cellular will provide its cellular telecommunications
services directly to these customers on a retail basis rather than through
Telebeep on a wholesale basis. This acquisition is expected to result in
increased annual access revenue of approximately $1.3 million.
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.
-20-
<PAGE>
<TABLE>
Supplemental Proportionate Data For Managed Cellular Markets (1)
Second Quarter
(Dollars in Thousands)
Unaudited
<CAPTION>
Total
Lincoln Total Total Not Proportionate
MSA Consolidated(2) Consolidated(3) Data
<S> <C> <C> <C> <C> <C>
Customer Lines 1997 45,301 161,476 20,435 181,911
1996 34,092 125,890 15,719 141,609
1995 24,556 24,556 10,576 35,132
Service Revenues 1997 $ 5,538 $ 19,425 $ 2,382 $ 21,807
1996 4,460 15,676 1,993 17,669
1995 3,351 3,351 1,506 4,857
Operating Expenses 1997 $ 3,007 $ 9,293 $ 1,106 $ 10,399
(before 1996 2,488 8,414 1,178 9,592
depreciation) 1995 2,282 2,282 961 3,243
Net Operating 1997 $ 2,059 $ 8,024 $ 973 $ 8,997
Income 1996 1,552 5,573 549 6,122
1995 687 687 258 945
EBITDA (4) 1997 $ 2,531 $ 10,132 $ 1,276 $ 11,408
1996 1,972 7,262 815 8,077
1995 1,069 1,069 545 1,614
</TABLE>
(1) The Company's interest in Cellular is not included in the
proportionate data prior to acquisition in July 1995.
(2) Financial activities of the Lincoln MSA and Cellular (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 RSA 1 (11.8%) are not included in the operating
portions of the Company's Consolidated Statements of Earnings.
(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.
-21-
<PAGE>
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, Telco, and Systems. The Company
implemented an enhancement to its 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 (including 319 Telco employees) accepting this voluntary
early retirement offer, the Company recorded a reduction to its pension
assets and recognized a restructuring charge of $20.1 million at December
31, 1995 (of which $19.7 million was attributable to Telco).
The charge reflected pension enhancements of $23.4 million less curtailment
gains of $3.3 million. 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 recognized by the Company.
Retirements under the voluntary early retirement program are being phased
in and will become fully effective by December 31, 1997. As of the end of
second quarter 1997, 138 employees of the Company (including 130 Telco
employees) have retired under the program. Because of the higher-than-
anticipated response to the program, it is expected that approximately 100
positions will need to be replaced by new hires at a lower cost.
FORWARD-LOOKING STATEMENTS
Certain statements included in this Filing concerning the future prospect
of the Company and its Subsidiaries and Affiliates are "Forward-Looking
Statements" within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. Although each of the Company and Telco believes
that its expectations are based on reasonable assumptions, no assurance can
be given that actual results may not differ materially from those in the
Forward-Looking Statements herein for reasons that include the speed and
degree to which competition enters telecommunications markets; state and
federal legislative and regulatory initiatives that increase competition,
affect cost and investment recovery, and have an impact on rate structures;
the economic climate and industrial, commercial, and residential growth in
the service territory of the Company; the weather and other natural
phenomena; the timing and extent of changes in interest rates; conditions
of the capital markets and equity markets; and growth in opportunities for
subsidiaries of the Company.
-22-
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) and (c). The Company held its annual meeting of stockholders on April
23, 1997, and the following matter was voted on at that meeting:
1. The re-election of the following directors who will serve for a term of
three years and until their successors are elected and qualified.
Number of Shares
For Withheld
William W. Cook, Jr. 28,987,592 193,853
Charles N. Wheatley 28,980,075 201,370
Thomas C. Woods, III 28,769,927 411,518
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
27. Financial Data Schedules filed electronically with the SEC
(b) Reports on Form 8-K
Aliant Communications Inc. and Aliant Communications Co. filed no
reports on Form 8-K during the quarter ended June 30, 1997.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant, Aliant Communications Inc., has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Aliant Communications Inc.
------------------------------
(Registrant)
August 14, 1997 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
August 14, 1997 /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.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant, Aliant Communications Co., has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Aliant Communications Co.
------------------------------
(Registrant)
August 14, 1997 /s/ Robert L. Tyler
Date..................... ......................................
(Signature)
Robert L. Tyler, Senior Vice President-
Chief Financial Officer
August 14, 1997 /s/ Michael J. Tavlin
Date..................... ......................................
(Signature)
Michael J. Tavlin, Vice President-
Treasurer
-25-
<PAGE>
Form 10-Q
EXHIBIT INDEX
Exhibit Title Page No.
27 Financial Data Schedule *
<PAGE>
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