SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported) March 10, 1994
Lincoln Telecommunications Company
(Exact name of registrant as specified in its charter)
Nebraska 2-70020 47-0632436
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
1440 M Street, Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 474-2211
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
Included herewith are Consolidated Financial Statements of
Lincoln Telecommunications Company for the years ended December 31, 1993,
1992 and 1991 and applicable schedules thereto, along with the Independent
Auditor's Report thereon of KPMG Peat Marwick. Also included herewith is
the Management's Discussion and Analysis of Financial Condition and
Results of Operation for the Company for fiscal year 1993.
Attached hereto as Exhibit 24 is the consent of KPMG Peat
Marwick with respect to such aforementioned financial statements.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
Consolidated Financial Statements
December 31, 1993, 1992 and 1991
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Lincoln Telecommunications Company:
We have audited the accompanying consolidated balance sheets of Lincoln
Telecommunications Company and Subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, common stock
investment and preferred stock and cash flows for each of the years in the
three-year period ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Lincoln Telecommunications Company and Subsidiaries at December 31, 1993
and 1992, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in note 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. As
discussed in note 9 to the consolidated financial statements, the Company
also adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other than Pensions in 1993.
February 4, 1994 KPMG PEAT MARWICK
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1993 and 1992
<TABLE>
<CAPTION>
Assets 1993 1992
(Dollars in thousands)
<S> <C> <C>
Property and equipment (note 2) $ 449,540 435,226
Less accumulated depreciation and amortization 203,436 185,661
------- -------
Net property and equipment 246,104 249,565
------- -------
Investments and other assets (note 3) 47,163 44,880
------- -------
Current assets:
Cash and cash equivalents 15,341 9,585
Temporary investments, at cost, which
approximates market 34,451 29,064
Receivables, less allowance for doubtful
receivables of $382,000 in 1993 and $419,000
in 1992 25,429 23,630
Materials, supplies and other assets 6,530 6,380
------ ------
Total current assets 81,751 68,659
------ ------
Deferred charges (note 7) 20,261 6,012
------ ------
$395,279 369,116
======= =======
Capitalization and Liabilities
Capitalization:
Common stock investment (notes 1, 5, 6
and 10) 184,032 189,435
Preferred stock, 5%, cumulative, redeemable,
non-voting (note 4) 4,499 4,499
Long-term debt, excluding current installments
(notes 2 and 6) 44,000 73,550
------- -------
Total capitalization 232,531 267,484
------- -------
Current liabilities:
Current installments of long-term debt (note 6) - 5,325
Notes payable to banks (note 6) 41,500 14,000
Accounts payable and accrued expenses 19,989 21,801
Income taxes payable (note 7) 2,493 3,203
Dividends payable 4,345 3,685
Advance billings and customer deposits 6,058 5,746
------ ------
Total current liabilities 74,385 53,760
------ ------
Deferred credits:
Unamortized investment tax credits 4,892 6,252
Deferred income taxes (note 7) 22,974 34,725
Other (notes 7 and 9) 60,497 6,895
------ ------
Total deferred credits 88,363 47,872
Commitments (notes 8 and 9) ------- -------
$395,279 369,116
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Telephone operating revenues:
Local network services (note 11) $ 70,833 66,022 55,972
Long distance and access services (note 11) 62,775 60,491 64,293
Directory advertising, billing and other
services 16,355 16,229 15,744
Other operating revenues 13,951 14,018 13,303
------- ------- -------
Total telephone operating revenues 163,914 156,760 149,312
------- ------- -------
Diversified operations revenues and sales:
Long distance services 19,622 18,933 18,884
Product sales 8,089 7,469 7,669
Other revenues 343 349 349
------- ------- -------
Total diversified operations revenues
and sales 28,054 26,751 26,902
------- ------- -------
Intercompany revenues (7,618) (8,143) (8,121)
------- ------- -------
Total operating revenues 184,350 175,368 168,093
------- ------- -------
Operating expenses:
Depreciation 28,596 29,626 28,628
Cost of goods and services (note 11) 17,709 18,103 18,806
Other operating expenses 85,915 80,219 78,773
Taxes, other than payroll and income (note 15) 2,923 4,135 446
Intercompany expenses (7,618) (8,143) (8,121)
------- ------- -------
Total operating expenses 127,525 123,940 118,532
------- ------- -------
Operating income 56,825 51,428 49,561
------- ------- -------
Non-operating income and expense:
Income from interest and other investments 4,540 3,660 4,529
Interest expense and other deductions 8,556 9,378 9,433
------ ------- -------
Net non-operating expense 4,016 5,718 4,904
------ ------- -------
Income before income taxes and cumulative
effect of change in accounting principle 52,809 45,710 44,657
Income taxes (notes 7 and 15) 19,618 16,101 16,837
------- ------- ------
Income before cumulative effect of change
in accounting principle 33,191 29,609 27,820
Cumulative effect of change in accounting
principle (note 9) 23,166 -
-
------- -------- -------
Net income 10,025 29,609 27,820
Preferred dividends 225 -338 469
------- -------- -------
Earnings available for common shares $ 9,800 29,271 27,351
======= ======== =======
Earnings per common share:
Earnings before cumulative effect of change in
accounting principle 1.01 .90 .83
Cumulative effect of change in accounting
principle ( .71) - -
------ ------- -------
Earnings per common share $ .30 .90 .83
====== ======= =======
Weighted average common shares outstanding
(in thousands) 32,548 32,672 32,878
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Consolidated Statements of Common Stock
Investment and Preferred Stock
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C>
Common stock investment:
Common stock of $.25 par value per share.
Authorized 100,000,000 shares; issued
32,980,376 shares (notes 1 and 5) $ 8,245 8,245 8,245
------ ------ ------
Premium on common stock (note 1) 37,481 37,481 37,481
------- ------ ------
Retained earnings (note 6):
Beginning of year 149,008 133,878 119,681
Net income 10,025 29,609 27,820
Premium on redemption of preferred stock - (84) -
Dividends declared:
5% cumulative preferred - $5.00 per share (225) (225) (225)
7.64% cumulative preferred - $7.64 per share - (113) (244)
Common - $.49 per share in 1993, $.43 per
share in 1992 and $.40 per share in 1991 (15,949) (14,057) (13,154)
------- ------- -------
End of year 142,859 149,008 133,878
------- -------- -------
Treasury stock, at cost:
Beginning of year, 446,000, 136,000 and
46,000 shares (5,299) (1,693) (592)
Sales of 65,350 shares (note 10) 804 - -
Purchase of 4,376 shares in 1993; 310,000 shares
in 1992; 90,000 shares in 1991 (58) (3,606) (1,101)
------- -------- --------
End of year, 385,026, 446,000 and 136,000 shares (4,553) (5,299) (1,693)
------- -------- --------
Total common stock investment $184,032 189,435 177,911
======= ======= ========
Preferred stock:
Parent company, $.50 par value per share.
Authorized 20,000,000 shares; none issued $ - - -
Subsidiary, $100 par value per share.
Authorized 250,000 shares (note 4):
5% cumulative, non-voting, redeemable solely
at subsidiary's option for $105 per share
(liquidating amount of $4,724,055) plus
accrued dividends, 44,991 shares
outstanding $ 4,499 4,499 4,499
======= ======= =======
7.64% cumulative redeemable with sinking fund
requirement, 29,600 shares outstanding in 1991:
Beginning of year - 2,960 3,440
Shares redeemed at par, 4,800 shares and
24,800 shares at $103 in 1992 and at par,
4,800 shares in 1991 - 2,960 480
------- ------- ------
End of year - - 2,960
Less current requirement to be redeemed
at par within one year (2,400 shares) - - 240
------- ------- ------
$ - - 2,720
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,025 29,609 27,820
------- ------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 28,698 29,694 28,726
Cumulative effect of change in accounting principle 23,166 - -
Equity in undistributed earnings of joint venture and
general partnership 1,518 1,806 (103)
Provision for losses on receivables 474 251 300
Deferred income taxes (14,308) 2,261 236
Increase in note receivable from general partnership (3,286) (2,927) -
Changes in assets and liabilities resulting from
operating activities:
Receivables (2,273) (2,333) 308
Materials, supplies and other assets (150) (695) (640)
Deferred charges (11,788) (1,023) (438)
Accounts payable and accrued expenses (1,812) 6,492 (3,560)
Income taxes payable (710) (1,204) 3,378
Advance billings and customer deposits 312 88 580
Unamortized investment tax credits (1,360) (1,553) (1,821)
Other deferred credits 30,436 1,996 (1,466)
------- ------- -------
Total adjustments 48,917 32,853 25,500
------- ------- -------
Net cash provided by operating activities 58,942 62,462 53,320
------- ------- -------
Cash flows from investing activities:
Expenditures for property and equipment (24,995) (27,340) (33,394)
Net salvage on retirements (2) 1,610 1,631
------- ------- -------
Net capital additions (24,997) (25,730) (31,763)
Proceeds from sale of investments and other assets 85 192 276
Investment in and note receivable from general
partnership - - (35,700)
Purchases of investments and other assets (744) (4,945) (894)
Purchases of temporary investments (38,292) (60,764) (186,783)
Maturities and sales of temporary investments 32,905 61,235 207,813
-------- -------- --------
Net cash used for investing activities (31,043) (30,012) (47,051)
-------- -------- -------
Carried forward $ 27,899 32,450 6,269
-------- -------- -------
Cash flows from financing activities:
Dividends to stockholders (15,514) (14,124) (13,386)
Proceeds from issuance of notes payable 35,000 - 16,000
Retirement of notes payable (7,500) (2,000) -
Debt issuance costs - - (9)
Purchase of treasury stock (58) (3,606) (1,101)
Sales of treasury stock 804 - -
Retirement and conversion of long-term debt and
redemption of preferred stock (34,875) (9,735) (13,799)
Premium paid on redemption of preferred stock - (84) -
------
Net cash used in financing activities (22,143) (29,549) (12,295)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 5,756 2,901 (6,026)
Cash and cash equivalents at beginning of year 9,585 6,684 12,710
------- ------- -------
Cash and cash equivalents at end of year $ 15,341 9,585 6,684
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992 and 1991
(1) Summary of Significant Accounting Policies
Principles of Consolidation and Organization
The consolidated financial statements reflect the accounts of Lincoln
Telecommunications Company (the Company), a holding company, and its
wholly-owned subsidiaries, The Lincoln Telephone and Telegraph Company
(LT&T), LinTel Systems Inc. (LinTel) and Prairie Communications, Inc.
(Prairie).
LT&T, the Company's principal operating subsidiary, provides local
and long distance telephone service in 22 southeastern counties of Nebraska
and cellular telephone service in the Lincoln, Nebraska MSA. LinTel
provides telephone answering services, sales of non-regulated
telecommunication products and services and toll services beyond LT&T's
local service territory. Prairie has a 50% investment in a general
partnership which operates a limited partnership providing cellular
telecommunications services in the Omaha, Nebraska MSA. The investment
in the partnership is accounted for using the equity method of accounting
(see note 3).
Net earnings applicable to intercompany transactions between
companies of different groups of operations have been eliminated.
The Company and its subsidiaries maintain their records in accordance
with generally accepted accounting principles. LT&T maintains its
telephone accounting records in accordance with the rules and regulations
of the Nebraska Public Service Commission (NPSC) which substantially
adheres to rules and regulations of the Federal Communications Commission
(FCC).
The Company's telephone operations follow accounting for regulated
enterprises prescribed by Statement of Financial Accounting Standard (SFAS)
No. 71, Accounting for the Effects of Certain Types of Regulation. The
effect of SFAS No. 71 results in regulatory assets of approximately
$15,181,000 and regulatory liabilities of approximately $12,736,000 at
December 31, 1993.
Property and Equipment
Property and equipment is stated at cost. Replacements and renewals
of items considered to be units of property are charged to the property
and equipment accounts. Maintenance and repairs of units of property and
replacements and renewals of items determined to be less than units of
property are charged to expense. Telephone property and equipment retired
or otherwise disposed of in the ordinary course of business, together with
the cost of removal, less salvage, is charged to accumulated depreciation.
When non-telephone property and equipment is sold or otherwise disposed
of, the gain or loss is recognized in operations. LT&T capitalizes
estimated costs, during periods of construction of more than one year, of
debt and equity funds used for construction purposes. No significant
costs were capitalized during the three years ended December 31, 1993.
Depreciation on property and equipment is determined by using the
straight-line method based on estimated service and remaining lives.
Income Taxes
The Company files a consolidated income tax return with its
subsidiaries.
Deferred income taxes arise primarily from reporting differences for
book and tax purposes related to depreciation and postretirement benefits.
Investment tax credits applicable to telephone property and equipment
were deferred and taken into income over the estimated useful lives of
such property and equipment.
Retirement Benefits
The Company has a qualified defined benefit pension plan which covers
substantially all employees. The Company also has a qualified defined
contribution profit-sharing plan which covers nonunion eligible employees.
Costs of the pension and profit-sharing plans are funded as accrued.
The Company adopted Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other than
Pensions, as of January 1, 1993. This establishes a new accounting
principle for the cost of retiree health care and other postretirement
benefits (see note 9). Prior to 1993, the Company recognized these
benefits on a cash basis.
Local Network Services
LT&T's local network service rates are filed with and, in certain
circumstances, are subject to review and approval by the NPSC. Billings
for local network service are rendered monthly in advance on a cyclical
basis. Advance billings are recorded as a liability and subsequently
taken into income in the appropriate periods.
Long Distance and Access Services Revenues
Long distance and access services revenues are derived from long
distance calls within the Company's service territory, carrier charges for
access to LT&T's local exchange network, subscriber line charges and
contractual arrangements with carriers for other services. Certain of
these revenues are realized under pooling arrangements with other
telephone companies and are divided among the companies based on
respective costs and investments to provide the services. Revenues
realized through the various pooling processes are initially based on
estimates. Adjustments are recorded in subsequent years as participating
companies finalize their respective costs and investments. The Company
elected to be subject to price cap regulation by the FCC effective July 2,
1993, pursuant to which limits are imposed on the Company's interstate
service rates. Prior to July 2, 1993, the Company operated under
rate-of-return regulation, which offered less pricing and earnings
flexibility than under price cap regulation.
Diversified Operations - Long Distance Services
Long distance service revenues included in Diversified Operations are
derived from toll services beyond LT&T's local service territory. These
revenues are recognized when earned regardless of the period in which they
are billed to the customer. Billing and access costs related to long
distance services are included as a cost of Diversified Operations and as
revenues of the telephone operations, and are eliminated in consolidation.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the
Company considers all temporary investments with an original maturity of
three months or less when purchased to be cash equivalents. Cash
equivalents of approximately $11,581,000 and $1,540,000 at December 31,
1993 and 1992, respectively, consist of short-term fixed income
securities.
Common Stock and Earnings Per Common Share
Effective January 6, 1994, the Company paid a 100% stock dividend to
stockholders of record on December 27, 1993, which has been treated as a
stock split for financial reporting purposes. Common stock, premium
on common stock and all per share information has been retroactively
adjusted to give effect to the stock dividend for all periods presented.
(2) Property and Equipment
The following table summarizes the property and equipment at December
31, 1993 and 1992 used in the operations:
<TABLE>
<CAPTION>
1993 1992
Accumulated Accumulated
depreciation and depreciation and
Classifications Cost amortization Cost amortization
(Dollars in thousands)
<S> <C> <C> <C> <C>
Used in telephone operations:
Land $ 2,772 - 2,746 -
Buildings 25,716 10,334 24,860 9,824
Equipment 407,477 187,953 392,153 171,090
Motor vehicles and other work
equipment 10,116 4,012 9,651 3,823
------- ------- ------- -------
Total in service 446,081 202,299 429,410 184,737
Under construction 1,608 - 4,376 -
------- ------- ------- -------
Total used in telephone
operations 447,689 202,299 433,786 184,737
Used in diversified operations,
non-regulated 1,851 1,137 1,440 924
------- ------- ------- -------
$449,540 203,436 435,226 185,661
======= ======= ======= =======
</TABLE>
Included in "Equipment Used in Telephone Operations" are investments of
$10,986,000 and $10,033,000 in 1993 and 1992, respectively, that are
directly assigned to non-regulated operations. The corresponding
accumulated depreciation and amortization was $6,247,000 in 1993 and
$5,476,000 in 1992. In addition, other investments that are common to
both regulated and non-regulated operations are allocated in a manner
consistent with the FCC's rules and regulations.
The composite depreciation rate for telephone property was 6.5% in
1993, 6.9% in 1992 and 6.7% in 1991.
Construction expenditures for 1994 are expected to approximate
$33,434,000. The Company anticipates funding construction through
operations.
Substantially all telephone property and equipment, with the
exception of motor vehicles, is mortgaged or pledged to secure LT&T's
first mortgage bonds. Under certain circumstances, as defined in the bond
indenture, all assets become subject to the lien of the indenture.
(3) Equity Investments
The Company has a 50% interest in Anixter-Lincoln, a general
partnership and joint venture with Anixter Bros., Inc. of Skokie,
Illinois. Anixter-Lincoln is a distributor of telecommunications
equipment. The Company uses the equity method of accounting for this
investment.
On December 31, 1991, Prairie acquired a 50% interest in Omaha
Cellular General Partnership (OCGP). The remaining 50% interest in OCGP
is owned by Centel Nebraska, Inc. (Centel-Neb). OCGP is the general
partner of and holds approximately 55% of the partnership interests in
Omaha Cellular Limited Partnership, which provides cellular
telecommunications services in Douglas and Sarpy Counties in Nebraska and
Pottawattamie County, Iowa. Omaha Cellular Limited Partnership conducts
business under the trade name First Cellular Omaha. Prairie is the
managing partner of OCGP.
Prairie purchased its 50% interest in OCGP from Centel Cellular
Company (Centel) for $11.9 million. The carrying value of the investment
at equity in net assets was approximately $8.1 million at December 31,
1993. Also, Prairie purchased and holds a discounted note from OCGP in
the face amount of approximately $54 million, for which the purchase price
was $23.8 million. The note has a carrying value of approximately $30
million at December 31, 1993. Such note has a stated interest rate of
11.94% and is due December 31, 1998. The proceeds of the note were
distributed by OCGP in equal parts to Centel and Centel-Neb.
Commencing on December 31, 1996, and for the two-year period
thereafter, Prairie has the option to purchase from Centel-Neb the
remaining 50% interest in OCGP.
(4) Redeemable Preferred Stock
LT&T's 5% preferred stock is cumulative, non-voting, non-convertible
and redeemable solely at subsidiary's option at $105 per share, for a
liquidating amount of $4,724,055, plus accrued dividends.
LT&T's 7.64% preferred stock required an annual sinking fund payment
to redeem 2,400 shares annually with an additional 2,400 shares subject to
redemption at par value. In June 1992, the Board of Directors authorized
the redemption of all outstanding shares of the 7.64% preferred stock.
This consisted of 4,800 shares at par value and 24,800 shares at $103 per
share. The redemption was completed on July 10, 1992 with a total payment
of $3,034,400.
(5) Dividend Reinvestment and Stock Purchase Plan
Stock for the Company's Employee and Stockholder Dividend
Reinvestment and Stock Purchase Plan (Plan) is purchased on the open
market by the Plan's Administrator. The basis for the purchase price of
the stock allocated to the Plan participants is the average price paid by
the Administrator during the 5-day trading period preceding and including
the dividend payment date. Employee purchases are at 95% of such price
while purchases by non-employee participants are at 100% of such price.
Participants in the Plan may use cash dividends declared on stock
owned and optional cash contributions to purchase additional stock. Any
contributions received by approximately eight days before the end of each
calendar quarter will be used to purchase shares of stock as of the next
dividend date.
Shares purchased in the open market for the Plan aggregated 57,604,
60,636 and 51,171 during 1993, 1992 and 1991, respectively. Expenses, net
of gains, incurred related to the Plan were approximately $22,500, $2,700
and $74,000 in 1993, 1992 and 1991, respectively. There are no shares
reserved for issuance under the Plan.
(6) Long-Term Debt and Notes Payable
Long-term debt at December 31, 1993 and 1992 is shown below:
First mortgage bonds:
Interest Date final 1993 1992
rate payment due (Dollars in thousands)
9.910% June 1, 2000 $ 44,000 44,000
8.250 Paid in 1993 - 9,750
9.350 Paid in 1993 - 13,250
8.150 Paid in 1993 - 12,000
------
Total long-term debt 44,000 79,000
Less current installments of
long-term debt - 5,450
------- -------
Long-term debt, excluding
current installments and
reacquired debt $ 44,000 73,550
======= =======
The long-term debt agreements contain various restrictions, including
those relating to payment of dividends by LT&T to its stockholder (the
Company). Notes payable to banks also contain various restrictions. At
December 31, 1993, approximately $22,050,000 of LT&T's retained earnings
were available for payment of cash dividends under the most restrictive
provisions of such agreements.
The long-term debt is due June 1, 2000 with interest payable
semi-annually.
The Company has notes payable to banks which have variable interest
rates ranging from 3.3% to 3.8% at December 31, 1993, which are due by
December 31, 1994.
(7) Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Statement 109 requires a change in the method of accounting for
deferred income taxes. Under the assets and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the accounting period in
which the enactment date occurs.
Generally accepted accounting principles for regulated enterprises
adopting Statement 109 required the recognition of deferred tax assets and
liabilities. The Company recognized deferred regulatory assets and
liabilities of approximately $17,096,000 and $14,743,000, respectively, as
a result of adopting Statement 109. The net effect of these deferred
regulatory assets and liabilities of approximately $2,353,000 was recorded
on the financial statements as of January 1, 1993 as an increase to
deferred income tax liabilities and will be amortized into income tax
expense on the financial statements over a ten-year period. The December
31, 1992 financial statements have not been restated to apply the
provisions of Statement 109.
Shown below are the components of income taxes from continuing
operations before cumulative effect of change in accounting principle.
1993 1992 1991
(Dollars in thousands)
Current:
Federal $ 16,400 13,115 13,598
-------- -------- -------
State 3,628 2,278 4,824
-------- -------- -------
20,028 15,393 18,422
-------- -------- -------
Investment tax credits (1,360) (1,553) (1,821)
------- ------- ------
Deferred:
Federal 490 1,831 172
State 460 430 64
------- ------- ------
950 2,261 236
------- ------- ------
Total income tax expense $ 19,618 16,101 16,837
======= ======= =======
Total income tax expense attributable to income from continuing
operations in each year was less than that computed by applying U.S.
Federal income tax rates (35% in 1993 and 34% in 1992 and 1991) to income
before income taxes. The reasons for the differences are shown on the
following page.
<TABLE>
<CAPTION>
1993 1992 1991
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected"
income tax expense $ 18,483 35.0% $ 15,542 34.0% $ 15,184 34.0%
State income tax expense,
net of Federal income
tax benefit 2,658 5.0 1,787 3.9 3,226 7.2
Tax effect of items capitalized
for financial statement purposes
but expensed for tax purposes
on which deferred income taxes
were not provided - - 390 .9 418 .9
Nontaxable interest income (75) (.1) (25) (.1) (365) (.8)
Amortization of regulatory
deferred charge 1,914 3.6 - - - -
Amortization of regulatory
deferred liability (2,006) (3.8) - - - -
Amortization of investment
tax credits (1,360) (2.6) (1,553) (3.4) (1,821) (4.0)
Effect of FASB No. 109
adoption on non-
regulated income (236) (.4) - - - -
Other 240 .4% (40) (.1) 195 .4
------- ----- -------- ------ ------ ------
Actual income
tax expense $ 19,618 37.1% $ 16,101 35.2% $ 16,837 37.7%
------- ----- ------- ------ ------- -----
</TABLE>
The significant components of deferred income tax expense
attributable to income from continuing operations for the year ended
December 31, 1993 were as follows (dollars in thousands):
Deferred tax expense (exclusive of the
effects of amortization below) $ 1,042
Amortization of regulatory deferred charges 1,914
Amortization of regulatory deferred liability (2,006)
-------
$ 950
=======
For the years ended December 31, 1992 and 1991, deferred tax expense
was provided on certain timing differences in the recognition of revenue
and expense for tax and financial statement purposes. The sources of
these differences and the tax effect of each are shown on the following
page.
1992 1991
(Dollars in thousands)
Tax over financial statement depreciation $ 855 682
----- ----
Other taxes 1,200 -
----- ----
Other 206 (446)
------ ----
$ 2,261 236
====== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1993 are presented below (dollars in thousands):
Deferred tax assets:
Accumulated postretirement benefit cost $ 15,946
Regulatory deferred credits 5,884
Other 2,438
-------
Total gross deferred tax assets 24,268
Less valuation allowance -
Net deferred tax assets 24,268
-------
Deferred tax liabilities:
Plant and equipment, principally due to
depreciation differences 40,720
Regulatory deferred charges 4,036
Other 2,486
-------
Total gross deferred tax liabilities 47,242
-------
Net deferred tax liability $ 22,974
=======
As a result of the nature and amount of the temporary differences
which give rise to the gross deferred tax liabilities and the Company's
expected taxable income in future years, no valuation allowance for
deferred tax assets as of December 31, 1993 was necessary.
Prior to 1987, LT&T followed the practice of deducting for income tax
purposes, interest, sales taxes and certain payroll related costs, which
were capitalized in the financial statements. As the NPSC did not permit
deferred income taxes relating to such costs to be allowed for rate-making
purposes, deferred income taxes were not provided for these timing
differences. The cumulative net amount of income tax timing differences
for which deferred income taxes were not provided was approximately
$16,800,000 at December 31, 1992. The liability for the income tax timing
differences was recorded in the previously described adoption of Statement
109 in 1993.
(8) Benefit Plans
The Company has a defined benefit pension plan covering substantially
all employees with at least one year of service. Annual contributions to
the plan are designed to fund current and past service costs as determined
by independent actuarial valuations. There is no prior service liability
associated with the basic benefits provided by the plan.
The net periodic pension credit for 1993, 1992 and 1991 amounted to
$690,000, $971,000 and $477,000, respectively. The net periodic pension
credit is comprised of the following components (dollars in thousands).
1993 1992 1991
(Dollars in thousands)
Service cost - benefits earned
during the period $ 3,408 3,160 3,099
------- ------- -------
Interest cost on projected benefit
obligations 8,441 7,744 7,446
------- ------- -------
Actual return on plan assets (25,849) (9,309) (22,507)
------- ------- -------
Amortization and deferrals, net 13,310 (2,566) 11,485
------- ------- -------
Net periodic pension credit $ (690) (971) (477)
======= ====== ======
The following table summarizes the funded status of the pension plan
at December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Actuarial present value of pension benefit
obligation:
Vested $ 97,040 89,485 86,701
-------- ------ -------
Nonvested 14,108 12,174 11,453
-------- ------ -------
Accumulated pension benefit
obligation $111,148 101,659 98,154
======= ======= =======
Projected pension benefit
obligation 127,884 117,510 113,147
Less, plan assets at market value 185,197 165,563 155,398
------- ------- -------
Excess of plan assets over
projected pension benefit
obligation 57,313 48,053 42,251
Unrecognized prior service cost 5,924 2,705 2,901
Unrecognized net gain (49,088) (35,866) (29,799)
Unrecognized net asset being recognized
over 15.74 years (12,520) (13,953) (15,385)
-------- -------- --------
Prepaid (accrued) pension cost
recognized in the consolidated
balance sheets $ 1,629 939 (32)
======= ====== =======
</TABLE>
The assets of the pension plan are invested primarily in marketable
equity and fixed income securities and U.S. Government obligations.
The assumptions used in determining the funded status information and
pension expense for the three years were as follows:
1993 1992 1991
Discount rate 7.10% 7.10 7.10
---- ---- ----
Rate of salary progression 6.00 6.25 6.25
---- ---- ----
Expected long-term rate of return
on assets 8.00 8.00 8.00
==== ==== ====
In addition to the defined benefit pension plan, the Company has a
defined contribution profit-sharing plan which covers nonunion eligible
employees who have completed one year of service. Participants may elect
to deposit a maximum of 15% of their wages up to certain limits. The
Company matches 25% of the participants' contributions up to 5% of their
wages. The profit-sharing plan also has a provision for an employee stock
ownership fund, to which the Company has contributed an additional 1.75%
of each eligible participant's wage. The Company's matching contributions
and employee stock ownership fund contributions are used to acquire common
stock of the Company purchased on the open market. The Company's combined
contributions totaled $640,000, $601,000 and $561,000 for 1993, 1992 and
1991, respectively.
(9) Postretirement Benefits
The Company sponsors a health care plan that provides postretirement
medical benefits and other benefits to employees who meet minimum age and
service requirements upon retirement. Currently, substantially all of the
Company's employees may become eligible for those benefits if they have 15
years of service with normal or early retirement. The cost of retiree
health care, dental and life insurance benefits was recognized as an
expense as premiums were paid in 1992 and 1991. For 1992 and 1991, such
expense totaled $2,290,000 and $2,131,000, respectively.
The Company adopted Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, as of January 1, 1993. The new standard requires accounting for
these benefits during the active employment of the participants. The
Company elected to record the accumulated benefit obligation upon adoption
in the first quarter. After taxes, this one-time charge amounted to
$23,166,000, net of income tax benefit of $15,258,000. Pursuant to
Statement of Financial Accounting Standards No. 71, Accounting for the
Effects of Certain Types of Regulation, a regulatory asset associated with
the recognition of the transition obligation was not recorded because of
uncertainties as to the timing and extent of recovery given the Company's
assessment of its long-term competitive environment.
The following table presents the plan's status reconciled with amounts
recognized in the Company's consolidated balance sheet at December 31,
1993 (dollars in thousands):
Accumulated postretirement benefit obligation:
Retirees $ 29,851
Fully eligible active plan participants 10,202
Other active plan participants 7,328
------
47,381
Plan assets at fair value -
Unrecognized net loss (7,054)
------
Accrued postretirement benefit cost
recognized in consolidated balance
sheets $40,327
======
Net periodic postretirement benefit costs for the year ended December
31, 1993 include the following components (dollars in thousands):
Service cost $ 300
Interest cost 3,632
-----
Net periodic postretirement benefit costs $ 3,932
=====
For purposes of measuring the benefit obligation, a discount rate of
8.0% and an 11.7% annual rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) was assumed for 1993.
This rate of increase was assumed to decrease gradually to 5.5% by the
year 2004.
For purposes of measuring the benefit cost, a discount rate of 9.5%
and a 12% annual rate of increase in the health care cost trend rate was
assumed for 1993. This rate of increase was assumed to decrease gradually
to 6.5% by the year 2002. The health care cost trend rate assumptions
have a significant effect on the amounts reported. For example, a one
percentage point increase in the assumed health care cost trend rate would
increase the aggregate service and interest cost by approximately $350,000
and increase the accumulated postretirement benefit obligation by
approximately $4,200,000.
(10) Stock and Incentive Plan
The Company has a stock and incentive plan which provides for the
award of short-term incentives (payable in cash or restricted stock),
stock options, stock appreciation rights or restricted stock to certain
officers and key employees conditioned upon the Company's attaining
certain performance goals.
Under the plan, options may be granted for a term not to exceed ten
years from date of grant. The option price is the fair market value of
the shares on the date of grant. Such exercise price was $11.50 for the
1990 options and $12.75 for the 1992 options. The exercise price of a
stock option may be paid in cash, shares of Company common stock or a
combination of cash and shares.
Stock option activity under the Plan is summarized as follows:
1993 1992 1991
Outstanding at January 1 176,000 88,000 88,000
Granted - 88,000 -
Exercised (65,350) - -
Cancelled -
- -
Outstanding at December 31 110,650 176,000 88,000
Exercisable at December 31 42,650 - -
All of the above information has been retroactively adjusted to give
effect to the 100% stock dividend.
The Plan also provides for the granting of stock appreciation rights
(SARs) to holders of options, in lieu of stock options, upon lapse of
stock options or independent of stock options. Such rights offer
optionees the alternative of electing not to exercise the related stock
option, but to receive instead an amount in cash, stock or a combination
of cash and stock equivalent to the difference between the option price
and the fair market value of shares of Company stock on the date the SAR
is exercised. No SARs have been issued under the plan.
In addition, 16,002 shares, 15,224 shares and 13,464 shares of
restricted stock were awarded from stock purchased on the open market by
the Company during 1993, 1992 and 1991, respectively. Recipients of the
restricted stock are entitled to cash dividends and to vote their
respective shares. Restrictions limit the sale or transfer of the shares
for two years subsequent to issuance unless employment is terminated
earlier due to death, disability or retirement.
Amounts charged against 1993, 1992 and 1991 net income for cash and
restricted stock awards were approximately $460,500, $388,500 and
$277,500, respectively. Pursuant to the Plan, 2,000,000 shares of common
stock are reserved for issuance under this Plan.
(11) Network Service Revenues
On May 28, 1991, the Nebraska Public Service Commission (NPSC)
ordered LT&T to implement several rate and service changes which became
effective August 16, 1991. Increased rates for basic local service,
together with reduced rates for long distance calls and other changes
included in the order, were intended to be revenue-neutral. Results were
monitored monthly and were reviewed with the NPSC after a full year of
operation. By its order dated February 16, 1993, the NPSC determined that
a one-time refund of $1 for each residential line and $2 for each business
line would be needed to achieve revenue neutrality. The refunds were
provided as credits on customers' March 1993 billing. In addition, the
NPSC ordered further reductions in rates for touch call service and long
distance service, estimated to total $1,589,000 annually. These rate
reductions were effective March 1, 1993.
Network service revenues include revenues received by LT&T for
billing and access services provided to LinTel, which were approximately
$6,746,000 for 1993, $7,214,000 for 1992 and $7,397,000 for 1991, and are
deducted as intercompany revenues and expenses.
(12) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
1993 quarter quarter quarter quarter Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues and sales from
continuing operations:
Telephone $ 40,170 40,406 41,713 41,625 163,914
Diversified 6,463 6,828 7,224 7,539 28,054
Intercompany revenues (1,896) (1,955) (1,909) (1,858) (7,618)
-------- ------- ------- ------- -------
Total $ 44,737 45,279 47,028 47,306 184,350
======== ======= ======= ======= =======
Income before cumulative
effect of change in
accounting principle 8,072 7,970 8,276 8,873 33,191
Cumulative effect of change
in accounting principle (23,534) - 368 - (23,166)
------- ------ ----- ----- -------
Net income (loss) $ (15,462) 7,970 8,644 8,873 10,025
======= ====== ====== ====== =======
Earnings per common share
before cumulative effect of
change in accounting principle .25 .24 .25 .27 1.01
Cumulative effect of change in
accounting principle (.72) - .01 - (.71)
------ ------ ---- ----- -----
Earnings (loss) per common
share $ (.47) .24 .26 .27 .30
======= ===== ===== ====== ======
<CAPTION>
First Second Third Fourth
1992 quarter quarter quarter quarter Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues and sales from
continuing operations:
Telephone $ 38,452 38,916 38,986 40,406 156,760
Diversified 6,157 6,353 7,321 6,920 26,751
Intercompany revenues (1,947) (2,062) (2,116) (2,018) (8,143)
-------- ------- -------- -------- --------
Total $ 42,662 43,207 44,191 45,308 175,368
======== ======= ======= ======= ========
Net income $ 6,145 6,992 8,529 7,943 29,609
======== ======= ======= ======= ========
Earnings per common share $ .19 .21 .26 .24 .90
======= ====== ====== ====== =======
</TABLE>
(13) Supplemental Disclosures to Statements of Cash Flows
Cash paid for interest and income taxes for each of the years in the
three-year period ended December 31, 1993 are as shown below (dollars in
thousands):
1993 1992 1991
Interest $ 7,495 8,766 8,776
------- ------ ------
Income taxes $ 20,631 16,597 15,044
======= ====== ======
(14) Common Stock Purchase Rights
The Board of Directors declared a dividend of one common stock
purchase right for each common share outstanding as of June 30, 1989.
Under certain conditions, each right may be exercised to purchase for
$21.875 an amount of the Company's common stock, or an acquiring company's
common stock, having a market value of $43.75. The rights may only be
exercised after a person or group (except for certain stockholders)
acquires ownership of 10% or more of the Company's common shares or
announces a tender or exchange offer upon which consummation would result
in ownership of 10% or more of the common shares. The rights expire on
June 30, 1999 and may be redeemed by the Company at a price of $.0025 per
right, at any time until ten days after a public announcement of the
acquisition of 10% of the Company's common stock. At December 31, 1993,
34,980,376 shares of common stock were reserved for issuance in connection
with these stock purchase rights.
(15) Property and State Income Taxes
In separate decisions during 1991, the Nebraska Supreme Court (the
Court) decided that the personal property tax system of the State as
applied in 1989 and in 1990 was unconstitutional. On January 22, 1993,
the Court affirmed a determination by the Nebraska State Board of
Equalization and Assessment whereby 18.81% of the taxes paid for 1990
should be refunded to the Company and certain other taxpayers. In
mid-1993, LT&T and LinTel entered into agreements with the Nebraska Tax
Commissioner pursuant to which LT&T and LinTel agreed to accept a refund
of 18.81% of the property taxes paid for the 1989 and 1990 tax years.
Such agreements were subsequently approved by the NPSC. As a result of
these actions, the Company recorded refunds or credits of approximately
$1,359,000 and $1,494,000 in 1993 and 1992, respectively.
Also in 1991, the Nebraska Legislature responded to the 1991 Court
decisions by eliminating personal property taxes for 1991 only,
substituting increased rates for state corporate income taxes and creating
a 4% surcharge on depreciation deductions. In July 1992, the Court
declared this legislative action to be unconstitutional. Subsequently,
the Nebraska Legislature enacted new tax legislation for 1992, similar to
the 1991 legislation but with a 2% surcharge on depreciation deductions.
The combination of these two actions lowered the Company's state income
taxes by approximately $575,000 for 1992.
In view of a constitutional amendment approved by the voters in 1992,
the constitutional issues concerning Nebraska property taxes appear to
have been resolved.
(16) Disclosures About the Fair Value of Financial Instruments
Cash and Cash Equivalents, Receivables, Accounts
Payable and Notes Payable to Banks
The carrying amount approximates fair value because of the short
maturity of these instruments.
Temporary Investments
The fair values of the Company's marketable investment securities are
based on quoted market prices.
Investments and Other Assets
The fair value of the Company's note receivable from OCGP is based on
the amount of future cash flow associated with the instrument discounted
using the Company's current borrowing rate on similar instruments of
comparable maturity.
Long-Term Debt
The fair values of each of the Company's long-term debt instruments
are based on the amount of future cash flows associated with each
instrument discounted using the Company's current borrowing rate on
similar debt instruments of comparable maturity.
Estimated Fair Value
The estimated fair value of the Company's financial instruments are
summarized as follows:
At December 31, 1993 At December 31, 1992
Carrying Estimated Carrying Estimated
amount fair value amount fair value
Temporary investments $ 29,451 30,693 29,064 29,596
====== ====== ====== ======
Note receivable from OCGP $ 30,013 35,644 26,727 31,958
====== ====== ====== ======
Long-term debt $ 44,000 54,021 79,000 93,609
====== ====== ====== ======
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
(17) Reclassifications
Certain of the 1992 and 1991 financial statement amounts have been
reclassified to conform with the 1993 presentation.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
Independent Auditors' Report and Schedules
Form 10-K Securities and Exchange Commission
December 31, 1993, 1992 and 1991
(With Independent Auditors' Report Thereon)
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Index to Schedules Filed
Schedule
Independent Auditors' Report
Temporary Investments and Cash Equivalents - Years ended
December 31, 1993, 1992 and 1991 I
Condensed Financial Information of Parent Company:
Balance Sheets - December 31, 1993 and 1992
Statements of Income - Years ended December 31, 1993, 1992
and 1991
Statements of Stockholders' Equity - Years ended December
31, 1993, 1992 and 1991
Statements of Cash Flows - Years ended December 31, 1993,
1992 and 1991 III
Property and Equipment - Years ended December 31, 1993, 1992 and
1991 V
Accumulated Depreciation and Amortization of Property and
Equipment - Years ended December 31, 1993, 1992 and 1991 VI
Valuation and Qualifying Accounts - Years ended December 31, 1993,
1992 and 1991 VIII
Short-term Borrowings - Years ended December 31, 1993, 1992 and 1991 IX
Note Receivable from Related Party - Years ended December 31, 1993,
1992 and 1991 X
Supplementary Statements of Earnings Information - Years ended
December 31, 1993, 1992 and 1991 XI
All other schedules are omitted because they are not applicable or the
information required is immaterial or is presented within the consolidated
financial statements and notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lincoln Telecommunications Company:
Under date of February 4, 1994, we reported on the consolidated balance
sheets of Lincoln Telecommunications Company and Subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
income, common stock investment and preferred stock and cash flows for
each of the years in the three-year period ended December 31, 1993, as
contained in the 1993 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference
in the annual report on Form 10-K for the year ended December 31, 1993.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedules as
listed in the accompanying index. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK
Lincoln, Nebraska
February 4, 1994
<PAGE>
<TABLE>
Schedule I
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Temporary Investments and Cash Equivalents
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
Shares/ Cost of
principal each Market Carrying
Name of issuer and title of each issue amounts issue value value
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1993:
Temporary investments
Government and agency:
Farm Credit System Financial Assistance Corp. $ 250 295 291 250
Federal Loan Home Mortgage Corp 500 511 510 500
Federal National Mortgage Association Mtn 1,000 1,003 1,011 1,000
Sallie Mae CDN & IMTN 800 820 779 800
------- ------- ------- -------
Total government and agency 2,550 2,629 2,591 2,550
======= ======= ======= =======
State or state agencies:
Colorado Housing & Financial Authority 540 540 533 540
Colorado Housing & Finance Auth. Tax bonds 175 175 173 175
Connecticut Municipal Electric Energy 500 490 545 500
Florida Housing Finance Agency Bonds 250 248 251 250
Illinois Health Fac. Auth. Variable Rate 5,000 5,000 5,000 5,000
Indianapolis Ins Loc Pub Impt 250 125 162 250
Louisiana Public Facility Authority 500 543 543 500
Utah State Housing Financial Agency 200 200 199 200
West VA Public Energy Auth. Rev. 500 500 561 500
------- ------- ------- -------
Total state or state agencies $7,915 7,821 7,967 7,915
======= ======= ======= =======
Political subdivisions and municipal bonds:
Gainesville Florida Utility Sys Rev. Bonds 500 500 503 500
Hamilton County, Tennessee Indl. Dev. 100 105 104 100
Indianapolis, Indiana Local Public IMPT 150 86 97 86
Lincoln, Nebraska Electric System Rev. 500 531 545 500
New York City, NY General Oblig. Note Fis 200 200 200 200
Nuveen, Florida Premium Mun. Fund, Inc. -- 955 950 955
Nuveen, Florida Select Quality Mun. Fund -- 1,002 1,000 1,000
------- ------- ------- -------
Total political subdivisions and
municipal bonds $1,450 3,379 3,399 3,341
======= ======= ======= =======
Total temporary investments,
carried forward 13,806
=======
Corporate bonds:
Allstate Corporation Notes 225 225 228 225
Anadarko Petroleum Notes 300 299 307 300
Commonwealth Edison 199 212 205 199
Conagra MTN 100 109 109 100
Delta Airlines 1,250 1,250 1,255 1,250
Eastman Kodak Notes 250 270 262 250
FMCC MTN DTD 500 568 563 500
Ford Motor Credit Company Notes 1,000 999 1,142 1,000
GE Capital Corporation Notes 1,000 970 1,008 1,000
General Motors Acceptance Corp notes 1,100 1,100 1,110 1,100
GMAC MTN/Shelf 300 300 303 300
GMAC Notes 170 176 172 170
Household Finance Corp 250 264 256 250
Kemper Corporation Notes 1,000 999 1,102 1,000
Kroger Company Senior Sub. Notes 300 298 309 300
Marathon Oil Co. 295 308 297 295
Morgan Stanley Group Notes 1,250 1,359 1,368 1,250
New Jersey Bell Telephone 1,000 1,040 1,038 1,000
Prudential Funding Corp. Notes 255 263 262 255
Ralston Purina 1,100 1,261 1,174 1,100
RJR Nabisco Inc. 900 928 951 900
Scott Paper Co. Sinking Fund Debt 200 238 232 200
Sear Robuck Mtn 100 114 112 100
Southwestern Bell Telephone Co. Notes 300 309 303 300
Stop and Shop Finance Intl. 1,000 1,103 1,124 1,000
Time Warner Inc. Notes 1,000 1,045 1,068 1,000
Toyota Motor Credit CDA 200 200 212 200
Toyota Motor Credit GBP Swap 250 244 267 250
Turner Broadcasting System 750 824 820 750
United Telecommunications, Inc. 750 834 813 750
Van Kampen Merritt Mun Trust -- 700 700 700
Van Kampen Merritt Tr Insd Mun -- 500 500 500
Viacom International Inc. Snr Sub 500 500 500 500
------- ------- ------- -------
Total corporate bonds $17,794 19,809 20,072 18,994
======= ======= ======= =======
Total temporary investments,
carried forward $32,800
-------
Preferred stock:
Citicorp 5 $ 93 99 93
Long Island LT Pfd. 5 125 132 125
USX Corp. Adjustable Rate Pfd. 5 235 240 235
UTS/ELF Pet UK PLC Series H -- 1,019 1,019 1,019
------- ------- ------- -------
Total preferred stock 14 $ 1,472 1,490 1,472
======= ======= ======= =======
Common stock, American Health Properties Inc.
7 $ 179 175 179
======= ======= ======= =======
Total temporary investments $34,451
=======
Cash Equivalents
Cash equivalents, GS Asset Management Funds 11,581 $ 11,581 11,581 11,581
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
Schedule I (con't)
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Temporary Investments and Cash Equivalents
<CAPTION>
Shares/ Cost of
principal each Market Carrying
Name of issuer and title of each issue amounts issue value value
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1992:
Temporary investments
Government and agency:
Federal Home Loan Bank $ 800 818 807 800
Federal National Mortgage Association 1,000 1,003 1,054 1,000
Sallie Mae CDNS IMTN 500 530 474 500
------- ------- ------- -------
Total government and agency $ 2,300 2,351 2,335 2,300
======= ======= ======= =======
State or state agencies:
Alabama HFA Variable Rate 1,000 1,000 1,000 1,000
Connecticut Municipal Electric Energy Coop 1,000 1,001 1,000 1,000
Indianapolis Ins. Loc Pub. 250 125 143 250
Louisiana Public Facility Authority 500 542 495 500
Massachusetts Health and Education 3,000 3,000 3,000 3,000
New Hampshire Var-Rt Ind. Dev. Authority 900 900 900 900
Ohio Air Quality PCR Var-Rt 1,400 1,400 1,400 1,400
------- ------- ------- -------
Total state or state agencies $ 8,050 7,968 7,938 8,050
======= ======= ======= =======
Political subdivisions and municipal bonds:
Emmaus, Pennsylvania Var-Rt Gen. Auth. 800 800 800 800
Hamilton County, Tennessee Indl. Dev. 100 105 103 100
Lincoln, Nebraska Electric System Rev. 500 531 529 500
Sacramento, California Var-Rt Mun Util Dist 2,000 2,000 2,000 2,000
West VA Public Energy Auth. Rev. 500 500 500 500
------- ------- ------- -------
Total political subdivisions and
municipal bonds $ 3,900 3,936 3,932 3,900
======= ======= ======= =======
Total temporary investments,
carried forward $14,250
=======
Corporate bonds:
Chevron Corporation Notes 500 521 504 500
Chrysler Financial Notes 200 201 202 200
Cleveland Electric 265 261 267 265
Commonwealth Edison 199 212 211 199
Ford Motor Credit Company Notes 1,000 999 1,095 1,000
GE Capital Corporation Notes 1,000 970 1,006 1,000
General Motors Accept Corp Notes 1,000 998 1,020 1,000
Household Finance Corporation 250 264 263 250
Kemper Corporation Notes 1,000 999 1,048 1,000
Kroger Company Sr. Subordinate 300 298 301 300
Merrill Lynch & Co. Notes 150 150 151 150
Morgan Stanley Group Notes 1,000 1,111 1,074 1,000
Morgan Stanley Group Inc. Notes 250 249 272 250
Paramount Communications, Inc. 500 517 509 500
Pennzoil Company 400 417 406 400
Ralston Purina 1,100 1,260 1,215 1,100
Scott Paper Company Sinking Fund Deb. 200 238 235 200
Stop and Shop Finance International 1,000 1,103 1,106 1,000
Van Kampen Merritt Tr Inst Mun -- 500 500 500
Van Kampen Merritt Advantage "B" -- 699 700 700
Viacon International Inc Snr Sub 500 500 504 500
------- ------- ------- -------
Total corporate bonds $10,814 12,467 12,589 12,014
======= ======= ======= =======
Preferred stock:
Cadbury Schweppes PLC Series 4 2 $ 1,000 1,000 1,000
U S X Corporation Adjustable Rate PFD 3,500 175 171 175
UTS/ELF Pet UK PLC Series F 2 1,000 1,000 1,000
Ford Holdings Inc. Series A 5 500 500 500
Long Island LT PFD 5,000 125 131 125
------- ------- ------- -------
Total preferred stock 8,509 $ 2,800 2,802 2,800
======= ======= ======= =======
Total temporary investments $29,064
=======
Cash equivalents, GS Asset Management Funds 1,540 $ 1,540 1,540 1,540
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
Schedule I (con't)
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Temporary Investments and Cash Equivalents
<CAPTION>
Shares/ Cost of
principal each Market Carrying
Name of issuer and title of each issue amounts issue value value
(Dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1991:
Temporary investments
State or state agencies, Federal National
Mortgage Association $ 1,000 1,002 1,065 1,000
======= ======= ======= =======
Political subdivisions and municipal bonds:
Baltimore MD Var-Rt Port FAC-A 4,400 4,400 4,400 4,400
Massachusetts Comwlth Dedicated I/T BDS 200 203 202 200
Puerto Rico Ind. MED&ENV PCR 250 252 251 250
Sublette CO WY Var-Rt Poll CTL 3,600 3,600 3,600 3,600
Washington State Public PWR Supply System 250 288 271 250
------- ------- ------- -------
Total political subdivisions and
municipal bonds $ 8,700 8,743 8,724 8,700
======= ======= ======= =======
Corporate bonds:
Bank of Tokyo Holding bonds 100 103 101 100
Campbell Soup O/S Fin NV 500 474 494 500
Comdisco Mtn/Shlf 1,000 1,018 1,017 1,000
Detroit Ed Gnrl & Rfnd Sr. D MTG 1,000 1,026 1,023 1,000
Dillard Investments Co. Inc. Notes 500 503 500 500
Disc CR Caro MTN/SHF 500 502 503 500
Emerson Elec. MTN/Shlf 500 578 544 500
European Investment Bank 870 977 933 870
Ford Motor Credit Co. Notes 1,000 999 1,060 1,000
GE Capital Corp. Notes 1,000 970 1,015 1,000
GE Credit Corp. 300 302 301 300
General Motors Accept Corp Notes 1,000 998 1,032 1,000
Industrial Bank of Japan Finance Co. Notes 20 20 23 20
Kemper Corporation Notes 1,000 999 1,052 1,000
Merrill Lynch & Co. Notes 150 150 154 150
Mitsui Finance Asia Ltd Gtd 200 207 202 200
Morgan Stanley Group Inc. Notes 250 249 271 250
Nippon Cr Bk Fin. NV 90 93 91 90
Sears Overseas Fin N.V. 1,000 958 994 1,000
Sumitomo Bank Ltd NTT Branch 250 252 250 250
Viacom Inc. Sr Sub Disc. Deb. 500 542 530 500
Wells Fargo MIN/SH 1,000 1,001 1,014 1,000
Tennessee Valley/Auth 750 761 757 750
Time Mirror Company Notes 1,355 1,373 1,352 1,355
------- ------- ------- -------
Total corporate bonds $14,835 15,055 15,213 14,835
======= ======= ======= =======
Temporary investments, carried forward $24,535
=======
Preferred stocks:
Cadbury Schweppes PLC Series 4 2 $ 1,000 1,000 1,000
English China Clays PLC Series 5 1 1,000 1,000 1,000
Household Global FND 2 1,000 1,000 1,000
Redland PLC Series D Mkt Auc PFD 2 2,000 2,000 2,000
------- ------- ------- -------
Total preferred stocks 7 $ 5,000 5,000 5,000
======= ======= ======= =======
Total temporary investments $29,535
=======
Cash equivalents
GS Asset Management Funds 2,216 2,216 2,216 2,216
Commercial paper:
General Motors Acceptance Corp. 550 550 550 550
G.E. Capital Corp. 500 500 500 500
------- ------- ------- -------
Total cash equivalents 3,266 $ 3,266 3,266 3,266
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
Schedule III
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Balance Sheets
(Parent Company Only)
December 31, 1993 and 1992
<CAPTION>
1993 1992
(Dollars in thousands)
<S> <C> <C>
Current assets:
Temporary investments $ 9,354 8,599
Cash and cash equivalents 2,376 378
Other current assets 6,506 5,748
-------- --------
Total current assets 18,236 14,725
Investment in subsidiaries 146,856 161,429
Note receivable from subsidiary 30,013 26,727
Other assets 7,817 7,247
-------- --------
$202,922 210,128
======== ========
Stockholders' equity:
Common stock 8,245 4,123
Premium on common stock 37,481 41,603
Retained earnings 142,859 149,008
Treasury stock (4,553) (5,299)
-------- --------
Total stockholders' equity 184,032 189,435
======== ========
Current liabilities:
Notes payable to banks 11,500 14,000
Other current liabilities 6,385 5,209
-------- --------
Total current liabilities 17,885 19,209
-------- --------
Other liabilities 1,005 1,484
-------- --------
$202,922 210,128
======== ========
</TABLE>
<PAGE>
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Income
(Parent Company Only)
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 7,001 27,306 25,875
Interest income:
Subsidiary 3,286 2,926 -
Other investments 1,594 1,386 2,528
-------- -------- --------
11,881 31,618 28,403
======== ======== ========
Interest expense and other deductions (870) (1,136) (467)
Income before income taxes and cumulative
effect of change in accounting principle 11,011 30,482 27,936
Income tax expense (1,184) (1,211) (585)
-------- -------- --------
Income before cumulative effect of change
in accounting principle 9,827 29,271 27,351
Cumulative effect of change in accounting principle (27) -- --
-------- -------- --------
Net income $ 9,800 29,271 27,351
======== ======== ========
<PAGE>
</TABLE>
<PAGE>
<TABLE>
Schedule III cont.
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Stockholders' Equity
(Parent Company Only)
Years Ended December 31, 1993, 1992 and 1991
<CAPTION>
1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C>
Common stock (note) $ 8,245 8,245 8,245
-------- -------- --------
Premium on common stock (note) 37,481 37,481 37,481
-------- -------- --------
Retained earnings:
Beginning of year 149,008 133,878 119,681
Net income 9,800 29,271 27,351
Premium on redemption of subsidiary's preferred stock -- (84) --
Dividends declared (15,949) (14,057) (13,154)
-------- -------- --------
End of year 142,859 149,008 133,878
-------- -------- --------
Treasury stock:
Beginning of year (5,299) (1,693) (592)
Net (purchases) sales 746 (3,606) (1,101)
-------- -------- --------
End of year (4,553) (5,299) (1,693)
-------- -------- --------
Total stockholders' equity $ 184,032 189,435 177,911
======== ======== ========
<FN>
Note: Effective January 6, 1994, the Company paid a 100% stock dividend to
stockholders of record on December 27, 1993, which has been treated as a stock
split for financial reporting purposes. Common stock, premium on common stock
and all per share information has been retroactively adjusted to give effect
to the stock dividend for all periods presented.
</TABLE>
<PAGE>
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Parent Company Only)
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,800 29,271 27,351
-------- -------- --------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Increase in note receivable (3,286) (2,926) --
Equity in earnings of subsidiaries (7,001) (27,306) (25,875)
Changes in assets and liabilities resulting from
operating activities:
Other current assets (758) 682 (292)
Other current liabilities 665 1,045 47
Other liabilities (479) (90) (295)
-------- -------- --------
Total adjustments (10,859) (28,595) (26,415)
-------- -------- --------
Net cash provided by (used for)
operating activities (1,059) 676 936
-------- -------- --------
Cash flows from investing activities:
Investment in general partnership -- -- (11,900)
Net purchases (sales) of temporary investments (755) 6,901 (15,500)
Issuance of note receivable to subsidiary -- -- (23,800)
Purchases of investments and other assets (570) (4,162) (1,054)
-------- -------- --------
Net cash provided by (used for)
investing activities (1,325) 2,739 (52,254)
-------- -------- --------
Cash flows from financing activities:
Dividends to stockholders (15,364) (13,688) (12,834)
Proceeds from (payments on) note payable (2,500) (2,000) 16,000
Net sales (purchases) of treasury stock 746 (3,606) (1,101)
Dividends from subsidiaries 21,500 16,000 22,000
-------- -------- --------
Net cash provided by (used for)
financing activities 4,382 (3,294) 24,065
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,998 121 (27,253)
Cash and cash equivalents at beginning of year 378 257 27,510
-------- -------- --------
Cash and cash equivalents at end of year $ 2,376 378 257
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 478 704 1
======== ======== ========
Income taxes $ 788 1,130 436
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
Schedule V
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Property and Equipment
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
Balance at Balance
beginning Additions, Retire- at end
Classifications (note 1) of year at cost ments Transfers of year
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Used in telephone operations:
Land $ 2,746 28 -- (2) 2,772
Buildings 24,860 1,054 193 (5) 25,716
Equipment 392,153 21,914 9,828 3,238 407,477
Motor vehicles and other work
equipment 9,651 1,004 567 28 10,116
-------- -------- -------- -------- --------
Total in service 429,410 24,000 10,588 3,259 446,081
Under construction 4,376 491 -- (3,259) 1,608
-------- -------- -------- -------- --------
Total used in telephone
operations 433,786 24,491 10,588 -- 447,689
Used in diversified operations 1,440 504 93 -- 1,851
-------- -------- -------- -------- --------
$435,226 24,995 10,681 -- 449,540
======== ======== ======== ======== ========
Year ended December 31, 1992:
Used in telephone operations:
Land 2,732 14 -- -- 2,746
Buildings 4,122 705 123 156 24,860
Equipment 390,916 17,500 26,592 10,329 392,153
Motor vehicles and other work
equipment 9,256 928 533 -- 9,651
-------- -------- -------- -------- --------
Total in service 427,026 19,147 27,248 10,485 429,410
Under construction 6,974 7,887 -- (10,485) 4,376
Acquisition adjustment 1,211 -- 1,211 -- --
-------- -------- -------- -------- --------
Total used in telephone
operations 435,211 27,034 28,459 -- 433,786
Used in diversified operations 1,285 306 151 -- 1,440
-------- -------- -------- -------- --------
$436,496 27,340 28,610 -- 435,226
======== ======== ======== ======== ========
Year ended December 31, 1991:
Used in telephone operations:
Land $ 2,403 328 -- 1 2,732
Buildings 23,203 989 70 -- 24,122
Equipment 374,935 21,204 13,976 8,753 390,916
Motor vehicles and other work
equipment 8,699 1,180 623 -- 9,256
-------- -------- -------- -------- --------
Total in service 409,240 23,701 14,669 8,754 427,026
Under construction 6,265 9,463 -- (8,754) 6,974
Acquisition adjustment 1,211 -- -- -- 1,211
-------- -------- -------- -------- --------
Total used in telephone
operations 416,716 33,164 14,669 -- 435,211
Used in diversified operations 1,128 230 73 -- 1,285
-------- -------- -------- -------- --------
$417,844 33,394 14,742 -- 436,496
======== ======== ======== ======== ========
<FN>
Note 1: Depreciation on property and equipment is determined by using the
straight-line method based on estimated service and remaining lives. The
composite depreciation rate for telephone property was 6.5% in 1993, 6.9%
in 1992 and 6.7% in 1991.
</TABLE>
<PAGE>
<TABLE>
Schedule VI
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Accumulated Depreciation and
Amortization of Property and Equipment
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
Additions
Charged to
clearing
Balance at Charged to accounts Retire- Balance
beginning costs and and ments at end
Description of year expenses others (note) of year
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Used in telephone operations:
Buildings $ 9,824 731 -- 221 10,334
Equipment 171,090 26,811 -- 9,948 187,953
Motor vehicles and other work
equipment 3,823 665 -- 476 4,012
-------- -------- -------- -------- --------
Total used in telephone
operations 184,737 28,207 -- 10,645 202,299
Used in diversified operations 924 251 -- 38 1,137
-------- -------- -------- -------- --------
$185,661 28,458 -- 10,683 203,436
======== ======== ======== ======== ========
Year ended December 31, 1992:
Used in telephone operations:
Buildings 9,305 711 -- 192 9,824
Equipment 168,148 27,993 -- 25,051 171,090
Motor vehicles and other work
equipment 3,623 641 -- 441 3,823
-------- -------- -------- -------- --------
Total in service 181,076 29,345 -- 25,684 184,737
Acquisition adjustment 1,211 -- -- 1,211 --
-------- -------- -------- -------- --------
Total used in telephone
operations 182,287 29,345 -- 26,895 184,737
Used in diversified operations 841 188 -- 105 924
-------- -------- -------- -------- --------
$ 183,128 29,533 -- 27,000 185,661
======== ======== ======== ======== ========
Year ended December 31, 1991:
Used in telephone operations:
Buildings 8,743 686 -- 124 9,305
Equipment 153,380 27,182 -- 12,414 168,148
Motor vehicles and other work
equipment 3,566 616 -- 559 3,623
-------- -------- -------- -------- --------
Total in service 165,689 28,484 -- 13,097 181,076
Acquisition adjustment 1,151 -- 60 -- 1,211
-------- -------- -------- -------- --------
Total used in telephone
operations 166,840 28,484 60 13,097 182,287
Used in diversified operations 729 126 -- 14 841
-------- -------- -------- -------- --------
$167,569 28,610 60 13,111 183,128
======== ======== ======== ======== ========
<FN>
Note: Retirements are net of salvage and cost of removal.
</TABLE>
<PAGE>
<TABLE>
Schedule VIII
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
Additions Deductions
Balance at charged to from Balance
beginning costs and allowance at end
Description of year expenses (note) of year
(Dollars in thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1993,
Allowance deducted from asset accounts,
allowance for doubtful receivables $419 474 511 382
==== === === ===
Year ended December 31, 1992,
Allowance deducted from asset accounts,
allowance for doubtful receivables $479 251 311 419
==== === === ===
Year ended December 31, 1991,
Allowance deducted from asset accounts,
allowance for doubtful receivables $494 300 315 479
==== === === ===
<FN>
Note: Customers' accounts written-off, net of recoveries.
</TABLE>
<PAGE>
<TABLE>
Schedule IX
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Short-term Borrowings
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
Maximum Average Weighted
Category of amount amount average
aggregate Weighted outstanding outstanding interest
short-term Balance average during during rate during
borrowings at end interest the year the year the year
(note 1) of year rate (note 2) (note 2) (note 3)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1993
Bank notes payable $ 41,500 3.47% $ 48,500 29,214 3.54%
======== ===== ======== ====== =====
1992
Bank notes payable $ 14,000 4.39% $ 16,000 15,984 4.38%
======== ===== ======== ====== =====
1991
Bank notes payable $ 16,000 4.77% $ 16,000 219 4.77%
======== ===== ======== ====== =====
<FN>
Note 1: The Company had unused lines of credit established with several
commercial banks of $15,000,000 at December 31, 1992 and 1991.
Note 2: Maximum amount outstanding and average amount outstanding during
the year are based on daily balances.
Note 3: Interest expense divided by average amount outstanding during
the year.
</TABLE>
<PAGE>
<TABLE>
Schedule X
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Note Receivable from Related Party
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
Balance at Balance at
beginning end of
Name of debtor of period Additions Deductions period
(Dollars in thousands)
<S> <C> <C> <C> <C>
1993
Omaha Cellular General Partnership $ 26,727 3,286 -- 30,013
======== ====== ==== ======
1992
Omaha Cellular General Partnership $ 23,800 2,927 -- 26,727
======== ====== ==== ======
1991
Omaha Cellular General Partnership $ -- 23,800 -- 23,800
======== ====== ==== ======
<FN>
Note: Prairie Communications, Inc. purchased and holds a discounted
note from Omaha Cellular General Partnership in the face amount
of approximately $54 million. The note has a stated interest
rate of 11.94% and is due December 31, 1998.
</TABLE>
<PAGE>
<TABLE>
Schedule XI
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Supplementary Statements of Earnings Information
Years ended December 31, 1993, 1992 and 1991
<CAPTION>
Charged to costs and expenses
Item 1993 1992 1991
(Dollars in thousands)
<S> <C> <C> <C>
Maintenance and repairs $ 19,966 21,173 20,697
======== ====== ======
Taxes, other than payroll
and income taxes:
Property 2,788 4,154 334
Other 135 (19) 112
-------- ------ ------
$ 2,923 4,135 446
======== ====== ======
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OVERVIEW
Lincoln Telecommunications Company (the Company) is a holding company
headquartered in Lincoln, Nebraska, whose subsidiaries operate primarily
in the telecommunications industry. The Company owns all of the issued
and outstanding common stock of its subsidiaries: The Lincoln Telephone
and Telegraph Company (LT&T), LinTel Systems Inc. (LinTel), and Prairie
Communications, Inc. (Prairie). LT&T primarily provides local, long
distance, and data service, as well as telephone directories, to 22
counties in southeast Nebraska. LT&T also operates a cellular franchise
in the Lincoln Metropolitan Service Area (MSA). LinTel sells and services
communications equipment to business customers in eastern Nebraska. It
also provides long distance service to points outside of LT&T's service
area. Prairie holds an ownership interest in and manages the wireline
cellular franchise in the Omaha MSA, which does business as First Cellular
Omaha. The revenues of LT&T, including its cellular operations in the
Lincoln MSA, are shown in the Consolidated Statements of Income under
telephone operating revenues. The revenues of LinTel are shown in such
Statements under diversified operations revenues and sales. Income which
the Company receives from First Cellular Omaha and its other holdings are
included in such Statements under non-operating income and expense, which
includes income from interest and other investments.
RESULTS OF OPERATIONS
NET EARNINGS
Consolidated earnings available for common shares, before a one-time
accounting charge related to retirees' health benefits, made effective
January 1, 1993, were $32,966,000 in 1993, compared to $29,271,000 in 1992
and $27,351,000 in 1991. The growth from 1992 to 1993 was 12.6% and was
7.0% from 1991 to 1992. After the one-time accounting charge, 1993
earnings available for common shares were $9,800,000.
Earnings per common share before the one-time accounting charge were
$1.01 in 1993, compared to $0.90 in 1992 and $0.83 in 1991, after giving
effect to the 100% stock dividend which was distributed on January 6,
1994.
OPERATING REVENUES
In 1993, total operating revenues grew by $8,982,000, an increase of
5.1%, to a total of $184,350,000. In 1992, total operating revenues grew
by $7,275,000, an increase of 4.3% over 1991, to a total of $175,368,000.
Telephone Operating Revenues
Led by growth in cellular network revenues, telephone operating
revenues increased by $7,154,000, or 4.6% over 1992, to a total of
$163,914,000. Growth in 1992 was $7,448,000 or 5.0% over 1991, to a total
of $156,760,000.
Local Network Services
Local network service revenues as shown in the Consolidated
Statements of Income reflect amounts billed to customers for local
exchange services, which include access to the network and secondary
central office services, such as custom calling features. It also
includes network revenues from cellular operations in the Lincoln MSA.
Local network service revenues in 1993 were $70,833,000, an increase of
$4,811,000 or 7.3% over the 1992 total of $66,022,000. In 1992, local
network service revenues increased $10,050,000 or 18.0% over the 1991
total of $55,972,000.
Each annual increase reflects the addition of telephone and cellular
access lines. Customer business telephone access lines increased 3,471
(5.7%) in 1993 and 3,281 (5.7%) in 1992. Residence telephone access lines
increased 2,523 (1.5%) in 1993 and 2,790 (1.7%) in 1992. Cellular access
lines increased 5,654 (69.8%) in 1993 and 2,919 (56.4%) in 1992. The
increase in 1992 local network service revenues is also attributable to
revenue shifts from long distance to local service due to the introduction
of Enhanced Local Calling Areas (ELCAs), and to higher local service rates
implemented in August 1991. Revenues derived from calling within ELCAs (a
radius of 25 miles around each exchange) are classified as local service
revenues.
Long Distance and Access Services
Long Distance Revenues
Long distance revenues as shown in the Consolidated Statements of
Income are received from providing long distance services within LT&T's
service area. These services include calls beyond the ELCAs; Wide Area
Telecommunications Service ("WATS" or "800" services) for customers with
highly concentrated demand; and special services, such as private lines.
Long distance revenues in 1993 were $15,244,000, a decrease of $790,000 or
4.9% from the 1992 total of $16,034,000. In 1992, long distance revenues
decreased $4,689,000 or 22.6% from the 1991 total of $20,723,000. Long
distance rates were reduced by approximately $1,125,000 annually beginning
on March 1, 1993, pursuant to an order of the Nebraska Public Service
Commission (NPSC). The 1992 decrease was due primarily to the
reclassification of calls 25 miles or less in length (calls within ELCAs)
to local network revenue. These calls were classified as long distance
calls prior to August, 1991.
Access Revenues
Interstate access service revenues result from providing access
services to interexchange carriers in order to provide telecommunications
services between LT&T's area and other states. Interstate access service
revenues were $29,178,000 in 1993, an increase of $1,584,000 or 5.7% over
the 1992 total of $27,594,000. In 1992, interstate access service
revenues decreased $591,000 or 2.1% from the 1991 total of $28,185,000.
The 1993 increase was due primarily to increased volume of access minutes.
The 1992 decrease was due to regulatory rule changes which reduced costs
allocated to the interstate jurisdiction.
Intrastate access service revenues result from the provision of
access services to interexchange carriers which provide telecommunications
services between Local Access and Transport Areas (LATAs) within Nebraska.
Intrastate access revenues were $18,353,000 in 1993, an increase of
$1,489,000, or 8.8%, over the 1992 total of $16,864,000. In 1992,
intrastate access revenues increased $1,478,000 or 9.6% over the 1991
total of $15,386,000. Both the 1993 and the 1992 increases were due to
increased volumes of access minutes.
Diversified Operations Revenues and Sales
Revenues and sales from diversified operations were $28,054,000 in
1993, up $1,303,000 or 4.9%. In 1992, revenues and sales from diversified
operations had decreased by $151,000, or 0.6%, from 1991.
Revenues are received from LinTel's Lincoln Telephone Long Distance
division which provides long distance services beyond LT&T's service area.
These services include long distance and WATS calls. Long distance
revenues were $19,622,000 in 1993, an increase of $689,000 or 3.6% over
the 1992 total of $18,933,000. In 1992, long distance revenues increased
$49,000 or 0.3% over the 1991 total of $18,884,000.
Revenues are also received by LinTel from sales and servicing of
telecommunications products and equipment. Product sales revenues were
$8,089,000 in 1993, an increase of $620,000 or 8.3% over the 1992 amount
of $7,469,000. In 1992, product sales revenues decreased $200,000 or 2.6%
from the 1991 amount of $7,669,000.
OPERATING EXPENSES
Total operating expenses were $127,525,000 in 1993, an increase of
$3,585,000 or 2.9% from 1992. Total operating expenses increased
$5,408,000 or 4.6% from 1991 to 1992.
Depreciation expenses amounted to $28,596,000 in 1993, $29,626,000 in
1992, and $28,628,000 in 1991. The most recent depreciation rate order by
the NPSC allowed analog electronic and step-by-step switching equipment,
as well as microwave radio systems, to be fully amortized by December 31,
1992. On November 10, 1993, LT&T filed an application with the NPSC which
would increase annual depreciation costs by $3,802,000 based upon
December 1992 book balances. An NPSC decision is expected in 1994 to be
retroactively effective to January 1, 1994.
Costs of goods and services were reduced by $394,000 or 2.2% in 1993
from 1992 to an amount of $17,709,000, and by $703,000 or 3.7% in 1992
from 1991, led by LinTel's reduced costs of providing long distance
services in each year.
Other operating expenses were $85,915,000 in 1993, $80,219,000 in
1992, and $78,773,000 in 1991. The 1993 increase was led by the increased
cost of employee benefits, including a change in accounting for the costs
of health care benefits after existing employees retire. Sales
commissions and other costs of acquiring cellular customers also
increased.
Taxes, other than payroll and income, are principally local property
taxes. The Company's tax obligations were significantly modified by
actions of the Nebraska Legislature and the Nebraska Supreme Court, as
described further under the heading "Operating Environment and Trends in
the Business." These taxes amounted to $2,923,000 in 1993, compared to
$4,135,000 in 1992 and $446,000 in 1991.
NON-OPERATING INCOME (EXPENSES)
Series G, I and J First Mortgage Bonds totalling $35,000,000 were
called on July 6, 1993, resulting in a call premium of $822,000. Short-
term borrowings at lower interest rates were used to fund the call. This
action led to a total of $8,556,000 for interest expense and other
deductions in 1993, compared to $9,378,000 in 1992 and $9,433,000 in 1991.
INCOME TAXES
Income tax expenses in 1993 were $19,618,000, compared to $16,101,000
in 1992 and $16,837,000 in 1991. In addition to increased taxable income
in 1993 over 1992, the federal income tax rate increased from 34% to 35%.
In July 1992, the Nebraska Supreme Court issued a ruling which
invalidated the 1991 Legislature's LB 829. As a result, the Legislature
held a special session in November 1992. To recoup the lost revenue, one-
time measures were adopted which were similar to those of LB 829, but
which were less burdensome to telecommunications providers than was the
case under the 1991 legislation. The net change from these actions was a
reduction of the Company's state income taxes for 1992 by approximately
$575,000.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
LT&T reduced its long-term debt by $35,000,000 in 1993 and $6,775,000
in 1992. Short-term borrowings were used to accomplish the 1993
reduction. In addition, LT&T retired all of its 7.64% preferred stock in
July 1992, including 4,800 shares at par and 24,800 shares at $103 per
share. A total of $3,034,400 was paid to retire the preferred stock.
During 1991, the Board of Directors authorized the purchase of up to
600,000 shares of the Company's common stock as warranted by market
conditions. Pursuant to this authorization, the Company purchased 270,000
shares in 1992 for $3,125,000, and 4,376 shares in 1993 for $58,000. The
foregoing common share information has been adjusted to reflect the 100%
stock dividend distributed on January 6, 1994.
Construction
The Company is continuing to invest in new technology. Net cash
expenditures for capital additions to property and equipment amounted to
$24,997,000 in 1993, $25,730,000 in 1992, and $31,763,000 in 1991. Cash
provided by operating activities, less dividends, exceeded capital
additions in each of those years. Gross additions to telephone property
and equipment are expected to approximate $33,434,000 in 1994. The
Company anticipates funding this construction from operating activities.
The Company's fiber optic system between major wire centers is
complete. The Company continues to monitor the economic feasibility and
technological advances in extending fiber beyond the wire centers. There
are no specific plans for this expansion at this point.
Cash and Cash Equivalents
The Company had cash, cash equivalents, and temporary investments of
$49,792,000 and $38,649,000 at December 31, 1993 and 1992, respectively.
There were short-term borrowings of $41,500,000 and $14,000,000 at
December 31 of 1993 and 1992, respectively.
Dividends
Quarterly dividends on the Company's common stock were increased from
9.25 cents per share to 10 cents per share, commencing with dividends paid
April 10, 1991, to 11 cents per share commencing July 10, 1992, to 12
cents per share commencing January 10, 1993, and to 13 cents per share
commencing January 10, 1994. In addition, a 100% stock dividend was dis-
tributed on January 6, 1994. The total cash dividends declared amounted
to 49 cents per share in 1993, 43 cents per share in 1992 and 40 cents per
share in 1991. The foregoing per share information has been adjusted to
reflect such 100% stock dividend.
Purchase of Shares For Employee Benefit Plans
On February 1, 1994, the Company filed a Form S-3 Registration
Statement with the Securities and Exchange Commission in connection with
the secondary offering of 2,130,000 shares of the Company's common stock
for sale by Sahara Enterprises, Inc. (Sahara). Sahara granted an option
to the underwriters to purchase up to 319,500 additional shares of common
stock to cover over-allotments. Concurrently with the sale of such
shares, Sahara has agreed to sell 250,000 shares of the Company's common
stock which it owns to the Company for future use in funding employee
benefit plans at a price equal to the public offering price, less a
discount of 2% of such price. The Company anticipates financing this
transaction through short-term debt.
ACQUISITION AND INVESTMENTS
On December 31, 1991, Prairie entered into a partnership that holds a
55% interest in the Omaha Cellular Limited Partnership, now doing business
as First Cellular Omaha, which provides cellular communications services
in the Omaha MSA. Prairie is an equal partner with Centel-Nebraska in the
partnership and has the option to purchase Centel's remaining 50% interest
in the partnership during the two-year period following December 31, 1996.
The Company assumed management of First Cellular Omaha on January 1, 1992.
First Cellular Omaha's operating results have exceeded the Company's
forecast. First Cellular Omaha increased its number of customer access
lines 61% in 1993 and by nearly 50% in 1992. Operating revenues increased
by 40.0% in 1993 and by 26.5% in 1992. First Cellular Omaha invested
$3,825,000 and $3,702,000 in additional equipment in 1993 and 1992,
respectively.
During 1992, the Company purchased additional shares of the common
stock of Nebraska Cellular Telephone Corporation (NCTC) at a cost of
$2,632,000. NCTC provides cellular communications services in non-
metropolitan areas of Nebraska. As of December 31, 1993, the Company
owned approximately 13% of the outstanding shares of NCTC.
OPERATING ENVIRONMENT AND TRENDS IN THE BUSINESS
State Tax Changes
During the period of 1991 through 1993, the most notable changes
among the Company's operating expenses were state and local taxes. In
1991, the Nebraska Supreme Court determined in separate actions that
Nebraska's personal property tax system as applied to businesses in 1989
and 1990 was unconstitutional. The Court determined that approximately
18.8% of taxes paid for 1990 should be refunded. The NPSC approved a
settlement whereby similar refunds were made applicable to 1989 taxes. In
1991, the Nebraska Legislature adopted a temporary measure, LB 829, which
eliminated such personal property taxes for 1991, and substituted
increased corporate income tax rates including a 4% surcharge on
depreciation deductions.
In 1992, the Legislature adopted a new system of taxing business
equipment which was consistent with a constitutional amendment approved by
the voters in May. The Company's property tax under the new measure
amounted to approximately $3,483,000 for 1992 and $3,609,000 for 1993.
Also in 1991, the Legislature adopted a measure requiring the NPSC to
approve the disposition of tax reductions which telephone companies might
derive from a change in tax laws. The Company set aside $2,017,000 in
1992 and $24,000 in 1993 to meet this requirement. The Company has agreed
to offer equipment and facilities for Enhanced 911 emergency services and
frame relay services to various governmental and educational entities at
reduced rates to comply with the NPSC's order concerning these matters.
All of these actions, together with partial refunds that were
received or accrued from 1989 and 1990 property tax payments, led to a
decrease in operating tax expense of $1,212,000 from 1992 to 1993, and an
increase in operating tax expense of $3,689,000 from 1991 to 1992. The
Company believes the adoption of the constitutional amendment should serve
to stabilize operating tax liabilities in the future.
Regulatory
In providing telecommunications services, LT&T and LinTel are subject
to regulation from both state and federal regulators with respect to
rates, services and other matters.
State Regulation
Nebraska does not have traditional rate-of-return regulation, but
instead allows telephone companies some flexibility in setting prices.
However, the types of service offered and service quality are still
regulated by the NPSC.
From time to time, including in January 1994, proposals have been
made by the Nebraska Legislature and the NPSC to re-regulate rates for
telecommunications services, including local and interexchange long
distance rates, offered in Nebraska. In addition, a bill was introduced
in the Nebraska Legislature in January 1994, which if it had been
approved, would have eliminated the Company's exclusive ability to provide
basic local exchange service in its certificated service area (the south-
eastern 22 counties of Nebraska) and would have potentially subjected the
Company to competition from other providers of basic local exchange
service, interexchange service and extended area service. These two 1994
proposals were rejected by the Legislature's Transportation Committee, and
did not advance for further consideration by the Legislature. The Company
cannot provide any assurance that the current regulatory environment in
Nebraska will continue without change in the future or make any
predictions as to what impact any change may have on the Company's
operations.
The NPSC ordered LT&T to adjust several rates and make service
changes which became effective on August 16, 1991, in connection with the
creation of ELCAs. The combined result of all of the rate changes
effected by the NPSC's order was intended to be revenue-neutral, and
results were monitored for 12 months following entry of the order. The
NPSC determined that the revised rate structure had exceeded revenues-
neutrality by approximately 2.0%, less costs of implementing the revised
rate structure.
On February 16, 1993, the NPSC issued an order intended to accomplish
revenue neutrality on a going forward basis, as well as to refund excess
revenues which LT&T earned during and following the monitoring period. In
March 1993, LT&T's customers received one-time credits which totalled
approximately $253,000. Further, rates for touch call service were
reduced by approximately $464,000 annually, beginning March 1, 1993. Long
distance rates were reduced by approximately $1,125,000 annually, also
beginning March 1, 1993.
Federal Regulation
The Federal Communication Commission (the "FCC") regulates interstate
telephone services provided by the Company. This regulation primarily
consists of the regulation of interstate access charges that are billed to
interexchange carriers for the origination and termination of interstate
long distance services by end-user customers over the Company's local
exchange network. The Company elected to be subject to price cap
regulation by the FCC effective July 2, 1993, pursuant to which limits are
imposed on the Company's interstate service rates. Prior to July 2, 1993,
the Company operated under rate-of-return regulation, which offered less
pricing and earnings flexibility than under price cap regulation. From
time to time, the FCC modifies existing regulations and adopts new
regulations concerning interstate telephone services, and there can be no
assurance as to what impact such regulations may have.
Competition
The Company faces increasing competition in virtually all aspects of
its business. Advances in technology, as well as regulatory, legislative
and judicial actions, have expanded the types of services and products
available in the market as well as the number of alternative providers
offering such services. These trends are expected to continue over the
next decade and at an increasing rate in the near future.
Competition in the wireless communications markets is expected to
eventually increase due to the FCC's assigning additional frequency
spectrum to Personal Communications Services (PCS), which could allow an
individual to place calls and be contacted at virtually any location.
During 1993, Congress amended the Communications Act to authorize the use
of competitive bidding as a means of awarding licenses for spectrum use
for PCS and other services. The FCC issued rules and regulations for the
development of PCS. The FCC has allocated spectrum for a total of up to
seven possible PCS providers in each market. Due to the Company's
ownership of cellular licenses, it will be restricted to bidding on 10
Megahertz of frequency in the Lincoln, Omaha, and statewide markets. It
is not precluded from other markets outside of Nebraska.
Accounting Pronouncements
In December 1990, the Financial Accounting Standards Board issued a
new statement of accounting standards related to insurance and other non-
pension benefits provided to retirees (SFAS 106). Prior to 1993, the
Company accounted for these benefits as costs were incurred. Under the
new standards, recognition of these costs is accelerated and accrued prior
to retirement, similar to accounting for pension benefits. Implementation
of the new standards was required in 1993. The Company elected to account
for the accumulated post-retirement benefit obligation as of January 1,
1993, taking a charge of $23,166,000, net of income tax benefits.
In February 1992, the Financial Accounting Standards Board issued a
new statement of accounting standards relating to current and deferred
income taxes (SFAS 109). The Company applied this new standard in 1993.
The new standard did not have a significant impact on the financial
statements.
Labor Contracts
LT&T and Local 7470 of the Communications Workers of America, AFL-
CIO, (CWA) reached agreement on a three-year contract concerning wages and
working conditions, effective in October 1992. The contract provides for
wage increases of 11.2 percent over the three-year term of the contract,
increased pension benefits, changes in health and dental care programs and
changes in certain job classifications which allow for increased work
force flexibility. In addition, in May 1992, LinTel and the CWA reached
agreement on a three-year contract covering its union-eligible employees.
The LT&T and LinTel labor contracts with the CWA expire on October 14,
1995, and May 19, 1995, respectively.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Not applicable
(b) Not applicable
(c) Exhibits
Designation Description
24 Consent of KPMG Peat Marwick
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
LINCOLN TELECOMMUNICATIONS COMPANY
By: FRANK H. HILSABECK
Frank H. Hilsabeck
President and Chief Executive
Officer
Dated: March 10, 1994
<PAGE>
Exhibit Index
Exhibit Page
24 Consent of KPMG Peat Marwick
EXHIBIT 24
ACCOUNTANTS' CONSENT
To Board of Directors
Lincoln Telecommunications Company:
We consent to the incorporation in Forms S-3 (Registration No. 33-47428),
S-3 (Registration No. 33-52117) and S-8 (Registration No. 39551) relating
to the Lincoln Telecommunications Company's Employee and Stockholder
Dividend Reinvestment and Stock Purchase Plan, the proposed secondary
offering of Company common stock by a selling stockholder of the Company
and the 1989 Stock and Incentive Plan, respectively for Lincoln
Telecommunications Company and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, common stock
investment and preferred stock and cash flows for each of the years in the
three-year period ended December 31, 1993, included in Form 8-K, dated
February 14, 1994, as amended by Form 8-K/A dated March 4, 1994 and Form
8-K/A dated March 10, 1994.
March 10, 1994 KPMG PEAT MARWICK
Lincoln, Nebraska
