<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________
Commission File No. 0-10516
-----------------------------------------
Lincoln Telecommunications Company
(Exact name of registrant as specified in its charter)
Nebraska 47-0632436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 M Street, Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 402-474-2211
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
($.25 par value)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by non-
affiliates, based upon the closing price of such stock as of February 29,
1996, was $723,849,567.
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Number of shares of common stock outstanding
on
February 29, 1996 -- 36,650,611
The Registrant's Annual Report to Shareholders for the calendar year 1995
is incorporated by reference in Parts I, II, III and IV of this Form 10-K
to the extent stated herein. The Registrant's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on April 24, 1996 is
incorporated by reference in Parts III & IV of this Form 10-K to the extent
stated herein.
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TABLE OF CONTENTS
Item Page
PART I
Description
1. Business 1-6
2. Properties 6-7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
PART II
Description
5. Market for Registrant's Common Equity and Related Stockholder
Matters 7-8
6. Selected Financial Data 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-9
8. Financial Statements and Supplementary Data 9
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 9
PART III
Description
10. Directors and Executive Officers of the Registrant 9
11. Executive Compensation 9
12. Security Ownership of Certain Beneficial Owners and Management 9
13. Certain Relationships and Related Transactions 9
PART IV
Description
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 10-12
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PART I
ITEM 1. Business
Lincoln Telecommunications Company (the Company) was incorporated on
November 24, 1980, as a Nebraska corporation, and is a holding company,
with The Lincoln Telephone and Telegraph Company (Lincoln Telephone), a
Delaware corporation, as its principal subsidiary. The Company owns 100%
of the issued and outstanding common stock of Lincoln Telephone. Other
wholly-owned subsidiaries of the Company are Nebraska Cellular Telephone
Corporation (NCTC), LinTel Systems Inc. (LinTel) and Prairie
Communications, Inc. (Prairie), all of which are Nebraska corporations.
For information relating to the general development of the Company's
business during the past five years and descriptions of the Company's
subsidiaries, see 1995 Annual Report to Stockholders, pages 1 - 8 and 40 -
46.
SUBSIDIARY OPERATIONS.
Lincoln Telephone, the Company's principal subsidiary, provides local
and intraLATA service to approximately 190,000 customers in the contiguous
geographical area consisting of the southeastern 22 counties of Nebraska,
having in service 254,173 landline customer access lines as of December 31,
1995. There are a total of 137 exchanges and 146 central offices in the
service area of the Company. The Company's fully digital local exchange
network supports SS7 technology and includes over 1,400 miles of fiber
optic cable, much of it in a ring configuration. Data communications
services include Internet access. Enhanced services include Voice Mail,
Caller ID, Customer Calling, and Centrex. The Company publishes six
regional directories and provides access service to long distance and
cellular companies. Set forth below is a schedule of Lincoln Telephone's
residential and business access lines in service for the years ended
December 31, 1995 and 1994.
As of December 31
ACCESS LINES IN SERVICE* 1995 1994
Residence 180,759 177,695
Business 73,424 69,268
------- -------
Total 254,173 246,963
*The statistics in this table excludes cellular access lines and
Company access lines in service.
Lincoln Telephone provides access services by connecting the
communications networks of interexchange and cellular carriers with the
equipment and facilities of end users by use of its public switch networks
or through private lines. Access charges, including interstate subscriber
line charges and those payable by interexchange and cellular carriers,
provided $53,653,000, $50,569,000 and $47,531,000 of the Company's
consolidated revenues for the years ended December 31, 1995, 1994 and 1993,
respectively.
Nebraska has an enlightened and streamlined regulatory climate. Since
1986, telecommunications companies in Nebraska have been permitted to
1
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ITEM 1. cont'd.
increase basic local exchange rates up to 10% in any consecutive 12-month
period without review by the Nebraska Public Service Commission (NPSC).
However, telecommunications companies must provide at least 60 days notice
to affected customers and conduct public informational meetings. If at
least 3% of all affected subscribers sign a formal complaint within 120
days from such notice, opposing the rate increase, the NPSC must hold and
complete a hearing with regard to the complaint within 90 days to determine
whether the proposed rates are fair, just and reasonable, and within 60
days after the close of hearing, enter an order adjusting the rates at
issue.
Rates for all other services are not subject to regulation by the
NPSC. Rates for other services may be revised by a telecommunications
company by filing a rate list with the NPSC which is effective after ten
days' notice to the NPSC. Quality of service regulation over interexchange
and local exchange service is retained by the NPSC. Nebraska has
completely deregulated the provision of mobile radio services and radio
paging services. At the federal level, the Company operates under price
cap, as opposed to rate of return, regulation.
Lincoln Telephone's wireless services include cellular operations and
wide area paging services. Lincoln Telephone operates a cellular
telecommunications system in the Lincoln, Nebraska Metropolitan Statistical
Area (MSA). Lincoln Telephone also manages the limited partnership which
is the license holder for Iowa Rural Statistical Area (RSA) 1, which serves
the southwestern six counties of Iowa.
In December 1991, the Company purchased a 50% interest in the Omaha
Cellular General Partnership (OCGP) from Centel Nebraska, Inc. (Centel-Neb)
for $11.9 million. The Company 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 had a carrying value of
approximately $37.8 million at December 31, 1995. For a two-year period
beginning on December 31, 1996, the Company has the option to purchase from
Centel-Neb the remaining 50 percent interest in OCGP. OCGP is the general
partner of and holds approximately 55% of the partnership interests in the
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. The Company is the
managing partner of OCGP.
On July 13, 1995, the Company completed the acquisition of the
approximately 84% of the issued and outstanding common stock of NCTC not
previously owned by the Company. NCTC is the holder of cellular operating
licenses issued by the Federal Communications Commission (FCC) for Nebraska
RSA Nos. 533 through 542. NCTC's network serves the entire State of
Nebraska through these ten RSAs, except Dakota, Douglas, Lancaster and
Sarpy counties.
The following table sets forth certain information about the Company's
managed cellular operations.
2
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ITEM 1. cont'd.
<TABLE>
Cellular Operations
<CAPTION>
December 31, 1995
Acquisi- POPs Gross Net
tion Percent Within Net Sub- Sub-
System (1) Date (2) Ownership Area (5) POPs scribers scribers
<S> <C> <C> <C> <C> <C> <C>
Lincoln MSA April 23, 1987 100.0 221,000 221,000 29,294 29,294
Nebraska RSAs Nov. 25, 1989 100.0 833,000 833,000 80,414 80,414
Omaha MSA Dec. 31, 1991 27.6(3) 627,000(6) 173,052 46,399 12,806
Iowa RSA 1 June 30, 1989 11.8(4) 61,000 7,198 2,868 338
(1) Systems are as follows:
Lincoln MSA - Lancaster County, Nebraska
Nebraska RSAs - 89 of the 90 Nebraska counties not in the Omaha and
Lincoln MSAs
Omaha MSA - Douglas and Sarpy Counties in Nebraska and Pottawattamie
County in Iowa
Iowa RSA 1 - Southwestern six counties of Iowa
(2) The date Lincoln Telephone's operating license was granted in the case
of the Lincoln MSA, and the date of the Company's initial acquisition
of an interest in the licensee in the case of other systems. The
Company's ownership interest in the Nebraska RSAs increased from
approximately 16% to 100% on July 13, 1995.
(3) In addition, the Company has an option to purchase an additional 27.6%
interest in the licensee of the Omaha MSA at fair market value.
(4) Includes the allocable portion of the 15.2% interest in the licensee
held by the Omaha MSA licensee.
(5) Based upon population data for 1995, POPs shown for Lincoln and Omaha
MSAs are 99% covered by the networks of these systems. According to
estimates available to the Company, approximately 92% of the POPs
shown for Nebraska RSAs and approximately 92% of the POPs shown for
Iowa RSA 1 are covered by the networks of these systems.
(6) Does not include the Omaha MSA licensee's 15.2% interest in Iowa RSA 1
(which system has been separately included in the table) or the Omaha
MSA licensee's 8.3% interest in Iowa RSA 8 (representing 54,659 POPs
and 4,537 net POPs).
</TABLE>
3
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ITEM 1. cont'd
The licensing, ownership, construction, operation and sale of
controlling interests in cellular telephone systems are subject to
regulation by the FCC. The FCC license for the Company's Lincoln MSA
expires in October 1996, and the Omaha MSA license expires May 2005, while
FCC licenses for the Company's Iowa RSA and Nebraska RSA cellular
operations expire between July 1999 and August 2000. All renewal
applications for these licenses must be received by the FCC not later than
30 and not more than 60 days in advance of their respective expiration
dates and must be approved by the FCC. It is possible that there may be
competition for these FCC licenses upon expiration, and any such
competitors may apply for such licenses within the same time frame as the
Company. However, incumbent cellular providers generally retain their FCC
licenses upon a demonstration of substantial compliance with FCC
regulations and substantial service to the public. Although the Company
has no reason to believe that the FCC renewal applications will not be
granted by the FCC, no assurance can be given.
For a five-year period ending after the date of the grant of a
cellular license by the FCC (the "fill-in period"), the licensee has the
exclusive right to apply to serve areas within the RSA or the MSA. At the
end of the fill-in period, any person may apply to serve the unserved areas
in the MSA or RSA. The fill-in periods for both the Lincoln and Omaha MSAs
have expired and virtually all areas are served in those locations. The
fill-in periods for the Nebraska RSAs and the Iowa RSA expired between
November 1994 and May 1995. One Phase II application has been filed to
serve an uncovered area in Iowa RSA 1. This does not impose a serious
threat to the Company in providing service to this area.
The Company, through LinTel Systems Inc., is a "reseller" of long
distance services, primarily in Lincoln Telephone's exchange service area,
and provides this service by aggregating its customers' traffic to take
advantage of volume discounts offered by national networks. During 1995,
LinTel had 107.6 million minutes of long distance traffic, a decrease of
6.9 million minutes from 114.5 million minutes of long distance traffic in
1994. The Company has a variety of calling programs for both residential
and business customers.
LinTel Systems also sells and services a wide range of PBX, key system
and other communications equipment to large and small businesses, including
sophisticated switching systems from ROLM and NorTel. These systems
provide a variety of call center applications such as automatic call
distribution, voice mail, and LAN functionality.
COMPETITION.
In February 1996, the United States Congress passed and the President
signed the Telecommunications Act of 1996 (the "Act"). This Act impacts
all participants in the communications industry and will hasten the
convergence of once separate and distinct industries.
The Act preempts states from prohibiting competition in the
telecommunications market. Thus, previously prescribed geographic
franchises are, for the most part, eliminated. The Act facilitates the
entry of new competitors into the local exchange market by allowing
4
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ITEM 1. cont'd
companies to purchase and "resell" Local Exchange Carriers (LECs) services,
by requiring companies to unbundle their networks and sell individual
components of services, and by requiring LECs to negotiate interconnection
agreements with companies which desire connection with LEC networks. The
Act also requires LECs to provide number portability, dialing parity, and
access to rights-of-way.
While the Act presents the Company with the potential for more
competition in the local exchange market, it also provides opportunities.
The Company may enter the cable television market and it may move into new
geographic markets and offer either a full range of services or selected
services to niche markets.
The Act also provides the Company with some streamlined regulatory
conditions. Delays in implementation of new tariff rates have been greatly
reduced, and some monitoring reports will be filed less frequently. Since the
Company serves less than two percent of the nation's access lines, the Act
allows for the waiver of certain interconnection requirements.
The Act provides for over 60 rulemaking proceedings that must be
concluded by the FCC. The Company intends to participate in many of these
proceedings with a goal of ensuring that incumbent providers are not
severely handicapped by regulations not imposed on new market entrants.
In addition, the Company is strengthening its marketing and customer
service programs to enhance and reward customer loyalty in order to
maximize customer retention. It is also exploring the many opportunities
the Act presents for geographic and service expansion.
With respect to cellular mobile communications service, the FCC has
granted two licenses to provide cellular service in each MSA or RSA. The
B-license is typically granted to a company that provides local telephone
service in the area (or to a group affiliated with the local service
company). The A-license is typically granted to a company that does not
provide local telephone service (and is not affiliated with a local service
company in the area). Lincoln Telephone currently operates as the B-
licensee in the Lincoln, Nebraska MSA, NCTC operates as the B-licensee in
all of their markets, and the Company is the manager of the limited
partnership which operates as the B-licensee in the Omaha, Nebraska, MSA.
The Company faces significant competition from the A-licensee in each
of these markets and from other communications technologies that now exist,
such as specialized mobile radio systems and paging services, or other
communications technologies that may be developed or perfected. In
addition to providing cellular mobile communications service, the Company
sells cellular mobile equipment in competition with numerous equipment
retailers.
In connection with provision of long distance telecommunications
services, the Company's long distance division competes with other long
distance service providers such as AT&T, MCI, and Sprint. This market is
highly competitive. The prices for long distance services offered by the
Company compare favorably with prices of similar services offered by
competitors.
5
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ITEM 1. cont'd
EMPLOYEES.
The Company had 1,642 employees (1,264 employed by its principal
subsidiary, Lincoln Telephone) at the end of 1995. As of December 1995,
approximately 49 percent of the Company's employees were represented by the
Communications Workers of America (CWA), which is affiliated with the AFL-
CIO. New three-year contracts with the CWA were signed in May 1995 with
respect to LinTel bargaining unit employees and October 1995 with respect
to Lincoln Telephone bargaining unit employees. The Lincoln Telephone
contract with the CWA will expire on October 14, 1998, and the LinTel
contract with the CWA will expire on May 19, 1998. See Item 7(b)(c).
ITEM 2. Properties
Lincoln Telephone's telephone system consists of switching and
transmission equipment, cellular radio facilities, fiber optic systems and
distribution plant, through 137 communities within the state of Nebraska.
Among the larger exchanges served are Lincoln, Hastings, Beatrice, York,
Nebraska City, Plattsmouth and Seward.
Lincoln Telephone owns the equipment, plant and facilities which were
utilized in its telephone system. Lincoln Telephone leases five locations
on which business offices are located. The total annual rentals for such
leased offices were approximately $130,000 in 1995 and the duration of such
leases range from one to six years. Lincoln Telephone owns its remaining
business office locations. Additionally, Lincoln Telephone leases the
majority of the locations on which the sites of towers for its Lincoln MSA
cellular system and wide-area paging system are located. Annual rentals on
the sites are approximately $75,000, and the duration of the unexpired
portions of such leases range from four months to five years, with options
to renew thereafter.
NCTC has a lease agreement for office space in Grand Island, Nebraska,
with an annual lease payment of approximately $61,000. This lease expires
in February 2000. Following completion of construction of an office
building owned by the Company in February 1996, the leased office space
will be vacated and a buyout or a relet of the lease will be sought.
Numerous other operating lease agreements exist for various building space,
towers and land sites. Lease terms are between one and ten years, with
various renewal clauses. Rental expense for these operating leases was
approximately $225,000 in 1995.
LinTel leases transmission facilities and switching facilities in
connection with its Lincoln Telephone Long Distance Division. All of its
office locations are leased. Annual rentals are approximately $164,000,
and the duration of the unexpired portions of such leases range from four
months to four years.
It is the opinion of Company management, including the Vice President-
Technology of Lincoln Telephone, that the properties of Lincoln Telephone
are suitable and adequate to provide modern and effective
telecommunications services within its service area, including both local
and long distance service. The capacity for furnishing these services,
both currently and for forecast growth, are under constant surveillance by
6
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ITEM 2. cont'd.
the Vice President-Technology and his staff. Facilities are put to full
utilization after installation and appropriate testing, according to two-,
three- and five-year construction plans.
Lincoln Telephone's continuing construction programs are divided
between meeting growth demands (population and service) and upgrading its
telephone equipment and plant. Conversion to digital switching systems was
completed in 1992. Competition, customer needs and market conditions drive
network technology deployment.
ITEM 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
First Elected
Officer Age Position Held Present Office
Frank H. Hilsabeck 51 President & Chief Executive Officer 1993
(President & Chief Operating Officer,
1991-1993; President-Telephone
Operations, 1990-1991)
James W. Strand 49 President-Diversified Operations 1990
(V.P.-Diversified Operations,
1986-1990)
Jack H. Geist 63 V.P.-Diversified Operations 1993
(President, Anixter-Lincoln,
a joint venture, 1989-1994)
Robert L. Tyler 60 Senior V.P. and Chief Financial 1991
Officer (V.P.-Controller, 1989-1991)
Michael J. Tavlin 49 V.P.-Treasurer and Secretary 1986
Kevin J. Wiley 36 V.P.-Diversified Operations 1995
Bryan C. Rickertsen 48 V.P.-Technology 1995
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
Company Common Stock is traded on the Nasdaq National Market under the
symbol "LTEC." The following table sets forth the high and low bid
quotations for the periods indicated, as reported in "The Wall Street
Journal." These quotations represent prices between dealers without
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ITEM 5. cont'd.
adjustments for markups, markdowns or commissions and may not
represent actual transactions.
High Low Dividends
Declared
1994
First Quarter 20.00 15.50 .13
Second Quarter 16.75 13.75 .13
Third Quarter 16.75 13.75 .13
Fourth Quarter 17.50 14.00 .14
1995
First Quarter 17.00 14.50 .14
Second Quarter 16.25 14.75 .14
Third Quarter 19.00 15.25 .14
Fourth Quarter 21.50 16.50 .15
(b) Holders
As of December 31, 1995, there were approximately 17,000 holders of
record of the Company's Common Stock. Such number does include
beneficial owners of the Company's Common Stock, whose shares are held
in the names of broker dealers and clearing agencies.
(c) Dividends
The long-term debt agreements and notes payable of Lincoln Telephone
and NCTC contain various restrictions, including those relating to
payment of dividends by Lincoln Telephone and NCTC to the Company and
by Lincoln Telephone to holders of Lincoln Telephone's 5% Preferred
Stock. At December 31, 1995, approximately $15,900,000 and $2,100,000
Lincoln Telephone and NCTC's respective retained earnings were
available for payment of cash dividends to the Company.
ITEM 6. Selected Financial Data
See 1995 Annual Report to Stockholders, pages 47 and 48.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See 1995 Annual Report to Stockholders, pages 40 - 46.
Recent Developments
(a) On July 13, 1995, the Company consummated a merger with NCTC. The
Company issued a total of 4,267,146 shares of its common stock, par
value $.25 and paid a total of approximately $61.6 million in cash for
the remaining approximately 84% not previously owned by the Company.
The merger was consummated in accordance with the terms of an
Agreement and Plan of Reorganization dated March 21, 1995, as amended
by the Amendment to Agreement and Plan of Reorganization dated April
7, 1995. See 1995 Annual Report to Stockholders, page 26. See 1995
Annual Report to Stockholders, pages 44 through 46, for discussion of
managed cellular properties and operating statistics.
8
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ITEM 7. cont'd.
(b) In July 1995, Lincoln Telephone announced its decision to reduce its
operator service work force from 140 to approximately 50 employees by
the end of 1995. Retirement and separation incentives and out-
placement services were offered to the affected employees. As a
result, the Company recognized a pre-tax restructuring charge of
$1,552,000, $937,000 net of tax, reducing earnings per share by $0.03.
(c) In November 1995, the Company offered a voluntary early retirement
program to eligible employees to help position the Company for the
long term. The Company's Pension Plan was enhanced by adding five
years to both age and net credited service for eligible employees. In
addition to normal pension payments, lump-sum payments and
supplemental monthly payments will be provided. A total of 330
management and non-management employees of the Company accepted the
offering. The Company recorded a reduction to the Company's pension
asset, the source of funding for the program, and recognized a pre-tax
restructuring charge of $20,056,000, $12,092,000 after tax, reducing
earnings per share by $0.35.
ITEM 8. Consolidated Financial Statements and Supplementary Data
See 1995 Annual Report to Stockholders, pages 20 - 39 and 47 - 48.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions
Information required under Items 10, 11, 12 and 13 is included in the
Registrant's Proxy Statement dated April 24, 1996, on pages 1
(commencing under the caption "Outstanding Shares and Voting Rights")
through 12, and page 14 (the first paragraph commencing under the
caption "Filing of Reports of Beneficial Ownership"). Such
information is incorporated herein by reference.
Certain information regarding Executive Officers of the Registrant
required by Item 401 of Regulation S-K is included in Part I of this
Annual Report on Form 10-K following Item 4.
9
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PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
Page(s)
in 1995 Annual
Report to Stockholders
1. Financial Statements:
Independent Auditors' Report 19
Consolidated Balance Sheets, December 31, 1995 and 1994 20
Consolidated Statements of Earnings
Years ended December 31, 1995, 1994, and 1993 21-22
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994, and 1993 23
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993 24-25
Notes to Consolidated Financial Statements,
December 31, 1995, 1994, and 1993 26-45
Management's Discussion and Analysis of Financial
Condition and Results of Operations 46-64
2. Financial Statement schedules required by Item 8 of this form.
Page(s)
in this Annual
Report Form 10-K
Independent Auditors' Report S-3
Schedule I - Condensed Financial Information of
Parent Company:
Balance Sheets - December 31, 1995 and 1994 S-4
Statements of Earnings - Years ended December 31,
1995, 1994 and 1993 S-5
Statements of Stockholders' Equity - Years ended
December 31, 1995, 1994 and 1993 S-6
Statements of Cash Flows - Years ended December 31,
1995, 1994 and 1993 S-7 & S-8
Schedule II - Valuation and Qualifying Accounts - Years
ended December 31, 1995, 1994 and 1993 S-9
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.
(b) Reports on Form 8-K
Exhibit 2: Current report on Form 8-K as filed on July 27, 1995,
reporting the merger of Nebraska Cellular Telephone
Corporation, a Nebraska Corporation, with and into
Capital Acquisition Corp., a Nebraska corporation and a
wholly-owned subsidiary of the Company.
(c) Exhibits
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ITEM 14. cont'd.
Exhibit 3: Articles of Incorporation and By-Laws
(3.1) Articles of Incorporation with amendments
(incorporated by reference to Exhibit 3 of the
Company's Form S-3 Registration Statement No.
33-52117).
(3.2) By-Laws as amended March 16, 1994 (incorporated by
reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the year ended
December 31, 1993).
Exhibit 4: Instruments defining the rights of security holders,
including indentures
(4.1) Rights Agreement, dated as of June 21, 1989,
between the Company and Harris Trust and Savings
Bank (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K dated
June 21, 1989).
(4.2) Amendment to Rights Agreement, dated as of
September 7, 1989, between the Company and Harris
Trust and Savings Bank (incorporated by reference
to Exhibit 4.2 to the Company's Current Report on
Form 8-K dated September 7, 1989).
(4.3) Amendment No. 2 to Rights Agreement dated June 15,
1993, between the Company and Mellon Securities
Trust Company (incorporated by reference to
Exhibit 4.5 of the Company's Form S-3 Registration
Statement No. 33-52117).
(4.4) The Indenture issued by Lincoln Telephone
(incorporated by reference to Exhibit 4.4 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
(4.5) Supplemental Indenture Eleven dated June 1, 1990,
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December
31, 1990).
Exhibit 10: Material Contracts
(10.1) The 1989 Stock and Incentive Plan, incorporated
by reference to Exhibit - Form S-8, File
33-39551, effective March 22, 1991, and is
incorporated herein by this reference.
(10.2) A form of the Executive Benefit Plan agreement,
as amended through January 1, 1993, provided to
the executive officers and director-level
managers of the Corporation and its affiliates,
11
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ITEM 14. cont'd.
and a form of the Key Executive Employment and
Severance Agreement provided to the executive
officers of the Corporation and its affiliates on
December 23, 1987, (incorporated by reference to
Exhibit 10 to the Company's 1992 Form 10-K
Report).
Exhibit 13: Annual Report to Stockholders
Filed as an exhibit to this Report on Form 10-K and
incorporated as indicated herein by reference.
Exhibit 21: Subsidiaries of the Registrant.
The Company owns all the outstanding common stock of
Lincoln Telephone, NCTC, LinTel, and Prairie. See pages
43 - 45, 1995 Annual Report to Stockholders, (Exhibit 13,
filed with this report).
Exhibit 23: Accountants' Consent
Attached hereto.
Exhibit 24: Powers of Attorney
Attached hereto.
Exhibit 27: Financial Data Schedule
Attached hereto.
Exhibits 9, 11, 12, 16, 18, 22, and 28 are not applicable.
(d) The required schedules are filed as part of Item 14 (a) 2 of this
report.
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LINCOLN TELECOMMUNICATIONS COMPANY
/s/ Michael J. Tavlin March 28, 1996
By-------------------------------------------- Date-----------------
Michael J. Tavlin, Vice President-Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
Thomas C. Woods, III Director
James W. Strand Director
Duane W. Acklie Director
William W. Cook, Jr. Director
Terry L. Fairfield Director
James E. Geist Director
John Haessler Director
Charles R. Hermes Director
Donald H. Pegler, Jr. Director
Paul C. Schorr, III Director
William C. Smith Director /s/ Michael J. Tavlin
Charles N. Wheatley Director By _________________________
Attorney-in-Fact
Lyn Wallin Ziegenbein Director
/s/ Frank H. Hilsabeck Principal Executive
_______________________________ Officer and Director
Frank H. Hilsabeck
/s/ Robert L. Tyler Principal Financial
_______________________________ Officer
Robert L. Tyler
/s/ Michael J. Tavlin
_______________________________ Officer
Michael J. Tavlin
13
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
Independent Auditors' Report and Schedules
Form 10-K Securities and Exchange Commission
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
S-1
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Index to Schedules Filed
Schedule
Independent Auditors' Report
Condensed Financial Information of Parent Company:
Balance Sheets - December 31, 1995 and 1994
Statements of Earnings - Years ended December 31, 1995, 1994
and 1993
Statements of Stockholders' Equity - Years ended December 31,
1995, 1994 and 1993
Statements of Cash Flows - Years ended December 31, 1995,
1994 and 1993 I
Valuation and Qualifying Accounts - Years ended December 31, 1995,
1994 and 1993 II
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.
S-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lincoln Telecommunications Company:
Under date of February 2, 1996, we reported on the consolidated balance
sheets of Lincoln Telecommunications Company and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
earnings, stockholdersO equity and cash flows for each of the years in the
three-year period ended December 31, 1995, as contained in the 1995 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, 1995. 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.
Lincoln, Nebraska
February 2, 1996
S-3
<PAGE>
Schedule I
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Balance Sheets
(Parent Company Only)
December 31, 1995 and 1994
<CAPTION>
1995 1994
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,759 2,576
Temporary investments 1,600 4,280
Other current assets 8,268 6,652
------- -------
Total current assets 13,627 13,508
Investment in subsidiaries 151,016 153,166
Note receivable from subsidiary 37,848 33,704
Other assets 3,763 10,199
Goodwill, net of amortization 124,022 -
------- -------
$ 330,276 210,577
======= =======
Current liabilities:
Notes payable to banks - 6,000
Other current liabilities 9,794 7,372
------- -------
Total current liabilities 9,794 13,372
Deferred credits 937 770
Long-term debt 60,000 -
Stockholders' equity:
Common stock 9,312 8,245
Premium on common stock 106,822 37,481
Retained earnings 151,754 159,143
Treasury stock (8,343) (8,434)
------- -------
Total stockholders' equity 259,545 196,435
------- -------
$ 330,276 210,577
======= =======
</TABLE>
(Continued)
S-4
<PAGE>
Schedule I,cont.
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Earnings
(Parent Company Only)
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 11,662 30,810 7,001
Interest income:
Subsidiary 4,144 3,690 3,286
Other investments 2,190 1,436 1,594
------ ------ ------
17,996 35,936 11,881
Interest expense and other deductions (4,229) (997) (870)
------ ------ ------
Earnings before income taxes and
cumulative effect of change in
accounting principle 13,767 34,939 11,011
Income tax expense (1,479) (1,559) (1,184)
------ ------ ------
Earnings before cumulative effect of
change in accounting principle 12,288 33,380 9,827
Cumulative effect of change in accounting principle - - (27)
------ ------ ------
Net earnings $ 12,288 33,380 9,800
====== ====== ======
</TABLE>
(Continued)
S-5
<PAGE>
Schedule I,cont.
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Stockholders' Equity
(Parent Company Only)
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Common stock (note) $ 9,312 8,245 8,245
------- ------- -------
Premium on common stock (note) 106,822 37,481 37,481
------- ------- -------
Retained earnings:
Beginning of year 159,143 142,859 149,008
Net earnings 12,288 33,380 9,800
Dividends declared (19,677) (17,096) (15,949)
------- ------- -------
End of year 151,754 159,143 142,859
------- ------- -------
Treasury stock:
Beginning of year (8,434) (4,553) (5,299)
Net (purchases) sales 91 (3,881) 746
------- ------- -------
End of year (8,343) (8,434) (4,553)
------- ------- -------
Total stockholders' equity $ 259,545 196,435 184,032
======= ======= =======
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>
(Continued)
S-6
<PAGE>
Schedule I,cont.
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Parent Company Only)
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,288 33,380 9,800
------ ------ ------
Adjustments to reconcile net earnings to net
cash used for operating activities:
Increase in note receivable (4,144) (3,691) (3,286)
Amortization 1,570 - -
Equity in earnings of subsidiaries (11,662) (30,810) (7,001)
Restructuring charge 8 - -
Changes in assets and liabilities resulting
from operating activities:
Other current assets (616) (146) (758)
Other current liabilities 1,450 746 665
Deferred credits 167 (235) (479)
------ ------ ------
Total adjustments (13,227) (34,136) (10,859)
------ ------ ------
Net cash used for operating activities (939) (756) (1,059)
------ ------ ------
Cash flows from investing activities:
Net sales (purchases) of temporary investments 2,680 5,074 (755)
Purchases of investments and other assets (830) (2,382) (570)
Purchase of Nebraska Cellular Telephone
Corporation, net (1,606) - -
------ ------ ------
Net cash provided by (used for)
investing activities 244 2,692 (1,325)
------ ------ ------
Cash flows from financing activities:
Dividends to stockholders (18,713) (16,855) (15,364)
Payments on notes payable (6,000) (5,500) (2,500)
Net sales (purchases) of treasury stock 91 (3,881) 746
Dividends from subsidiaries 26,500 24,500 21,500
------ ------ ------
Net cash provided by (used for)
financing activities 1,878 (1,736) 4,382
------ ------ ------
Increase in cash and cash equivalents 1,183 200 1,998
Cash and cash equivalents at beginning of year 2,576 2,376 378
------ ------ ------
Cash and cash equivalents at end of year $ 3,759 2,576 2,376
====== ====== ======
(Continued)
S-7
<PAGE>
Schedule I,cont.
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Statements of Cash Flows, Continued
(Parent Company Only)
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
(Dollars in thousands)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,852 405 465
====== ===== =====
Income taxes $ 1,892 1,792 1,542
====== ===== =====
</TABLE>
The Company consummated the acquisition of Nebraska Cellular Telephone
Corporation during 1995. In connection with the acquisition, the following
assets were acquired, liabilities assumed and long-term debt and common
stock issued:
(Dollars in thousands)
Property and equipment $ 28,101
Excess of cost of net assets acquired 124,609
Long-term debt assumed (17,890)
Other assets and liabilities 3,476
Prior investment in Nebraska Cellular Telephone
Corporation (6,282)
Issuance of long-term debt (60,000)
Common stock issued (70,408)
------
Decrease in cash $ 1,606
======
S-8
<PAGE>
Schedule II
<TABLE>
LINCOLN TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
Addition
Additions due to Deductions
Balance at charged to purchase of from Balance
beginning costs and Nebraska allowance at end
Description of year expenses Cellular (note) of year
(Dollars in thousands)
<S> <C> <C> <C>> <C> <C>
Year ended December 31, 1995,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 459 820 272 797 754
==== === === === ===
Year ended December 31, 1994,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 382 533 - 456 459
==== === === === ===
Year ended December 31, 1993,
Allowance deducted from
asset accounts, allowance
for doubtful receivables $ 419 474 - 511 382
==== === === === ===
Note: Customers' accounts written-off, net of recoveries.
</TABLE>
S-9
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
X Annual Report pursuant to Section 15(d)
----- of the SECURITIES EXCHANGE ACT of 1934
[Fee Required]
For the Fiscal Year Ended December 31, 1995
Or
Transition Report pursuant to Section 15(d)
----- of the SECURITIES EXCHANGE ACT of 1934
[No Fee Required]
A. Full title of the Plan and the address of the Plan, if different from
that of the issuer named below:
LINCOLN TELECOMMUNICATIONS COMPANY EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN, AS AMENDED
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
LINCOLN TELECOMMUNICATIONS COMPANY
1440 M Street
P.O. Box 81309
Lincoln, Nebraska 68501-1309
(402) 474-2211
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Financial Statements
Form 11-K
Securities and Exchange Commission
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Index to Financial Statements
Independent Auditors' Report
Statements of Financial Condition - December 31, 1995 and 1994
Statements of Revenues and Common Stock Purchases -
Years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements - December 31, 1995, 1994 and 1993
All schedules are omitted because they are not applicable.
<PAGE>
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lincoln Telecommunications Company:
We have audited the financial statements of Lincoln Telecommunications
Company Employee and Stockholder Dividend Reinvestment and Stock Purchase
Plan as listed in the accompanying index. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the financial position of Lincoln
Telecommunications Company Employee and Stockholder Dividend Reinvestment
and Stock Purchase Plan at December 31, 1995 and 1994, and its revenues and
common stock purchases for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Lincoln, Nebraska
February 7, 1996
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Financial Condition
December 31, 1995 and 1994
Assets 1995 1994
Due from Lincoln Telecommunications Company (note 2):
Contributions $ 190,124 153,539
Dividends 309,887 282,989
------- -------
$ 500,011 436,528
======= =======
Liabilities
Balance to be invested in common stock for
participants (notes 1 and 2) $ 500,011 436,528
======= =======
See accompanying notes to financial statements.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Statements of Revenues and Common Stock Purchases
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Revenues:
Cash dividends $ 1,158,320 1,096,160 925,269
Contributions 744,930 734,044 760,455
--------- --------- ---------
1,903,250 1,830,204 1,685,724
--------- --------- ---------
Assets held for purchases of common stock
(note 2):
Beginning of year 436,528 446,899 387,682
Less, end of year (500,011) (436,528) (446,899)
--------- --------- ---------
(63,483) 10,371 (59,217)
--------- --------- ---------
Common stock purchases $ 1,839,767 1,840,575 1,626,507
========= ========= =========
See accompanying notes to financial statements.
<PAGE>
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) STATEMENT OF PURPOSE AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Lincoln Telecommunications Company Employee and Stockholder
Dividend Reinvestment and Stock Purchase Plan (Plan) provides
stockholders and eligible employees of Lincoln Telecommunications
Company (Company) and its subsidiaries with a convenient and
economical way to invest cash dividends and optional cash
contributions to purchase additional shares of common stock of the
Company.
Shares are offered for purchase to all stockholders and all regular
full-time and regular part-time employees of the Company with not less
than six months of service. Any individual who owns 5% or more of the
total combined voting power of value of all classes of stock of the
Company is not eligible to participate in the Plan.
The Company paid, on January 6, 1994, a 100% stock dividend to
stockholders of record on December 27, 1993.
The accompanying financial statements have been prepared on an accrual
basis and present the financial condition of the Plan and its revenues
and common stock purchases. All assets are held for the purchase of
common stock of the Company.
Effective on June 15, 1993, Mellon Securities Trust Company became the
transfer agent, registrar, rights agent and Plan administrator. Prior
to that date, the Company was the transfer agent, registrar and Plan
administrator and Harris Trust and Savings Bank was the rights agent.
(2) PARTICIPATION
Stock for the Plan is purchased on the open market. The basis for the
purchase price of the stock allocated to the Plan participants is the
average price paid 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 115,385,
112,423 and 115,208 during 1995, 1994 and 1993, respectively. At
<PAGE>
(2) PARTICIPATION, CONTINUED
December 31, 1995, the agent for the Plan held 1,147,583 shares
registered for participants.
(3) INCOME TAXES
No provision is made for income taxes relating to the operations of
the Plan. Any income tax consequences of participation in the Plan
are borne by the participants.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the plan) have duly caused this
annual report to be signed by the undersigned thereunto duly authorized.
LINCOLN TELECOMMUNICATIONS COMPANY
EMPLOYEE AND STOCKHOLDER DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLAN
------------------------------------
(Name of Plan)
/s/ Michael J. Tavlin
By _____________________________
Vice President-Treasurer
Date March 28, 1996
------------------
<PAGE>
WE'RE AT THE CENTER
Communication. It shapes our lives. Words, images, information blending
together from near and far. Ever changing. Converging to inspire, to shape,
to affect the work we do, the lives we lead. Lincoln Telecommunications has
changed, too. And now, we're uniquely positioned to place our customers at
the center of vast new amounts of information and resources available at
the office and at home.
About The Company
Lincoln Telecommunications is a diversified communications company
providing products and services to consumers, businesses, educational
institutions, government agencies and other communications companies.
Headquartered in Lincoln, Nebraska, the company employs more than 1,600
people. Lincoln Telecommunications' businesses are organized into three
general areas: landline operations, wireless operations and communications
equipment. More information about these business segments is included on
pages 3 and 4.
Strategic Priorities
Our vision is to be a leader in providing a comprehensive array of
communications, entertainment and information services. We will achieve
this through five strategic priorities.
Priority One: Grow our business by expanding our markets and providing
innovative and quality communications to our customers.
Priority Two: Increase our productivity through redesigned business
processes.
Priority Three: Rebalance our prices to improve our competitive position.
Priority Four: Achieve regulatory parity at local, state and federal
levels.
Priority Five: Strengthen our customer focus through a well-trained,
empowered work force.
1
<PAGE>
OPERATIONS AND EARNINGS HIGHLIGHTS
December 31 1995 1994 1993
(Dollars in thousands, except per share data)
OPERATING DATA
Operating Revenues $ 225,089 $ 196,646 $ 183,975
Net Income
Before one-time charge* $ 42,059 $ 37,186 $ 33,191
After one-time charge $ 12,513 $ 33,605 $ 10,025
PER SHARE DATA
Earnings
Before one-time charge* $ 1.22 $ 1.14 $ 1.01
After one-time charge $ 0.36 $ 1.03 $ 0.30
Dividends $ 0.57 $ 0.53 $ 0.49
Book Value $ 7.09 $ 6.07 $ 5.65
KEY RATIOS
Return on Common Equity* 16.2% 18.8% 17.9%
Debt Ratio 32.0% 19.8% 20.9%
OTHER DATA
Total Assets $ 520,321 $ 393,184 $ 395,279
Stockholders' Equity $ 259,545 $ 196,435 $ 184,032
Capital Expenditures $ 43,022 $ 31,291 $ 24,997
Telephone Access Lines in Service 254,173 246,963 238,142
Proportionate Cellular Customers 122,852 29,989 19,245
*In 1995, the company took after-tax charges of $16,516,000 for
discontinuance of FAS 71 and work force restructuring charges of
$13,029,000. In 1994, the company took an after-tax charge of $3,581,000
related to one-time special depreciation charges for cellular equipment. In
1993, the company took a one-time, after-tax accounting charge of
$23,166,000 related to retirees' health benefits. Return on common equity
was 4.8% in 1995, 17.0% in 1994 and 5.3% in 1993, after these one-time
charges.
2
<PAGE>
CONTENTS
Operations and Earnings Highlights 2
The Company at a Glance 4
Report to Stockholders 8
Growing by Leaps 11
Targeting Markets 13
Creating Value 17
Financial 19
Officers, Directors and Committees 60
Investor Information 63
Total Operating
Revenues Expenses Earnings Per Dividends Declared
(in millions) (in millions) Share Per Share
1991 $ 168 1991 $ 116 1991 $ .83 1991 $ .40
1992 $ 175 1992 $ 122 1992 $ .90 1992 $ .43
1993 $ 184 1993 $ 127 1993 $ 1.01* 1993 $ .49
1994 $ 197 1994 $ 138 1993 $ .30 1994 $ .53
1995 $ 225 1995 $ 175 1994 $ 1.14* 1995 $ .57
1994 $ 1.03
1995 $ 1.22*
1995 $ .36
* Before one-time charges (an accounting change in 1993; depreciation
charges in 1994; and accounting change and restructuring charges in 1995).
Growth in total revenues has averaged 8.6%. Without the restructuring
change in 1995, the average growth in operating expenses was 8.0%. Growth
in earnings per share has averaged 11.8%. There have been cash dividend
increases in each of the past five years.
3
<PAGE>
THE COMPANY AT A GLANCE
PUTTING IT ALL TOGETHER
One of the company's key strengths is its focus on providing complete
communications solutions for customers. Today, customers want a "single-
source" provider. At Lincoln Telecommunications, that's been our key
strategy since the breakup of the Bell system.
We know customers place special value on doing business with a full-
service communications company. We've responded by offering a full range of
products and services. Local, long distance and data communications, Yellow
Page advertising, cellular and paging services and access to the Internet
can all be purchased from Lincoln Telecommunications. We complement this
full range of products and services with consultation, expertise and long-
term relationships.
Our local, hassle-free touch is the cornerstone to our past success.
It's also the key to our future.
LANDLINE COMMUNICATIONS
BUSINESS DESCRIPTION
The company provides local, intraLATA and a national long distance service
to approximately 190,000 customers in southeast Nebraska, including Lincoln
(pop. 200,000). The company's fully digital local exchange network supports
SS7 technology and includes over 1,400 miles of fiber optic cable, much of
it in a ring configuration. Long distance service is provided by reselling
capacity purchased from national carriers. Data communications services
include Internet access. Enhanced services include Voice Mail, Caller ID,
Custom Calling and Centrex. The company publishes six regional telephone
directories and provides access service to long distance and cellular
companies.
1995 HIGHLIGHTS
The company invested approximately $25 million in its landline network.
This includes a substantial amount for first-phase development of a
broadband network in Lincoln. Access lines grew to 254,173, a 2.9 percent
increase. Centrex lines increased 7.2 percent and business lines rose by
5.3 percent. At year end, around 27.1 percent of residential access lines
had traditional Custom Calling services and around 18.2 percent had
enhanced services like Caller ID. Navix, our Internet access service, was
introduced to consumers and grew steadily. Yellow Page revenues increased
over 1994 levels despite a new directory competitor.
CHALLENGES
Implementing Federal Telecom Reform legislation represents the most
significant challenge. Other key challenges: increasing efficiencies
through re-engineering, increasing customer loyalty and penetration rates
of enhanced services, and continuing to look for ways to expand
geographically into profitable market segments.
4
<PAGE>
WIRELESS COMMUNICATIONS
BUSINESS DESCRIPTION
The company's managed cellular operations serve all of Nebraska and a
portion of southwest Iowa - more than 1.74 million potential customers
(POPs). Operations include 100 percent ownership of Lincoln Telephone
Cellular (approximately 221,000 POPs) and Nebraska Cellular (approximately
833,000 POPs), 27.6 percent ownership of First Cellular Omaha
(approximately 173,000 POPs), and 11.8 percent of Cellular 29 Plus in Iowa
(approximately 7,000 POPs). Adjusted for ownership levels, this represents
about 1,234,000 POPs. Enhancements, such as Voice Mail and Call Forwarding,
are available as part of our wireless services. The company also offers a
Wide Area Paging service throughout Nebraska.
1995 HIGHLIGHTS
Wireless operations are an important driver of corporate revenues. Nebraska
Cellular, acquired in July 1995, greatly expands the company's wireless
footprint. Customers are benefiting from wider calling areas, better
roaming rates, additional service centers and new pricing plans. New cell
sites increase network capacity, resulting in superior cellular service. In
the company's managed markets, subscribers increased 310 percent; revenues
were up 162 percent and operating income rose by 151 percent, including
growth through acquisitions.
CHALLENGES
Wireless communications is central to the company's growth strategies.
Customer loyalty will be maintained by improving system capacity, adding
new service centers, developing attractive rate plans and adding value-
added services. Maximizing synergies between the company's cellular and
landline operations is a priority. Expanding into new markets continues to
be a key strategy.
COMMUNICATIONS EQUIPMENT
BUSINESS DESCRIPTION
The company sells and services a variety of communications equipment,
primarily for businesses. This includes sophisticated switching systems
from ROLM and NorTel that provide call center applications such as Voice
Mail, Call Management Systems and Voice Response Systems. We also offer
high-performance wiring for local and wide area networks and complete
maintenance service for landline and wireless networks. In addition, the
company provides sophisticated telephones, key systems, fax machines and
ancillary equipment for residential and small business customers.
1995 HIGHLIGHTS
The company's equipment business exceeded objectives in 1995 - a record-
setting year for sales. An expanding customer base in Omaha resulted in
record sales and earnings for 1995. While the company continues to generate
new business, upgrades and additional sales to existing customers continue
to represent a significant portion of income.
5
<PAGE>
CHALLENGES
An important objective is to continue the record sales set in 1994 and
1995. Switching system upgrades, new products such as Interactive Voice
Response and greater penetration of Voice Mail and Call Management Center
Services offer great opportunities for increasing revenues. The company's
excellent product line and service and support provide significant
competitive advantages, especially when combined with the company's long
distance, local and data communications services.
6
<PAGE>
MESSAGE FROM THE BOARD OF DIRECTORS
Dear Stockholders,
On behalf of the board of directors of Lincoln Telecommunications, I am
extremely pleased to report that your company had another outstanding year.
We increased our common stock cash dividend in eight of the last ten years.
Our AAA bond rating was reaffirmed again in 1995. On nearly every front,
important progress was made as we transform ourselves from a regulated
telephone company into a full-service communications provider.
In 1995, the board approved several important decisions to improve the
company's overall financial strength. These included outsourcing, re-
engineering and establishing, through acquisition, a much larger presence
in the fast-growing wireless business. These and other key management
activities are detailed in the balance of this report. To keep up to date
on our company we encourage you to visit our "home page" on the Internet.
Our Internet address is http://www.ltec.net
The communications marketplace is filled with tremendous opportunities.
Management is working hard to capitalize on these opportunities so you, our
owners, as well as other key stakeholders - customers, employees and the
communities we serve - can benefit.
Lincoln Telecommunications strives to be a responsible corporate citizen
through its support of civic activities and involvement in community
events. For more than 90 years, we have encouraged our employees to be
concerned citizens and take part in their communities as volunteers and
leaders.
Our goal is to create value for all of our constituencies. Never has
that goal held greater promise. We are committed to building a prosperous
future for you.
Sincerely,
/s/ Thomas C. Woods, III
Thomas C. Woods III
Chairman
7
<PAGE>
REPORT TO STOCKHOLDERS
OPERATIONS REVIEW FROM THE CEO
For Lincoln Telecommunications, 1995 was a year of strategic importance.
We set a record in revenue growth. Customer growth was outstanding in our
landline and wireless business. And we made superb progress in executing
our strategies for the future - with a major expansion of our wireless
business and with aggressive marketing programs in our landline and
equipment businesses. We are working hard to increase the long-term growth
potential of our company in an ever-changing industry. Our record 1995
results demonstrate the success we are having:
- Revenues increased 14.5 percent to $225 million.
- Earnings per share rose 7.0 percent before special one-time charges.
- We increased our quarterly dividend to $0.15 per share.
We took a number of special charges in 1995 relating to our strategic
activities. These included non-cash items of $0.86 per share associated
with competitive initiatives, including two work force reduction programs
and the discontinuance of FAS 71, an accounting rule for regulated
companies.
I am proud of our 1995 financial results and our achievements in the
marketplace. We are part of a growing information industry that offers
tremendous opportunities. To be successful and to meet our overarching
objective of building value for our shareowners, we are focused on five key
strategies.
Free Cash Flow EBITDA
Return on Common Equity (in millions) (in millions)
1991 15.4% 1991 $ 20 1991 $ 83
1992 15.5% 1992 $ 35 1992 $ 85
1993 17.9% 1993 $ 34 1993 $ 104
1994 18.8% 1994 $ 40 1994 $ 110
1995 16.2% 1995 $ 22 1995 $ 117
Return on Common Equity, before one-time charges, decreased in 1995 due to
the issuance of additional common shares to acquire Nebraska Cellular. Free
Cash Flow shows net cash provided by operating activities minus
expenditures for property, plant and equipment which includes construction
expenditures and acquisition of Nebraska Cellular. EBITDA represents
earnings before interest, income taxes, depreciation and amortization, and
before one-time charges.
GROWING OUR BUSINESS
In 1995, we took significant steps to grow our business. The most
dramatic example was our acquisition of the remaining portion of Nebraska
Cellular, which provides cellular service to the 10 Rural Service Areas
(RSAs) in Nebraska serving a population of 833,000 people. When combined
with our existing cellular operations, the acquisition provides us with a
statewide cellular footprint and access to around 1.74 million potential
customers.
The acquisition, at a cost of $132 million, was completed in July. We
began immediately to reap the benefits and synergies that a combined
cellular operation offers. Our keen understanding of the wireless market
8
<PAGE>
distinguishes us as one of the best wireless operators in the nation.
We also continued to provide a steady stream of new services for our
customers. In 1995, we began offering Navix, an access service to the
Internet, the largest and most widely known component of the Information
Superhighway. We increased penetration rates for enhanced network services,
such as Call Waiting, Caller ID and Voice Mail, which provide important
recurring revenues.
Looking ahead, we will evaluate acquisition opportunities and strengthen
our marketing efforts to build customer loyalty, develop new services and
capitalize on our ability to provide integrated communication solutions in
convenient service packages.
INCREASING PRODUCTIVITY
We have placed a high priority on increasing productivity while
maintaining customer service levels. Our Business Process Re-engineering
efforts, which we started in 1994, are beginning to pay off. Our goal is
to deliver services faster, more reliably and in a more "customer friendly"
way while lowering our costs. It's a tall order, but we are finding that it
can be done.
Because a smaller work force will be required, we have started to reduce
our employee ranks. This is a difficult, but necessary, step in an
increasingly competitive environment. We're doing our best to accomplish it
in a productive way. In November, we offered approximately 750 employees a
voluntary early retirement program and 330 employees responded. These
retirements will occur over a two-year period so we can ensure that service
levels do not suffer.
We have begun outsourcing functions which are not central to our
mission. In 1995, we reduced our operator service unit from 140 employees
to 50. Local directory assistance was outsourced to Sprint/United Telecom.
Savings of over $3.9 million over a five-year period are projected.
In contract negotiations conducted in 1995, efforts were made by
management and the Communications Workers of America to reach an important
balance between the company's need to re-engineer itself and employee
concerns about job security and flexibility.
Looking ahead, we will continue re-engineering and concentrate on
providing our remaining work force with the tools, training and authority
they need to ensure that customers' needs are met right, the first time,
every time.
ADJUSTING PRICES
Our need to rebalance the rates we charge for services is critical. We
have too many internal subsidies within our pricing structures. In 1995, we
worked with the Nebraska telephone industry on a proposed $2.00 State
Subscriber Line Charge to be added to customers' bills so long distance
access rates could be reduced. This would allow long distance rates
within the state to be lowered. The Nebraska Public Service Commission has
not acted on this plan.
In 1996, most of our pricing changes will be revenue-neutral, designed
to better prepare us for emerging competition.
SEEKING PARITY
As our industry changes, so must its laws and regulations. In Nebraska,
we have one of the best regulatory climates in the nation. Rate-of-return
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<PAGE>
regulation was abolished in 1986 - providing us with incentives to invest
and provide new services.
While our need for reform at the federal level has not been as great, we
have worked hard to ensure that new competitors must comply with the same
rules we do. Of particular importance to us has been the need for
streamlined regulation.
ADAPTING TO CHANGE
We are preparing for a radically different future - a future driven by a
rapidly changing marketplace and new rules. The Federal Telecom Reform
bill that President Clinton signed into law on February 8 opens up new
challenges and many opportunities. We are seizing new opportunities and
learning to use our skills and abilities to thrive in this new environment.
Activities like Business Process Re-engineering and new business
development are accelerating our transformation by exposing us to new
skills, new thinking and an unparalleled focus on customers and growth. We
are also developing the leadership and teamwork skills that will allow us
to adapt to change, take calculated risks, and build valued relationships
with customers and all constituents.
I am proud of the progress we are making and optimistic about our
continued success.
/s/ Frank H. Hilsabeck
Frank H. Hilsabeck
President and Chief Executive Officer
10
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EXPANDING OUR NETWORK
Lincoln Telecommunications completed its purchase of the remaining portion
of Nebraska Cellular on July 13, 1995 for $132 million. The addition of
this statewide network demonstrates the company's commitment to growing its
business through selective acquisitions in faster-growing segments of the
telecommunications industry. Nebraska Cellular's 80,000 subscribers
significantly broaden Lincoln Telecommunications' customer base and present
new marketing opportunities for promoting services throughout Nebraska.
When combined with wireless operations that the company manages in Lincoln,
Omaha and Iowa, Lincoln Telecommunications now offers seamless coverage
throughout Nebraska and parts of southwest Iowa.
GROWING BY LEAPS. KNOWING NO BOUNDS.
Lincoln Telecommunications' cellular operations are among the best
performing and fastest-growing in the nation. We believe the industryOs
opportunities remain bright as the market for on-the-go communications
continues to grow.
At Lincoln Telecommunications, capitalizing on this anytime, anywhere
communications is key to our growth strategy. We are:
- Moving into new markets. In 1995, we acquired the remaining portion of
Nebraska Cellular Telephone Corporation and now have a statewide
wireless network.
- Placing a premium on marketing and superior customer service. We now
offer wider calling areas, excellent roaming arrangements and a
convenient network of customer service centers.
- Increasing efficiency. We are working to achieve synergies with our
landline operations wherever possible.
- Keeping our wireless networks up-to-date. We are expanding capacity and
cell sites and adding new features to increase the value of wireless
communications.
The company's strong cellular performance in 1995 generated outstanding
results in revenues, subscribers and penetration rates.
This was the year our wireless operations grew by leaps and bounds -
from a corner of the state to statewide. The addition of Nebraska Cellular
to the Lincoln Telecommunications family of wireless operations transforms
our strong regional presence into a statewide communications company with
over 1.74 million POPs (potential customers) throughout Nebraska and parts
of southwest Iowa.
Lincoln Telecommunications' managed wireless operations - Lincoln
Telephone Cellular, First Cellular Omaha, Cellular 29 Plus in Iowa and now
Nebraska Cellular - continue to drive our growth. Their combined
performance places them among the best operations in the nation.
KEY INDICATORS
In 1995, the subscriber base for the company's combined managed wireless
operations grew 43 percent to nearly 123,000 lines. Subscribers grew by an
average of more than 100 per day throughout the year.
Combined revenues - up 162 percent - topped $39 million. The addition of
11
<PAGE>
Nebraska Cellular added more than $19 million to our annual 1995 revenues
since the July acquisition.
Our operating efficiency, as measured by the number of subscribers per
employee, now stands at 500 lines per employee - well above the industry
average of 440 lines per employee. Further improvements in 1996 are aimed
at reaching our goal of 525 subscribers per employee.
Our churn rate - a measure of the number of customers who discontinue
their service - averaged a low 1.2 percent for our managed markets. For
customers outside our Lincoln and Omaha markets, the rate is only 0.6
percent. Our goal is to bring the churn rate down to less than 1.0 percent
for all our managed markets.
The statewide penetration rate was 10 percent - well above the national
average. And while penetration rates are high compared to industry results,
there's still enormous potential. In the next 8-10 years, we anticipate our
penetration rates for wireless services to grow to about 40 percent. The
vast majority - about 80 percent - will be for cellular services with
the remaining 20 percent in paging services.
Cellular Subscribers Cellular Revenues Cellular EBITDA
(in thousands) (in millions) (in millions)
1993 19 1993 $ 10 1993 $ 3
1994 30 1994 $ 15 1994 $ 6
1995 123 1995 $ 39 1995 $ 16
Proportionate cellular results reflect the acquisition of Nebraska Cellular
Telephone Corporation in July 1995. EBITDA represents earnings before
interest, income taxes, depreciation and amortization.
SATISFIED CUSTOMERS
Demand for wireless continues unabated. Cellular has evolved from a
"strictly-for-business" communication tool into a convenient, cost-
effective way for family and friends to keep in touch. Customers appreciate
being able to communicate anywhere, anytime and the sense of security
cellular phones provide. They are also finding it more affordable.
Much of the demand for wireless communication is coming from
satisfied customers. Today's cellular users are adding a second or third
cellular phone to meet their growing communication needs. Lincoln
Telecommunications is helping out by offering improved statewide rate
plans, including multi-phone discounts on two or more phones, and
competitive pricing on the cellular phones we sell and service.
The addition of Nebraska Cellular to Lincoln Telecommunications'
wireless operations brings added value to customers by creating
the largest interconnected cellular network in the state - delivering
quality from border to border in Nebraska and beyond. This expanded
statewide network is also extremely affordable. Customers get home rate
roaming and free long distance calls to any Nebraska number from anywhere
in our expanded network.
While customers appreciate the competitive rates and expanded network,
they value customer service the most. We're expanding our Customer Service
staff, opening new Customer Centers and introducing Customer Care Programs
to provide personal service to meet customers' needs. We've revamped our
bills so they are easier to read and understand.
Our retail centers are growing as well. New centers were added in Omaha
and Lincoln in 1995. These, along with Nebraska Cellular's statewide retail
operations, are the most cost-effective ways to promote and sell our
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<PAGE>
products and services. They offer customers a complete line of cellular
phones and services, along with a knowledgeable, helpful sales staff - a
personal service approach that sets us apart as the communications
specialists.
Behind the scenes, we continue to add more cell sites to our network. In
1995, more than 30 new cell sites helped increase capacity and ensure
reliable, high quality communications for customers. Our coverage, both in
the major metropolitan areas and throughout the state, surpasses our
competitors. Plans for 1996 call for adding another 35 cell sites.
INTEGRATED SOLUTIONS
Key objectives for 1996 focus on growing the business, especially
through integrated solutions aimed at meeting the needs of our changing
customer base. Our expanded statewide network opens many opportunities for
marketing the services and advantages now available wherever our customers
roam.
Our biggest challenge is to continue improving efficiencies while
maintaining the customer support and services that are so highly valued.
Improved contributions to the bottom line will come from developing a more
competitive, streamlined approach to the way we do business, especially in
ways that take advantage of our new statewide presence.
While new technologies like PCS (personal communications services) are
expected to begin to compete with cellular, perhaps as early as late 1996,
we see a future full of promise and continued growth. Our extensive
statewide network, competitive pricing and strong customer focus make us
the leader for wireless communications.
People love to talk. People love to travel. People will always have the
need to communicate. Wireless is the solution. Lincoln Telecommunications
has the service that's here, there... everywhere.
TARGETING MARKETS. PROVIDING SOLUTIONS.
Lincoln Telecommunications' landline operations provide a solid
foundation for growth. Residential and business customers rely on the
company's sophisticated, all-digital, fiber-based network to provide
reliable communications. We're strengthening our relationship with
customers by providing superior service, advanced technology and new
services.
Our landline operations continue to play an important role in our future
growth potential. To realize this potential, we are focused on:
- Providing innovative new services for residential and business customers
to create new revenue streams.
- Promoting "service packages" to take advantage of our wide range of
services - local, long distance, data and enhanced calling services.
- Deploying new technology that will allow us to offer multimedia services
in the future and improve the efficiency of our landline operations.
- Reducing our cost structure through productivity gains.
During 1995, we experienced solid gains. We added 7,210 more customer
access lines, an increase of 2.9 percent. Business lines rose 5.3
percent, Centrex lines were up 7.2 percent and residential lines grew 1.7
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<PAGE>
percent.
The potential for increasing lines in our core consumer market is
getting better. Additional residential lines are being added in record
numbers to accommodate modems, faxes and other communications tools. We're
developing marketing skills to capture this interest, offering products and
services to make it easier for people to communicate and providing the
reliable network customers expect.
Access Lines by Type (in thousands)
Residence Business Centrex Total
1991 168 39 19 226
1992 171 40 21 232
1993 173 42 23 238
1994 178 44 25 247
1995 181 46 27 254
Access Minutes of Use
(in millions)
1991 696
1992 728
1993 789
1994 840
1995 900
Access line growth was greatest in the higher revenue-producing areas,
especially Centrex and business lines. Access minutes of use for the local
exchange network rose 7.1% in 1995.
ADVANCED NETWORK
Behind all of our marketing efforts is a solid network. Lincoln
Telecommunications' advanced network consists of more than 1,400 miles of
fiber optic cable and all-digital switching. It is equipped with Signaling
System 7, the technology that makes services like Caller ID possible. We
continue to enhance our network so that it is capable of handling new
applications, thereby increasing the volume of traffic it can handle -
whether voice, data or video.
In 1995, we invested approximately $25 million in our landline network,
a targeted investment strategy to meet today's customer needs and to create
demand for new services. We began a major upgrade program which prepares
our network for broadband capabilities in the metropolitan Lincoln area.
This advanced network will be capable of delivering integrated multimedia
that combines voice, text, data and full-motion video. This advanced
network will also require less maintenance and allow us to provide services
much faster, thereby reducing our costs.
CUSTOMER SERVICE
To be successful in this increasingly competitive business, we are
working to retain customers and to win new business. We've increased our
efforts to know and understand the key market segments we serve: consumer,
business, government and education, and other communications companies that
use our network. We're focused on more than just solving their immediate
problems, we're looking for opportunities to improve their lives, their
bottom lines and their responsiveness to their constituents.
Our dedicated employees work hard to exceed the expectations of each
14
<PAGE>
customer segment and to differentiate Lincoln Telecommunications as the
hassle-free, local alternative to our giant rivals.
HOME COMMUNICATIONS
Consumers want reliable, easy-to-use products and services. Access to
the Internet, cordless phones, Voice Mail and additional lines are all in
high demand.
In late 1995, we began offering easy access to the Internet, the most
visible component of the Information Superhighway. Navix, our Internet
access service, is backed by a help desk, 24-hour network monitoring and
value-added local services. Nearly 2,000 subscribers had signed up by the
end of the year and we expect Navix sales to continue growing through
aggressive promotions in 1996.
Caller ID continued to be a popular enhanced service throughout 1995.
Revenues rose 27.8 percent. In addition, we introduced four new calling
services in 1995 - Custom Ringing, Call Rejection, Priority Call and
Selective Call Forwarding.
A new Voice Mail system introduced in 1995 gives consumers a more
powerful voice messaging system that's both simple and convenient. We added
nearly 1,500 consumer Voice Mail Boxes in 1995.
While new services are key to the company's success, consumers also
value knowledgeable, friendly service and quick, error-free installation.
Enhanced services that once took three days to install, now take five
minutes. We're offering more free trials so consumers can try out
convenient services before making a purchase commitment.
As our services improve, our customers' expectations increase. On-going
efforts to improve customer satisfaction are a key strategy for us.
BUSINESS CUSTOMERS
Our business customers range from the small business owner to large
national corporations. We're concentrating on understanding their
differences, learning what matters most to each and designing solutions to
meet the needs of these "markets within markets."
Account representatives, backed by knowledgeable product managers, help
business customers make their companies more competitive. That kind of
consultation builds loyalty and lasting relationships.
Our larger business customers are driving the growth of our data
communications services. Our fiber-based networks offer flexible, fast and
reliable private network services. Frame Relay Service, a high speed, wide-
area communications network, provides the platform for a wide range of
business data services: data transfer, LAN interconnection, and high-speed
access to the Internet.
The company's Centrex service continues to show outstanding growth,
especially among small and mid-sized business customers.
To counter the heavy promotion by "the big three" long distance
companies, our long distance division developed new programs of its own.
Our "Chamber Advantage" program offers special benefits to local chambers
of commerce and their members.
Business customers in 1995 continued to want more features and services
added to their business equipment. We evaluate their communications needs,
recommend time and money-saving solutions, and assist with training and
service to assure a smooth transition. It's a partnership that resulted in
another outstanding year. Equipment sales were up 4.1 percent from 1994's
record-breaking year.
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New features in our expanded and enhanced Official Phone Book helped
generate solid revenues in 1995, despite the introduction of a competing
directory in our markets. The response from advertisers and consumers
agreed with our promotion that our directory is clearly the one "Used Most.
Liked Best."
BITS AND BYTES
Lincoln Telecommunications is leading the way with innovative services
to the government and education market. Public access to the Internet,
distance learning, video conferencing and high-speed data transfer are
among the projects and services these segments require to provide services
more efficiently to the public.
For example, 24-hour access to information on city and county government
services in Lincoln, Nebraska, is available through InterLinc, a free,
community-wide resource service. Through this public/private partnership,
we are providing the network infrastructure and Navix, our Internet access
service, to terminals in community centers, senior centers and libraries.
We're also working with other communities to bring Internet access to
public schools, community colleges and city governments as a training and
information resource.
IMPORTANT PARTNERS
The many other communications companies that use our network, including
long distance companies, cellular companies and information providers,
represent a critical customer segment. They rely on our powerful network to
help them complete their connections.
In 1995, our access revenues were $53.7 million, up 6.1 percent over
1994. The demand for access for the last few years has been strong - fueled
by the growth in access lines, long distance calling and wireless.
ON THE HORIZON
More advanced services are in the works. ISDN (Integrated Services
Digital Network), a service that provides faster Internet access,
telecommuting and low-speed video conferencing, is on the horizon.
The introduction of Calling Name Delivery in 1996 will add to Caller
ID's appeal. The enhanced service will display the name, as well as the
phone number, of the calling party.
Many companies are just beginning to pave the way for convenient,
single-source shopping. We're already there. Our challenge is to expand our
family of advanced value-added products and services and to "bundle" them
to leverage the power of our network.
Revenues from Enhanced Telephone Employees Per
Service (in millions) 10,000 Access Lines
1991 $ 1.2 1991 64.5
1992 $ 1.7 1992 61.6
1993 $ 2.5 1993 59.7
1994 $ 3.3 1994 56.4
1995 $ 4.0 1995 49.7
Revenues from enhanced services, such as Call Waiting, Caller ID and Voice
Mail, are growing steadily. The decreasing number of employees per 10,000
access lines includes the restructuring of operator services in 1995.
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CURBSIDE CONVENIENCE
For nearly 20 years, we've been a big supporter of recycling. We've worked
with businesses, community organizations and the public to keep our old
directories out of city landfills. This year, we made directory recycling
easier and more convenient for our residential customers. Each new
directory was delivered in a ready-to-use recycling bag. Customers simply
took the new directory out of the bag, replaced it with the old one, then
set the bag next to their garbage can. Local garbage haulers collected the
old, unwanted directories and dropped them off at the recycling center. We
know recycling makes a difference. It kept nearly 128 tons of directories
out of area landfills this year.
CREATING VALUE. BUILDING FOR SUCCESS.
Successful companies deliver exceptional returns to shareholders. They
delight customers. They value, respect and reward employees. They support
their communities.
We measure our success by the value we create for our four key
stakeholders: owners, customers, employees and communities. As we transform
Lincoln Telecommunications from a regulated telephone company to a
regional, competitive full-service communications company, our goal is to
create value for stakeholders. We have a strong strategic plan, a clear
mission and vision, and a highly regarded corporate philosophy to guide us.
OWNERS
1995 was an excellent year for our approximately 15,000 stockholders. At
the end of the year, our stock price was $21 1/8, delivering a total return
(price appreciation plus dividends) of 27.6 percent. Over the past five
years, we have performed well against the S&P 500, as well as our industry
peers.
At the end of 1995, our market capitalization (number of shares
outstanding times the closing stock price) increased by $224 million, a
change of 40.7 percent over year-end 1994.
Our goal of paying a competitive dividend is one component of total
shareholder return. Our objective is to find the appropriate balance
between owner income expectations and significant long-term investment
opportunities.
We are constantly assessing growth opportunities with our existing
customers and potential customers in new geographic areas. While we do not
engage in basic research and development activities, we carefully monitor
new product and service development. When the technology, market demand and
pricing are optimum, we introduce new products and new services.
Financial strength, well-defined strategies and an experienced manage-
ment team are key ingredients that allow us to take advantage of
opportunities in our industry today.
Market Capitalization
(in millions)
1991 $ 386
1992 $ 423
1993 $ 603
1994 $ 550
1995 $ 774
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Market Capitalization is the number of shares outstanding times the closing
stock price. In 1995, Market capitalization increased 40.7% over 1994.
CUSTOMERS
Creating value for our owners requires a commitment to providing comp-
rehensive solutions for customers.
In a competitive environment, customer loyalty is vital. Our mission is
to help our customers communicate, when and where they want, using
technology best suited to their needs.
We create value for customers by providing integrated solutions for
their communications needs. Working with us, they enjoy the convenience of
a single communications source. Choice, convenience, reliability,
competitive rates, complete solutions - our customers value these
attributes.
EMPLOYEES
Our employees know that we must work together to survive in a
competitive marketplace. They have risen to the challenge. Union leaders
are working closely with us to redefine the way we work.
A strong, committed work force provides the best service and greatest
customer satisfaction. By empowering teams of employees and re-engineering
key work processes, we are helping employees enhance their tradition of
excellent service by working smarter, better and more efficiently.
COMMUNITIES
Truly exceptional companies also recognize the responsibility they have
to support the communities they serve.
Lincoln Telecommunications has a well-balanced charitable contributions
program focused on economic, social and cultural development. In addition,
our employees volunteer to help in their communities.
In 1995, we asked students to use "paint, poetry and plenty of
creativity" to design "filler ads" for our Yellow Pages, adding visual
interest and a local touch to our directories. We helped the Food Bank of
Lincoln replenish its storehouse by offering customers a free mini-
directory in exchange for donated food items.
These kinds of local partnerships set us apart from our national
competitors. They have been key to our past and will be important in the
future.
On the one hand, it is our business to make the concept of location and
distance irrelevant. On the other, it is our responsibility to be a
visible, caring partner in the communities we serve.
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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, 1995 and
1994, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. 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 as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, the
Company discontinued applying the provisions of Financial Accounting
Standards Board's Statement of Financial Accounting Standards (FAS) No. 71,
Accounting for the Effects of Certain Types of Regulation, in 1995. Also
discussed in notes 1 and 12, the Company adopted FAS No. 109, Accounting
for Income Taxes, and FAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, in 1993.
February 2, 1996
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FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
Assets 1995 1994
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,151 22,038
Temporary investments, at cost 13,081 24,635
Receivables, net of allowance for doubtful receivables
of $754,000 in 1995 and $459,000 in 1994 37,429 26,232
Materials, supplies and other assets 9,137 7,052
Income tax recoverable 3,304 -
------- -------
Total current assets 84,102 79,957
------- -------
Property and equipment 520,718 458,953
Less accumulated depreciation and amortization 265,456 217,183
------- -------
Net property and equipment 255,262 241,770
------- -------
Investments and other assets 47,078 52,578
Deferred charges 9,857 18,879
Goodwill, net of amortization 124,022 -
------- -------
Total assets $ 520,321 393,184
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 10,000 23,000
Current installments of long-term debt 2,841 -
Accounts payable and accrued expenses 48,634 26,632
Income taxes payable - 1,910
Dividends payable 5,550 4,585
Advance billings and customer deposits 7,739 6,197
------- -------
Total current liabilities 74,764 62,324
------- -------
Deferred credits:
Unamortized investment tax credits 2,696 3,832
Deferred income taxes 8,112 20,542
Other 52,997 61,552
------- -------
Total deferred credits 63,805 85,926
------- -------
Long-term debt 117,708 44,000
Preferred stock, 5%, redeemable 4,499 4,499
Stockholders' equity 259,545 196,435
------- -------
Total liabilities and stockholders' equity $ 520,321 393,184
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Operating revenues:
Telephone revenues:
Local network services $ 71,491 68,090 64,583
Access services 53,653 50,569 47,531
Long distance services 31,086 32,346 34,109
Other wireline communications services 23,686 24,412 23,094
------- ------- -------
Total telephone revenues 179,916 175,417 169,317
Wireless communications services 33,518 10,740 7,006
Telephone equipment sales and services 18,768 18,100 15,270
Intercompany revenues (7,113) (7,611) (7,618)
------- ------- -------
Total operating revenues 225,089 196,646 183,975
------- ------- -------
Operating expenses:
Depreciation and amortization 37,422 32,154 28,745
Additional non-recurring depreciation on
cellular equipment - 3,761 -
Other operating expenses 120,024 106,869 103,100
Restructuring charges 21,611 - -
Taxes, other than payroll and income 3,184 3,180 2,923
Intercompany expenses (7,113) (7,611) (7,618)
------- ------- -------
Total operating expenses 175,128 138,353 127,150
------- ------- -------
Operating income 49,961 58,293 56,825
------- ------- -------
Non-operating income and expense:
Income from interest and other investments 8,033 5,182 4,540
Charge for additional non-recurring
depreciation on cellular equipment in
limited partnership - 2,179 -
Interest expense and other deductions 10,518 6,624 8,556
------- ------- -------
Net non-operating expense 2,485 3,621 4,016
------- ------- -------
Income before income taxes,
extraordinary item and
cumulative effect of change in
accounting principle 47,476 54,672 52,809
Income taxes 18,447 21,067 19,618
------- ------- -------
Income before extraordinary item
and cumulative effect of change
in accounting principle 29,029 33,605 33,191
Extraordinary item (16,516) - -
Cumulative effect of change in accounting
principle - - (23,166)
------- ------- -------
21 (Continued)
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS (continued)
Years ended December 31, 1995, 1994 and 1993
1994 1993 1992
Net income 12,513 33,605 10,025
Preferred dividends 225 225 225
------- ------- -------
Earnings available for common
shares $ 12,288 33,380 9,800
======= ======= =======
Earnings per common share:
Income before extraordinary item and
cumulative effect of change in
accounting principle $ .84 1.03 1.01
Extraordinary item (.48) - -
Cumulative effect of change in accounting
principle - - ( .71)
--- ---- ----
Earnings per common share $ .36 1.03 .30
=== ==== ====
Weighted average common shares outstanding
(in thousands) 34,360 32,408 32,548
====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
22
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Common stock of $.25 par value per share.
Authorized 100,000,000 shares; issued
37,247,522 shares in 1995 and 32,980,376
shares in 1994 and 1993 $ 9,312 8,245 8,245
------- ------- -------
Premium on common stock 106,822 37,481 37,481
------- ------- -------
Retained earnings:
Beginning of year 159,143 142,859 149,008
Net income 12,513 33,605 10,025
Dividends declared:
5% cumulative preferred - $5.00 per share (225) (225) (225)
Common - $.57 per share in 1995, $.53
per share in 1994 and $.49 per share
in 1993 (19,677) (17,096) (15,949)
------- ------- -------
End of year 151,754 159,143 142,859
------- ------- -------
Treasury stock, at cost:
Beginning of year, 631,636 shares;
385,026 shares; and 446,000 shares (8,434) (4,553) (5,299)
Sales of 61,548 shares in 1995, 18,390
shares in 1994 and 65,350 shares in 1993 948 263 804
Purchase of 55,000 shares in 1995, 265,000
shares in 1994 and 4,376 shares in 1993 (857) (4,144) (58)
------- ------- -------
End of year, 625,088 shares in 1995,
631,636 shares in 1994 and 385,026
shares in 1993 (8,343) (8,434) (4,553)
------- ------- -------
Preferred stock, $.50 par value per share.
Authorized 20,000,000 shares; none issued - - -
------- ------- -------
Total stockholders' equity $ 259,545 196,435 184,032
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
23
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,513 33,605 10,025
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 37,454 35,797 28,698
Extraordinary item 16,516 - -
Cumulative effect of change in
accounting principle - - 23,166
Restructuring charges 21,611 - -
Net change in investments and other
assets (1,641) (499) (1,768)
Deferred income taxes (5,028) (2,432) (14,308)
Changes in assets and liabilities
resulting from operating activities:
Receivables (5,826) (803) (1,799)
Other assets (6,815) 833 (11,938)
Accounts payable and accrued
expenses (1,283) 6,643 (1,812)
Other liabilities (716) (449) 28,678
------- ------- -------
Total adjustments 54,272 39,090 48,917
------- ------- -------
Net cash provided by operating
activities 66,785 72,695 58,942
------- ------- -------
Cash flows from investing activities:
Expenditures for property and equipment (45,163) (32,313) (24,995)
Net salvage on retirements 2,141 1,022 (2)
------- ------- --------
Net capital additions (43,022) (31,291) (24,997)
Proceeds from sale of investments and other
assets 390 32 85
Purchases of investments and other assets (3,110) (5,093) (744)
Acquisition of Nebraska Cellular, net (297) - -
Purchases of temporary investments (4,515) (18,027) (38,292)
Maturities and sales of temporary investments 16,069 27,843 32,905
------- ------- -------
Net cash used for investing
activities (34,485) (26,536) (31,043)
------- ------- -------
Carried forward $ 32,300 46,159 27,899
------- ------- -------
Brought forward $ 32,300 46,159 27,899
------ ------ ------
(Continued)
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
(Dollars in thousands)
Cash flows from financing activities:
Dividends to stockholders (18,937) (17,081) (15,514)
Proceeds from issuance of notes payable 3,350 7,800 35,000
Retirement of notes payable (16,350) (26,300) (7,500)
Net purchases and sales of treasury stock 91 (3,881) 746
Payments of long-term debt (1,341) - (34,875)
------ ------ ------
Net cash used in financing
activities (33,187) (39,462) (22,143)
------ ------ ------
Net (decrease) increase in cash and cash
equivalents (887) 6,697 5,756
Cash and cash equivalents at beginning of year 22,038 15,341 9,585
------ ------ ------
Cash and cash equivalents at end of year $ 21,151 22,038 15,341
====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(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 (Lincoln Telephone), Nebraska Cellular Telephone
Corporation (Nebraska Cellular), LinTel Systems Inc. (LinTel) and
Prairie Communications, Inc. (Prairie).
Lincoln Telephone, the Company's principal subsidiary, provides
local and long distance telephone service in 22 southeastern
counties of Nebraska and cellular telecommunications services in the
Lincoln, Nebraska Metropolitan Service Area (MSA). Nebraska Cellular
provides cellular telecommunications services in 89 of the 93
counties in Nebraska (see note 3). LinTel sells non-regulated
telecommunications products and services, toll services in and
beyond Lincoln Telephone's local service territory and provides
telephone answering services. Prairie has a 50% investment in a
general partnership which manages a limited partnership providing
cellular telecommunications services in the Omaha, Nebraska MSA. The
limited partnership is conducting business as First Cellular Omaha
(FCO). The investment in the partnership is accounted for using the
equity method of accounting (see note 6).
Net earnings applicable to intercompany transactions between
companies have been eliminated.
The Company and its subsidiaries maintain their records in
accordance with generally accepted accounting principles. Lincoln
Telephone also 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).
Effective December 31, 1995, Lincoln Telephone discontinued
accounting for their operations under the provisions of Statement of
Financial Accounting Standards No. 71 (FAS 71), Accounting for the
Effects of Certain Types of Regulation (see note 2).
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 other
property and equipment is sold or otherwise disposed of, the gain or
loss is recognized in operations. Lincoln Telephone capitalizes
estimated costs of debt and equity funds used for construction
purposes. No significant costs were capitalized during the three
26
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
years ended December 31, 1995. 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. The Company adopted FAS 109, Accounting for Income
Taxes effective January 1, 1993. Under the asset and liability
method of FAS 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 and
operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which temporary differences
are expected to be recovered or settled. Under FAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Deferred income taxes arise primarily from reporting differences for
book and tax purposes related to depreciation and postretirement
benefits.
Investment tax credits related to telephone property and equipment
were deferred and are being taken into income over the estimated
useful lives of such property and equipment.
Retirement Benefits
The Company has a non-contributory qualified defined benefit pension
plan which covers substantially all employees. The Company also has
qualified defined contribution profit-sharing plans which cover
substantially all non-union-eligible employees. Costs of the
pension and profit-sharing plans are funded as accrued.
Revenue Recognition
Telephone and wireless revenues are recognized when earned and are
primarily derived from usage of the Company's local exchange network
and facilities. For all other operations, revenue is recognized
when products are delivered or services are rendered to customers.
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 $18,167,000 and
$20,699,000 at December 31, 1995 and 1994, 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.
27
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Reclassifications
Certain amounts previously reported for prior periods have been
reclassified to conform to the current period presentation in the
accompanying consolidated statements of earnings. The
reclassifications had no effect on the results of operations or
shareholders' equity as previously reported.
(2) EXTRAORDINARY ITEM - DISCONTINUANCE OF REGULATORY ACCOUNTING
PRINCIPLES
FAS 71 generally applies to regulated companies that meet certain
requirements, including a requirement that a company be able to
recover its costs by charging its customers rates prescribed by
regulators and that competition will not threaten the recovery of
those costs. Having achieved price regulation and recognizing
potential increased competition, the Company concluded, in the fourth
quarter of 1995, that the principles prescribed by FAS 71 were no
longer appropriate.
As a result of the Company's conclusion, a non-cash, extraordinary
charge of approximately $16.5 million, net of an income tax benefit of
approximately $9.4 million was incurred by Lincoln Telephone in
December 1995. The following table summarizes the extraordinary
charge.
Pre-tax After-tax
(Dollars in thousands)
Increase to accumulated depreciation $ 22,069 13,305
Elimination of net regulatory assets 3,799 3,211
------ ------
Total extraordinary charge $ 25,868 16,516
====== ======
The increase to accumulated depreciation of approximately $13.3
million after-tax was necessary as the estimated useful lives
prescribed by regulators were not appropriate considering the rapid
rate of technological change in the telecommunications industry. The
increase to accumulated depreciation was determined by performing a
study which identified inadequate accumulated depreciation levels by
individual asset categories. The estimated useful lives of these
individual asset categories were shortened to more closely reflect
economically realistic lives.
On adoption of FAS 109, Accounting for Income Taxes in 1993,
adjustments were required to adjust excess deferred tax levels to the
currently enacted statutory rates as regulatory liabilities and
regulatory assets were recognized on the cumulative amount of tax
benefits previously flowed through to ratepayers. These tax-related
regulatory assets and liabilities were grossed up for the tax effect
anticipated when collected at future rates. At the time the
application of FAS 71 was discontinued, the tax-related regulatory
assets and regulatory liabilities were eliminated and the related
deferred taxes were adjusted to reflect application of FAS 109
consistent with unregulated entities.
28
<PAGE>
(3) ACQUISITION OF NEBRASKA CELLULAR
On July 13, 1995, the Company consummated a merger with Nebraska
Cellular. The Company issued a total of 4,267,146 shares of its
common stock and paid cash of approximately $61.6 million to acquire
the remaining approximate 84% of Nebraska Cellular's common stock not
previously owned by the Company. The value of the common stock issued
was approximately $70.4 million at date of acquisition. Nebraska
Cellular is a provider of cellular telecommunications services outside
the Lincoln and Omaha metropolitan areas in Nebraska.
The acquisition has been accounted for as a purchase and, accordingly,
the results of operations of Nebraska Cellular have been included in
the Company's consolidated financial statements from July 1, 1995.
The excess of the purchase price over the fair value of the net
identifiable assets acquired of approximately $124.6 million has been
recorded as goodwill and is being amortized on a straight-line basis
over 40 years. Acquisition costs were approximately $983,000. The
Company recognized approximately $1.6 million of amortization in 1995.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Nebraska Cellular as
if the acquisition had occurred on January 1, 1994, after giving
effect to certain adjustments, including amortization of goodwill,
increased interest expense on debt related to the acquisition, and
related income tax effects. The pro forma financial information does
not necessarily reflect the results of operations that would have
occurred had the Company and Nebraska Cellular constituted a single
entity during such periods, nor is it necessarily indicative of future
operating results.
Pro forma (unaudited)
Years ended December 31,
1995 1994
(Dollars in thousands
except per share data)
Total operating revenues $ 248,602 227,718
======= =======
Income before extraordinary item $ 29,814 29,300
======= =======
Net income $ 13,298 29,300
======= =======
Earnings per common share $ .36 .79
=== ===
(4) PROPERTY AND EQUIPMENT
The table on the following page summarizes the property and equipment
at December 31, 1995 and 1994.
29
<PAGE>
(4) PROPERTY AND EQUIPMENT, CONTINUED
1995 1994
Accumulated Accumulated
depreciation and depreciation and
Classifications Cost amortization Cost amortization
(Dollars in thousands)
Land $ 2,984 - 2,772 -
Buildings 32,839 12,441 26,811 11,123
Equipment 462,493 248,102 412,188 201,531
Motor vehicles and
other work equipment 11,915 4,913 11,162 4,529
------- ------- ------- -------
Total in service 510,231 265,456 452,933 217,183
Under construction 10,487 - 6,020 -
------- ------- ------- -------
Total property
and equipment $ 520,718 265,456 458,953 217,183
======= ======= ======= =======
The composite depreciation rate for property and equipment was 7.5% in
1995, 7.2% in 1994 and 6.5% in 1993. The rate does not include the
extraordinary charge recognized in 1995 or the additional non-
recurring depreciation recognized in 1994. The large increase in the
accumulated depreciation balance in 1995 was due primarily to the
discontinuance of applying FAS 71.
Construction expenditures for 1996 are expected to approximate $51.5
million. The Company anticipates funding construction primarily
through operations.
Due to changes in technology, customer growth, and usage demand for
cellular services in their respective markets, the Company and FCO
installed new cellular telephone systems replacing existing systems
serving these markets. The FCO system became operational in April
1994 and the Company's system in Lincoln became operational in April
1995.
The implementation of these system upgrades caused the early
retirement of certain existing analog equipment prior to the
expiration of its anticipated useful life. As a result, in the first
quarter 1994, the Company wrote down the value of these assets by
approximately $3,398,000. During the fourth quarter of 1994, the
Company recognized an additional charge of approximately $363,000
after evaluating updated information. The after-tax impact of these
non-recurring non-cash charges to earnings was $2,267,000. In March
1994, the Company's share of a similar charge for FCO was $2,179,000,
producing an after-tax impact of $1,314,000.
Substantially all telephone property and equipment, with the exception
of motor vehicles, is mortgaged or pledged to secure Lincoln
Telephone's first mortgage bonds. Under certain circumstances, as
defined in the bond indenture, all assets become subject to the lien
of the indenture.
30
<PAGE>
(5) TEMPORARY INVESTMENTS
All of the Company's investments in debt and equity securities are
classified as available for sale. The Company does not invest in
securities classified as held to maturity or trading securities. The
following sets forth certain fair value information.
Estimated
Amortized Gross unrealized market
1995 cost Gains Losses value
(Dollars in thousands)
Equity securities $ 1,223 36 (44) 1,215
U. S. Government obligations 787 - (11) 776
U. S. Government agency
obligations 7,523 127 (52) 7,598
Corporate debt securities 3,548 99 (72) 3,575
------ --- --- ------
$ 13,081 262 (179) 13,164
====== === === ======
1994
Equity securities $ 1,505 - (89) 1,416
U. S. Government obligations 795 - (98) 697
U. S. Government agency
obligations 9,715 43 (159) 9,599
Corporate debt securities 12,620 37 (483) 12,174
------ --- --- ------
$ 24,635 80 (829) 23,886
====== === === ======
The net unrealized gain (loss) on investments available for sale is
not reported separately as a component of stockholders' equity due to
its insignificance to the consolidated balance sheets at December 31,
1995 and 1994.
The amortized cost and estimated market value of debt securities at
December 31, 1995 and 1994, by contractual maturity, are shown below.
Expected maturities will differ from the contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
1995 1994
Estimated Estimated
Amortized market Amortized market
cost value cost value
(Dollars in thousands)
Due after three months
through five years $ 8,242 8,399 20,432 20,105
Due after five years
through ten years 3,616 3,550 2,698 2,365
------ ------ ------ ------
$ 11,858 11,949 23,130 22,470
====== ====== ====== ======
The gross realized gains and losses on the sale of securities were
insignificant to the consolidated financial statements for the years
ended December 31, 1995 and 1994.
31
<PAGE>
(6) EQUITY INVESTMENTS
Prairie owns 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 in 1991 for $11.9 million. The carrying value of the
investment at equity in net assets was approximately $3.0 million at
December 31, 1995. 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 $37.8 million at December 31, 1995. This note
has an effective interest rate of 11.94% and is due December 31, 1998.
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.
(7) REDEEMABLE PREFERRED STOCK
Lincoln Telephone has 5% preferred stock with $100 par value per
share. The preferred stock is cumulative, non-voting, non-convertible
and redeemable solely at Lincoln Telephone's option at $105 per share,
for a liquidating amount of $4,724,000, plus accrued dividends. There
were 44,991 shares outstanding for each of the years ended December
31, 1995, 1994 and 1993.
(8) 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.
Shares purchased in the open market for the Plan aggregated 115,385
shares, 112,423 shares and 115,208 shares during 1995, 1994 and 1993,
respectively. Expenses incurred related to the Plan were
approximately $31,600, $33,700 and $22,500 in 1995, 1994 and 1993,
respectively. There are no shares reserved for issuance under
the Plan.
32
<PAGE>
(9) LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt consists of the following at December 31:
1995 1994
(Dollars in thousands)
9.91% First Mortgage Bonds due June 1,
2000 with interest payable semiannually $ 44,000 44,000
Variable rate term loan due in 13
consecutive quarterly installments
commencing on September 15, 1997 and
continuing thereafter until July 6, 2000.
Interest accrues on a LIBOR-based
pricing formula (6.28% at December 31,
1995) and is paid periodically, but at
least semiannually 30,000 -
Variable rate revolving loan with principal
due July 6, 1998 and interest due monthly.
Interest accrues on a LIBOR-based
pricing formula (6.18% at December 31, 1995)
and is paid periodically, but at least
semiannually. The maximum borrowing limit
is $40,000,000 30,000 -
Various variable rate Rural Telephone Finance
Cooperative (RTFC) loan agreements maturing
through 2002. Principal and interest are
due quarterly over the life of the
respective notes. The interest rate at
December 31, 1995 was 6.35% 16,549 -
------- -------
Total long-term debt 120,549 44,000
Less current installments of long-term debt 2,841 -
------- -------
Long-term debt, excluding current
installments $ 117,708 44,000
======= =======
The approximate annual aggregate debt maturities for the five years
subsequent to December 31, 1995 are as follows: 1996, $2,841,000;
1997, $7,066,000; 1998, $41,307,000; 1999, $12,471,000; and 2000,
$53,680,000.
The Company utilizes two interest rate swap agreements and an interest
rate collar arrangement to manage the potential impact of changes in
interest rates on a portion of its variable rate long-term debt.
One interest rate swap agreement effectively converted the Company's
interest rate exposure on its $30 million variable rate five year
amortizing term loan to a fixed rate of 6.37%. At December 31, 1995,
the current interest rate payable to the Company under this swap
33
<PAGE>
(9) LONG-TERM DEBT AND NOTES PAYABLE, CONTINUED
agreement was 6.11%. The Company's other interest rate swap agreement
on $15 million of its $30 million variable rate three year non-
amortizing revolving loan effectively converted the Company's interest
rate exposure to a fixed rate of 6.24%. At December 31, 1995, the
interest rate payable to the Company under this swap agreement was
6.09%. No fees were paid or incurred by the Company for the swap
agreements. Both interest rate swap agreements expire at the time the
related loans mature. Interest expense is adjusted to give effect to
obligations under the swap agreements.
An interest rate collar arrangement was entered into on the remaining
$15 million revolving three year non-amortizing variable rate loan
enabling the Company to establish a predetermined interest rate range
for the loan. This range is contractually established with a floor
rate of 4.67% and a ceiling rate of 8.50%. The arrangement entitles
the Company to receive from the counterparty (a major bank), on a
monthly basis, the amounts, if any, by which the Company's interest
rate on the loan exceeds 8.50%. Conversely, the arrangement requires
the Company to pay to the counterparty, the amounts, if any, by which
the Company's interest rate on the loan falls below 4.67%. No net fees
were paid or incurred by the Company for the collar arrangement. The
interest rate collar arrangement expires at the time the related loan
matures. For the year ended December 31, 1995, no amounts were
received or paid by the Company related to this interest rate collar
arrangement.
The Company is exposed to credit losses in the event of nonperformance
by the counterparties to its interest rate swap and its interest rate
collar arrangements. The Company anticipates, however, that the
counterparties will be able to fully satisfy their obligations under
the contracts.
Nebraska Cellular has various note agreements with the RTFC for up to
$20 million of financing. Of this total commitment, $18 million of
the financing is available for the construction and operation of the
statewide rural cellular telephone system. The remaining $2 million
was utilized to purchase RTFC Subordinated Capital Certificates. All
assets and revenues of Nebraska Cellular are pledged as collateral for
the notes.
Lincoln Telephone has a variable rate $8 million note payable to a
bank due in February 1996. The interest rate at December 31, 1995 was
6.26%. The weighted-average interest rate was 6.3% and 4.6% for the
years ended December 31, 1995 and 1994, respectively. Nebraska
Cellular also has a variable rate $2 million note payable to the RTFC
due in July 1996. The interest rate at December 31, 1995 was 6.9%.
The weighted-average interest rate was 7.0% for the year ended
December 31, 1995.
The First Mortgage Bonds, RTFC Loan Agreements and the notes payable
to bank contain various restrictions, including those relating to
payment of dividends by Lincoln Telephone and Nebraska Cellular to
their stockholder (Lincoln Telecommunications Company). In
management's opinion, these subsidiaries have complied with all such
34
<PAGE>
(9) LONG-TERM DEBT AND NOTES PAYABLE, CONTINUED
requirements. At December 31, 1995, approximately $15.9 million and
$2.1 million of Lincoln Telephone and Nebraska Cellular's respective
retained earnings were available for payment of cash dividends under
the most restrictive provisions of such agreements.
The term and revolving loans also contain various restrictions
including those relating to payment of dividends by the Company. In
management's opinion, the Company has complied with all such
requirements. The dividend restriction is determined on a quarterly
basis and is limited to $15 million plus 65% of consolidated net
income for the quarter.
(10) INCOME TAXES
The components of income taxes from operations before the
extraordinary item and cumulative effect of change in accounting
principle follow:
1995 1994 1993
(Dollars in thousands)
Current:
Federal $ 23,128 20,049 16,400
State 2,496 4,487 3,628
------ ------ ------
25,624 24,536 20,028
------ ------ ------
Investment tax credits (1,136) (1,060) (1,360)
------ ------ ------
Deferred:
Federal (5,529) (2,293) 490
State (512) (116) 460
------ ------ ------
(6,041) (2,409) 950
------ ------ ------
Total income tax expense $ 18,447 21,067 19,618
====== ====== ======
35
<PAGE>
<TABLE>
<CAPTION>
(10) INCOME TAXES, CONTINUED
A reconciliation between the statutory Federal income tax rate and the
Company's effective tax rate for each of the years in the three-year
period ended December 31, 1995.
1995 1994 1993
% 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 $ 16,617 35.0% $ 19,135 35.0% $ 18,483 35.0%
State income tax expense,
net of Federal income
tax benefit 2,329 4.9 2,841 5.2 2,658 5.0
Amortization of goodwill 549 1.2 - - - -
Nontaxable interest income (110) (.2) (123) (.2) (79) (.1)
Amortization of regulatory
deferred charges 1,914 4.0 1,914 3.5 1,914 3.6
Amortization of regulatory
deferred liabilities (1,790) (3.8) (1,891) (3.5) (2,006) (3.8)
Amortization of investment
tax credits (1,136) (2.4) (1,060) (1.9) (1,360) (2.6)
Effect of FAS 109 adoption
on non-regulated income - - - - (236) (.4)
Other 74 .2 251 .4 244 .4
------ ---- ------ ---- ------ ----
Actual income tax
expense $ 18,447 38.9% $ 21,067 38.5% $ 19,618 37.1%
====== ==== ====== ==== ====== ====
</TABLE>
36
<PAGE>
The significant components of deferred income tax attributable to
income from operations for the years ended December 31, 1995, 1994 and
1993 are shown below.
1995 1994 1993
(Dollars in thousands)
Deferred tax expense (benefit) (exclusive
of the effects of amortization below) $ (6,165) (2,432) 1,042
Amortization of regulatory deferred
charges 1,914 1,914 1,914
Amortization of regulatory deferred
liabilities (1,790) (1,891) (2,006)
----- ----- -----
$ (6,041) (2,409) 950
===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:
1995 1994
(Dollars in thousands)
Deferred tax assets:
Accumulated postretirement benefit cost $ 17,493 16,739
Regulatory deferred liabilities - 4,857
Voluntary early retirement liability 7,697 -
Other 3,091 2,537
------ ------
Total gross deferred tax assets 28,281 24,133
Less valuation allowance - -
------ ------
Net deferred tax assets 28,281 24,133
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to
depreciation differences 33,011 38,534
Regulatory deferred charges - 3,527
Other 3,382 2,614
------ ------
Total gross deferred tax liabilities 36,393 44,675
------ ------
Net deferred tax liabilities $ 8,112 20,542
====== ======
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, 1995 and 1994
was necessary.
(11) BENEFIT PLANS
The Company has a non-contributory 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.
37
<PAGE>
(11) BENEFIT PLANS, CONTINUED
The net periodic pension credit for 1995, 1994 and 1993 amounted to
$1,389,000, $1,570,000 and $690,000, respectively. The net periodic
pension credit is comprised of the following components:
1995 1994 1993
(Dollars in thousands)
Service cost - benefits earned during
the period $ 3,628 3,479 3,408
Interest cost on projected benefit
obligations 9,286 8,797 8,441
Actual return on plan assets (37,696) 1,529 (25,849)
Amortization and deferrals, net 23,393 (15,375) 13,310
------ ------ ------
Net periodic pension cost
(credit) $ (1,389) (1,570) (690)
====== ====== ======
The table below summarizes the funded status of the pension plan at
December 31, 1995 and 1994.
1995 1994
(Dollars in thousands)
Actuarial present value of pension benefit
obligation:
Vested $ 131,751 100,817
Nonvested 16,569 15,097
------- -------
Accumulated pension benefit obligation $ 148,320 115,914
======= =======
Projected pension benefit obligation $ 164,932 133,108
Less, plan assets at market value 207,940 177,196
------- -------
Excess of plan assets over projected
pension benefit obligation 43,008 44,088
Unrecognized prior service cost 7,644 4,888
Unrecognized net gain (57,563) (34,689)
Unrecognized net asset being recognized over
15.74 years (9,655) (11,088)
------- -------
(Accrued)/prepaid pension cost $ (16,566) 3,199
======= =======
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 ended 1995 were as follows:
Discount rate 7.10%
Rate of salary progression 6.00
Expected long-term rate of return on assets 8.00
The Company and Nebraska Cellular each have defined contribution
profit-sharing plans which cover their respective non-union-eligible
employees, who have completed one year of service. Under the Company
38
<PAGE>
(11) BENEFIT PLANS, CONTINUED
plan, 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 Company's
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. Under the Nebraska Cellular
plan, each eligible employee may contribute up to 15% of base salary,
with certain limits. Nebraska Cellular contributes an amount equal to
70% of its employees' contributions up to 6%. In addition, Nebraska
Cellular contributes 1% of all participating employees' salaries. The
combined contributions to these plans totaled $745,000, $679,000 and
$640,000 for 1995, 1994 and 1993, respectively.
In July 1995, Lincoln Telephone announced its decision to reduce its
operator services work force from 140 to approximately 50 employees by
the end of 1995. The remaining work force will handle the Company's
long distance operator service needs. The Company offered retirement
and separation incentives along with out-placement services to those
employees affected by the work force adjustment. As a result, the
Company recognized a restructuring charge of $1.5 million. The charge
reduced the Company's pension asset by $1.1 million for pension
enhancements. The charge included severance payments of
approximately $400,000.
In addition, in November 1995, the Company announced its plans to
reduce its existing work force by offering a voluntary early
retirement program to eligible employees. The eligible employees are
both management and non-management employees who are employed by the
Company, Lincoln Telephone and LinTel. The Company implemented an
enhancement to the Company's pension plan by adding five years to both
the age and net credited service for eligible employees. The program
also provides for the employees to receive a lump-sum payment and a
supplemental monthly income payment in addition to their normal
pension. As a result of 330 employees accepting this voluntary early
retirement offer, the Company recorded a reduction to the Company's
pension asset and recognized a restructuring charge of $20.1 million
at December 31, 1995. The charge included pension enhancements of
$23.4 million and curtailment gains of $3.3 million.
(12) 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 Company adopted FAS 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, as of January 1, 1993. FAS 106 requires
accounting for these benefits during the active employment of the
participants. The Company elected to record the accumulated benefit
obligation upon adoption. After taxes, this one-time charge amounted
39
<PAGE>
(12) POSTRETIREMENT BENEFITS, CONTINUED
to $23,166,000, net of income tax benefit of $15,258,000. Pursuant to
FAS 71, 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 table below presents the plan's status reconciled with amounts
recognized in the Company's consolidated balance sheet at December 31,
1995 and 1994.
1995 1994
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees $ 29,520 30,872
Fully eligible active plan participants 12,012 11,994
Other active plan participants 10,161 7,622
------ ------
51,693 50,488
Unrecognized prior service cost (1,710) (170)
Unrecognized net loss (5,660) (8,001)
------ ------
Accrued postretirement benefit cost $ 44,323 42,317
====== ======
Net periodic postretirement benefit costs for the years ended December
31, 1995, 1994 and 1993 include the following components:
1995 1994 1993
(Dollars in thousands)
Service cost $ 386 428 300
Interest cost 3,929 3,695 3,632
Net deferral and amortization 206 167 -
----- ----- -----
Net periodic postretirement benefit
costs $4,521 4,290 3,932
===== ===== =====
For purposes of measuring the benefit obligation, the following
assumptions were used:
1995 1994
Discount rate 8.0% 8.0%
Health care cost trend rate 11.3 11.7
This health care cost trend rate of increase was assumed to decrease
gradually to 5.5% by the year 2004.
For purposes of measuring the benefit cost, the following assumptions
were used:
1995 and 1994 1993
Discount rate 8.0% 9.5%
Health care cost trend rate 11.7 12.0
This health care cost trend rate of increase was assumed to decrease
40
<PAGE>
(12) POSTRETIREMENT BENEFITS, CONTINUED
gradually to 5.5% by the year 2004. 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 $375,000 and increase the accumulated postretirement
benefit obligation by approximately $4.5 million.
(13) 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, $12.75 for the 1992 options and $16.50 for the
1995 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:
1995 1994 1993
Outstanding at January 1 100,150 110,650 176,000
Granted 53,450 - -
Exercised (3,100) (10,500) (65,350)
Canceled (4,088) - -
------- ------- -------
Outstanding at December 31 146,412 100,150 110,650
======= ======= =======
Exercisable at December 31 98,412 32,150 42,650
======= ======= =======
All of the above information has been retroactively adjusted to give
effect to the 100% stock dividend paid January 6, 1994.
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, 10,836 shares, 11,323 shares and 16,002 shares of
restricted stock were awarded from stock purchased on the open market
by the Company during 1995, 1994 and 1993, respectively. Recipients
of the restricted stock are entitled to cash dividends and to vote
their respective shares. Restrictions limit the sale or transfer of
41
<PAGE>
(13) STOCK AND INCENTIVE PLAN, CONTINUED
the shares for two years subsequent to issuance unless employment is
terminated earlier due to death, disability or retirement.
Amounts charged against 1995, 1994 and 1993 net income for cash and
restricted stock awards were approximately $392,700, $368,700 and
$460,500, respectively. Pursuant to the plan, 2,000,000 shares of
common stock are reserved for issuance under this plan.
(14) TELEPHONE REVENUES
Telephone revenues include revenues received by Lincoln Telephone for
billing and access services provided to LinTel, which were
approximately $4,342,000 for 1995, $5,165,000 for 1994 and $5,463,000
for 1993, and are deducted as intercompany revenues and expenses.
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth
1995 quarter quarter quarter quarter Total
(Dollars in thousands, except per share data)
Operating revenues:
Telephone $ 44,686 44,355 45,691 45,184 179,916
Wireless communications 3,159 3,502 13,426 13,431 33,518
Telephone equipment sales
and services 4,243 5,355 4,794 4,376 18,768
Intercompany revenues (1,757) (1,769) (1,730) (1,857) (7,113)
------ ------ ------ ------ -------
Total $ 50,331 51,443 62,181 61,134 225,089
====== ====== ====== ====== =======
Income (loss) before
extraordinary item $ 9,240 9,975 11,230 (1,416) 29,029
Extraordinary item - - - (16,516) (16,516)
------ ------ ------ ------ ------
Net income (loss) $ 9,240 9,975 11,230 (17,932) 12,513
====== ====== ====== ====== ======
Earnings (loss) per common
share before extraordinary
item $ .28 .31 .31 (.04) .84
Extraordinary item - - - (.45) (.48)
--- --- --- --- ---
Earnings (loss) per common
share $ .28 .31 .31 (.49) .36
=== === === === ===
42
<PAGE>
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED), CONTINUED
1994
Operating revenues:
Telephone $ 43,420 43,476 44,242 44,279 175,417
Wireless communications 2,284 2,554 2,850 3,052 10,740
Telephone equipment sales
and services 4,036 4,502 4,722 4,840 18,100
Intercompany revenues (1,829) (1,843) (2,078) (1,861) (7,611)
------ ------ ------ ------ -------
Total $ 47,911 48,689 49,736 50,310 196,646
====== ====== ====== ====== =======
Net income $ 4,978 8,966 9,701 9,960 33,605
====== ====== ====== ====== =======
Earnings per common share $ .15 .28 .30 .31 1.03
=== === === === ====
Certain amounts previously reported for prior quarters have been
reclassified to conform to the fourth quarter 1995 financial
information. The reclassifications had no effect on the results of
operations or earnings per common share as previously reported.
During the fourth quarter 1995, the Company recognized a restructuring
charge of $20.1 million. The charge had the effect of reducing net
income by $12.1 million and earnings per share by $.33 for the quarter
ended December 31, 1995.
(16) 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, 1995, 39,247,522 shares of common stock
were reserved for issuance in connection with these stock purchase
rights.
(17) MAJOR CUSTOMER
The Company derives significant revenues from AT&T principally from
network access and billing and collecting service. For the years
ended 1995, 1994 and 1993, the Company recognized revenue of
$27,808,000, $29,680,000 and $29,937,000, respectively. This
represented approximately 12.4%, 15.1% and 16.2% of consolidated
revenues for the years ended 1995, 1994 and 1993, respectively. No
other customer accounted for more than 10% of revenues.
43
<PAGE>
(18) 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. See note 5 for the estimated
fair value of temporary investments.
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 the Company's long-term debt instruments are
based on the amount of future cash flows associated with the
instruments discounted using the Company's current borrowing rate on
similar debt instruments of comparable maturity.
Interest Rate Swap and Collar Agreements
The fair values are the estimated amounts the Company would have
to pay or receive to terminate the swap and collar agreements as of
December 31, 1995 taking into account current interest rates and the
credit worthiness of the counterparty.
Estimated Fair Value
The estimated fair value of the Company's financial instruments are
summarized as follows:
At December 31, 1995 At December 31, 1994
Carrying Estimated Carrying Estimated
amount fair value amount fair value
(Dollars in thousands)
Note receivable from OCGP $ 37,848 44,788 $ 33,703 37,443
======= ======= ====== ======
Long-term debt $ 120,549 127,712 $ 44,000 46,729
======= ======= ====== ======
Interest rate swap and
collar agreements gain
(loss) $ - (932)
=== ===
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.
44
<PAGE>
(19) SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company paid interest of $7.8 million, $5.9 million and $7.5
million during 1995, 1994 and 1993, respectively. Income taxes paid
were $27.0 million in 1995, $25.1 million in 1994 and $20.6 million in
1993.
The Company consummated the acquisition of Nebraska Cellular during
1995. In connection with the acquisition, the following assets were
acquired, liabilities assumed and long-term debt and common stock
issued.
(Dollars in thousands)
Property and equipment $ 28,101
Excess cost of net assets acquired 124,609
Long-term debt assumed (17,890)
Other assets and liabilities, excluding
cash and cash equivalents 2,167
Prior investment in Nebraska Cellular (6,282)
Issuance of long-term debt (60,000)
Common stock issued (70,408)
-------
Decrease in cash $ 297
=======
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Lincoln Telecommunications Company (the Company) is a holding company
with subsidiaries operating primarily in the telecommunications industry.
The Company's wholly-owned subsidiaries include The Lincoln Telephone and
Telegraph Company (Lincoln Telephone), Nebraska Cellular Telephone
Corporation (Nebraska Cellular), LinTel Systems Inc. (LinTel) and Prairie
Communications, Inc. (Prairie).
RESULTS OF OPERATIONS
Net Earnings
Net income after non-recurring charges was $12,513,000 in 1995, compared
to $33,605,000 in 1994 and $10,025,000 in 1993. Excluding non-recurring
charges for strategic initiatives relating to the discontinuance of the
application of FAS 71 to the Company and two work force restructuring
programs, net income in 1995 was $42,059,000. Excluding non-recurring
charges for additional depreciation relating to cellular equipment, net
income in 1994 was $37,186,000. Excluding a one-time accounting change
adopted in 1993 related to retirees' health benefits, net income was
$33,191,000 in 1993.
Earnings per common share after the one-time accounting charges were
$.36 in 1995, $1.03 in 1994 and $.30 in 1993. Before the one-time charges,
earnings per common share were $1.22 in 1995, $1.14 in 1994 and $1.01 in
1993.
Operating Revenues
Led by growth in cellular network revenues, total operating revenues
grew by $28,443,000 in 1995, to a total of $225,089,000. Revenues generated
by Nebraska Cellular of $19,458,000 since it was acquired by the Company in
July 1995 contributed to this growth. In 1994, total operating revenues
grew by $12,671,000, an increase of 6.9% over 1993, to a total of
$196,646,000.
Telephone Revenues
Telephone operating revenues increased by $4,499,000 or 2.6% over 1994,
to a total of $179,916,000. Growth in 1994 was $6,100,000 or 3.6% over
1993, to a total of $175,417,000.
Local Network service revenues in 1995 were $71,491,000, an increase of
$3,401,000 or 5.0% over the 1994 total of $68,090,000. In 1994, local
network service revenues increased $3,507,000 or 5.4% over the 1993 total
of $64,583,000. These revenues reflect amounts billed customers for local
exchange services, including enhanced services such as Call Waiting and
Caller ID. These increases resulted primarily from growth in telephone
access lines and continued demand for enhanced services. There were 254,173
telephone access lines in service at December 31, 1995, an increase of 2.9%
over the prior year. The 1994 growth was 3.7%. In each case, business and
Centrex line growth led the increase.
Access service revenues received primarily from interexchange carriers
for their use of local exchange facilities in providing long distance
services were $53,653,000 in 1995, an increase of $3,084,000 or 6.1% over
the 1994 total of $50,569,000. In 1994, access service revenues increased
$3,038,000 or 6.4% from the 1993 total of $47,531,000. These increases were
due primarily to increased volume of access minutes reaching a total of
nearly 900 million minutes in 1995. Minutes of use increased by 7.1% in
46
<PAGE>
1995 and by 6.5% in 1994.
Long distance service revenues in 1995 were $31,086,000, a decrease of
$1,260,000 or 3.9% from the 1994 total of $32,346,000. In 1994, long
distance revenues decreased $1,763,000 or 5.2% from the 1993 total of
$34,109,000. Long distance revenues are received from providing services
both within and beyond Lincoln Telephone's service area, and are primarily
message toll, private line services and operator services. The 1995
decrease was due, in part, to reduced rates for higher volume customers and
to a decline in residential customers. The decrease in 1994 was principally
due to reduced revenue under a new agreement to provide operator services
for AT&T. The Company anticipates the 1996 long distance service revenues
will be relatively constant or slightly higher than the 1995 level.
Other wireline communications service revenues, which includes directory
advertising and sales, carrier billing and collection service revenues and
data communications revenues, were $23,686,000 in 1995, a decrease of
$726,000 or 3.0% from the 1994 total of $24,412,000. This decrease was
primarily due to reduced billing and collection service revenues. In 1994,
other wireline communications services increased $1,318,000 or 5.7% from
the 1993 total of $23,094,000.
Wireless Communications Services
Wireless communications services in 1995 were $33,518,000, an increase
of $22,778,000 from the 1994 total of $10,740,000. The 1995 increase was
primarily due to the acquisition of Nebraska Cellular, which provided
revenues of $19,458,000 since the acquisition in July 1995. In 1994,
wireless communications services increased $3,734,000 or 53.3% from the
1993 total of $7,006,000. Cellular subscriber lines in the Company's wholly
owned markets were 109,708 at year end, 65,000 of which were added through
the acquisition of Nebraska Cellular in July 1995. In 1994, the subscribers
related to the reported 1994 revenues were 20,755. Further information is
provided under the heading of "Managed Cellular Markets."
Telephone Equipment Sales and Services
Telephone equipment sales and service revenues in 1995 were $18,768,000,
an increase of $668,000 or 3.7% from the 1994 total of $18,100,000. In
1994, telephone equipment sales and service revenues increased $2,830,000
or 18.5% from the 1993 total of $15,270,000. The 1995 increase resulted
from a large number of smaller systems sales, while the 1994 increase was
due to an unusual number of large equipment sales.
Operating Expenses
Total operating expenses were $175,128,000 in 1995, an increase of
$36,775,000 or 26.6% from 1994. Total operating expenses increased
$11,203,000 or 8.8% from 1993 to 1994.
Depreciation and amortization expense was $37,422,000 in 1995, which
includes the amortization of the excess of cost over book value related to
the July 1995 acquisition of Nebraska Cellular, $32,154,000 in 1994
excluding non-recurring charges of $3,761,000 for additional depreciation
on cellular equipment, and $28,745,000 in 1993. The NPSC authorized new
depreciation rates for telephone equipment in 1994, which generated
approximately $2,700,000 of additional expense.
Other operating expenses, which includes the cost of telephone equipment
sales and services and the net loss on sales of cellular equipment along
with other operating expenses, were $120,024,000 in 1995, $106,869,000 in
1994 and $103,100,000 in 1993. The increases amounted to 12.3% in 1995 and
47
<PAGE>
3.7% in 1994. 1995 expenses include Nebraska Cellular operating expenses of
$10,861,000 since the Company's acquisition in July 1995. Costs of goods
and services sold increased in both 1995 and 1994 resulting from increased
product sales. Sales commissions and other costs of acquiring wireless
customers, including the net loss on equipment sales, also increased each
year.
The Company is actively pursuing ways to streamline operations and
manage its work force requirements to improve productivity. Related to this
objective, the Company recorded the results of two separate work force
reduction programs. In July 1995, Lincoln Telephone announced its decision
to reduce its operator service work force from 140 to approximately 50
employees by the end of 1995. Directory assistance operations were
outsourced and its operator service contracts with AT&T were terminated.
The remaining work force handles long distance operator service needs.
Retirement and separation incentives along with out-placement services were
offered to those employees affected by the force adjustment. These actions
resulted in a pre-tax non-recurring charge of $1,555,000 ($937,000 net of
tax), reducing earnings per share by $0.03. Savings resulting from the new
procedures are expected to offset this non-recurring charge within two
years.
Separately, in an effort to position the Company for the long term, the
Company continued to improve its key business processes. As a result, the
Company determined that it could maintain productivity while reducing its
work force by nearly 200 employees, and accordingly, offered an opportunity
to approximately 750 eligible employees to enroll in the Voluntary Enhanced
Retirement Program. Of those receiving the offer, 330 accepted. The cost of
this retirement program was approximately $20 million (after-tax earnings
impact of $12.1 million) reducing earnings per share by $0.35. This program
will be funded out of the Company's pension fund, requiring no additional
funding from operations. The majority of the employee reduction will take
place toward the end of 1997. The Company expects to recapture the cost of
this retirement program in less than two years. Due to the greater than
anticipated response, the Company will likely be hiring new people to
ensure its ability to provide high-quality service and maintain its
aggressiveness in the marketplace.
Non-Operating Income and Expenses
Income includes net income from the Company's 27.6% interest in the
Omaha cellular market. Expenses in 1994 include a non-cash charge of
$2,179,000 for the Company's share of a non-recurring depreciation charge
related to upgrading switching equipment (see "Managed Cellular Markets").
Interest expense and other deductions increased to $10,518,000 in 1995
compared to $6,624,000 in 1994 and $8,556,000 in 1993. The Company used
outside sources of capital to fund the acquisition of Nebraska Cellular in
July 1995 resulting in additional long-term and short-term debt and related
interest expense. 1994 is lower than 1993 due to Lincoln Telephone's
retirement of First Mortgage Bonds totaling $35,000,000 on July 6, 1993.
This action led to a call premium of $822,000 in 1993. Short-term
borrowings at lower interest rates were used to fund the call.
Income Taxes
Income tax expenses in 1995 were $18,447,000, compared to $21,067,000 in
1994 and $19,618,000 in 1993. Federal income tax rates have remained at 35%
since 1993. Income tax expense has remained proportionate to taxable income
over the three-year period.
48
<PAGE>
Extraordinary Item (net of income tax) - FAS 71
As described in Note 2 to the consolidated financial statements, the
Company discontinued applying Statement of Financial Accounting Standards
No. 71 (FAS 71), "Accounting for the Effects of Certain Types of
Regulation" in the fourth quarter of 1995. The Company determined that
Lincoln Telephone no longer met the criteria for following FAS 71 due to
changes in the manner in which the Company is regulated and the heightened
competitive environment. The accounting impact to the Company was an
extraordinary non-cash after-tax charge of $16,516,000. The following
table is a summary of the extraordinary charge.
Pre-tax After-tax
(Dollars in thousands)
Increase to the accumulated depreciation balance $ 22,069 13,305
Elimination of regulatory assets and liabilities 3,799 3,211
------ ------
$ 25,868 16,516
The pre-tax adjustment of $22,069,000 to net telecommunications plant
was necessary since estimated useful lives and depreciation methods
historically prescribed by regulators did not keep up with the rapid pace
of technological changes and differed significantly from those used by
unregulated companies. Net plant balances were adjusted by increasing the
accumulated depreciation balance. A study was performed that identified
inadequate accumulated depreciation levels by individual asset categories.
When adjusting its net plant, the Company gave effect to shorter, more
economically realistic lives. The following is a summary of average lives
before and after the discontinuation of FAS 71.
Asset Category Before After
Central office equipment:
Digital switching 14 10
Circuit equipment 10 9
Metallic Cable 17-22 12-15
Fiber Cable 25-28 20
The discontinuance of FAS 71 also required the Company to eliminate from
its consolidated balance sheet the effects of any actions of regulators
that had been recognized as assets and liabilities pursuant to FAS 71, but
would not have been recognized as assets and liabilities by unregulated
companies. The regulatory assets and liabilities eliminated were related to
the consequences of regulation on deferred income taxes.
The Company believes that the discontinuation of accounting rules
prescribed in FAS 71 will not have an impact on the Company's customers,
nor its ability to pay dividends.
As a result of the discontinuation of applying FAS 71, the Company
expects annual depreciation expense to increase by approximately $2,500,000
or 7.6%, beginning in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Capitalization
At December 31, 1995, the Company had consolidated long-term debt of
$120,549,000 compared to $44,000,000 at December 31, 1994. In 1995, the
Company incurred $60,000,000 of long-term debt to finance the acquisition
49
<PAGE>
of Nebraska Cellular and assumed Nebraska Cellular's outstanding long-term
debt at acquisition.
Construction
The Company is continuing to invest in new technology. Net cash
expenditures for capital additions to property and equipment were
$43,022,000 in 1995, $31,291,000 in 1994 and $24,997,000 in 1993. Cash
provided by operating activities, less dividends, exceeded capital
additions in each of those years. Gross additions to property and equipment
are expected to approximate $52,000,000 in 1996. The increase in 1996 is
due primarily to expansion of electronic equipment requirements,
particularly expanding electronics into residential neighborhoods. The
Company anticipates funding this construction from operating activities,
existing temporary investments and short-term debt.
Cash and Cash Equivalents
The Company had cash, cash equivalents and temporary investments of
$34,232,000 and $46,673,000 at December 31, 1995 and 1994, respectively.
There were short-term borrowings of $10,000,000 and $23,000,000 at December
31, 1995 and 1994, respectively. Cash flows from operations in 1995 allowed
short-term borrowings to be reduced from the 1994 level.
Dividends
Quarterly dividends on the Company's common stock were increased from 11
cents per share to 12 cents per share commencing April 10, 1993, to 13
cents per share commencing January 10, 1994, to 14 cents per share
commencing January 10, 1995 and to 15 cents per share commencing January
10, 1996. The total cash dividends declared were 57 cents per share in
1995, 53 cents per share in 1994 and 49 cents per share in 1993. In
addition, a 100% stock dividend was distributed on January 6, 1994. The
foregoing per share information has been adjusted to reflect said 100%
stock dividend.
ACQUISITION AND INVESTMENT
During 1995, the Company purchased the remaining issued and outstanding
shares of Nebraska Cellular stock. At December 31, 1994, the Company owned
approximately 16% of the outstanding shares of Nebraska Cellular and used
the cost method of accounting to account for its interest. As consideration
for the remaining 84%, the Company issued to the shareholders of Nebraska
Cellular an aggregate of 4,267,146 shares of Company common stock and paid
approximately $61.6 million in cash. The acquisition was accounted for as a
purchase. Nebraska Cellular provides cellular communications services in
non-metropolitan areas of Nebraska including approximately 833,000 POPs
(potential customers). Its network serves cellular users with transparent
interconnection along the Interstate 80 corridor and other major highway
systems across Nebraska.
On December 31, 1991, Prairie entered into a partnership that holds a
55.2% 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, Inc. (Centel) 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.
See "Managed Cellular Markets" for further discussion.
50
<PAGE>
MANAGED CELLULAR MARKETS
The Company manages all four cellular entities in which it has an
ownership interest. The Lincoln MSA and Nebraska Cellular are wholly-owned
markets containing approximately 221,000 and 883,000 POPs, respectively.
Through its partnership with Centel, the Company holds a 27.6% interest in
the partnership which operates the Omaha MSA market, which includes
approximately 627,000 POPs, and also holds an option to purchase an
additional 27.6% interest in the partnership beginning in 1997. In
addition, the Company has an 11.8% interest in Iowa Rural Service Area 1
(RSA 1) which is contiguous to the Company's telephone operating area in
Nebraska and to Omaha, and contains approximately 61,000 POPs. By the end
of 1995, penetration (subscribers compared to POPs) rates achieved in these
markets by the entities in which the Company holds interests were 13.3% in
the Lincoln MSA, 9.7% in Nebraska Cellular, 7.4% in the Omaha MSA, and 4.7%
in RSA 1.
In these markets, the composite selling cost to acquire new customer
lines, including a negative margin on equipment sales, was $269 per gross
addition and $365 per net addition in 1995. The churn (the percentage of
customers who are disconnected each month) averaged 1.2% in 1995.
The Company's market indices of penetration, cost to acquire new
customers and churn in its managed markets are among the best in the
industry, according to statistics published by the Cellular Telephone
Industry Association.
SUPPLEMENTAL PROPORTIONATE DATA
The Company believes the use of proportionate operating data for these
managed cellular markets facilitates the understanding and assessment of
its consolidated financial statements. Reporting proportionate data for the
cellular markets is not in accordance with generally accepted accounting
principles. The proportionate data summarized below reflects the Company's
relative ownership interests in its managed markets.
51
<PAGE>
Supplemental Proportionate Data For Managed Cellular Markets 1
Total
Total Total Not Proportionate
Consolidated 2 Consolidated 3 Data
(Dollars in thousands)
Customer Lines 1995 109,708 13,144 122,852
1994 20,755 9,234 29,989
1993 13,145 6,100 19,245
Service Revenues 1995 $ 32,910 6,019 38,929
1994 10,176 4,689 14,865
1993 6,473 3,174 9,647
Operating Expenses 1995 $ 19,147 4,034 23,181
(before depreciation) 1994 5,837 3,094 8,931
1993 4,468 2,115 6,583
Net Operating Income 1995 $ 10,064 1,043 11,107
(after depreciation) 1994 (319) (1,204) (1,523)
1993 1,349 676 2,025
EBITDA 4 1995 $ 13,763 1,985 15,748
1994 4,339 1,595 5,934
1993 2,005 1,059 3,064
1. The Company's interest in Nebraska Cellular is not included in the
proportionate data prior to acquisition in July 1995.
2. Financial activities of the Lincoln MSA and Nebraska Cellular since
acquisition are included in respective operating portions of the
Company's Consolidated Statements of Earnings.
3. The Company's share of the financial activities of the Omaha MSA
(27.6%) and the Iowa RSA 1 (11.8% in 1995 and 1994 and 11.0% in
1993) are not included in the operating portions of the Company's
Consolidated Statements of Earnings.
4. Earnings before interest, income taxes, depreciation and
amortization is commonly used in the cellular communications
industry to analyze cellular providers on the bases of operating
performance and liquidity. EBITDA should not be considered an
alternative to: (i) operating income (as determined in accordance
with generally accepted accounting principles) as an indicator of
the Company's operating performance or (ii) cash flows from
operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
Total service revenues in the managed cellular markets increased to
$38,929,000 in 1995 compared to $14,865,000 in 1994 and $9,647,000 in 1993.
The acquisition of Nebraska Cellular in July 1995 contributed approximately
80% of the 1995 increase in service revenues. Service revenues include the
net results of outbound roaming. Inbound roaming contributed 14.6%, 12.9%
and 12.8% of service revenues in 1995, 1994 and 1993, respectively. The
Company has negotiated roaming agreements with other cellular providers
which include preferred roaming rates for customers.
At December 31, 1995, the Company had approximately 123,000 customer
lines in all of its markets. This compares with a 1994 year end Company
managed operations total of 30,000 subscribers and 56,000 Nebraska Cellular
subscribers.
52
<PAGE>
Net operating income before interest, depreciation and income taxes
(EBITDA) increased to $15,748,000 in 1995 compared to $5,934,000 in 1994.
The EBITDA margin (EBITDA compared to service revenues) was 40.5% and 39.9%
for the years 1995 and 1994, respectively. In 1993, EBITDA was $3,064,000
or 31.8% of revenues. Operating expenses, including the net negative margin
on sales of equipment, grew to $23,181,000 in 1995, compared to $8,931,000
in 1994 and $6,583,000 in 1993.
Due to changes in technology, customer growth and usage demand, on March
15, 1994, an agreement was reached to install new systems in the Lincoln
and Omaha MSAs to increase capacity and performance. The new Omaha MSA
system was operational in April 1994, and the Lincoln MSA system became
operational in April 1995.
These system upgrades caused the early retirement of existing equipment
prior to the expiration of its anticipated useful life. As a result, the
Company recognized additional non-recurring depreciation of approximately
$3,761,000 in 1994 attributable to the Lincoln MSA. The Company's share of
a similar one-time charge in 1994 for the Omaha MSA was $2,179,000.
COMPETITION AND REGULATORY ENVIRONMENT
The telecommunications industry is changing rapidly. Rapid technological
development, changing customer requirements and new public policies
designed to facilitate competition in all areas of the business are
changing the telecommunications environment and may have a significant
impact on the future financial performance of all telecommunications
companies. The Company's existing lines of businesses are already subject
to competition from many sources, including long distance companies,
cellular companies, competing directory companies and others.
On February 1, 1996, the United States Congress passed the Telecommuni-
cations Act of 1996. The President signed the bill into law on February 8,
1996. Among many other things, the bill preempts the right of states to
prohibit competition; establishes a number of requirements, such as
unbundling and interconnection, to facilitate greater competition; allows
telephone companies to provide video programming directly to their
subscribers; and allows the Regional Bell Operating Companies to provide
long distance service and engage in manufacturing. The Federal Communica-
tions Commission (FCC) must undertake at least sixty proceedings to further
define the rules affecting telephone companies. While the legislation
provides waiver or modification opportunities for companies serving less
than two percent of the nation's access lines, there can be no assurance
that such a waiver will be granted. The legislation does not require
unbundling and interconnection of wireless networks.
The FCC has taken steps to increase the number of wireless competitors
through the auctioning of radio spectrum for Personal Communications
Services (PCS). As many as seven new wireless competitors will be allowed
in each market. The FCC rules governing spectrum auctions prohibited the
Company from bidding on bandwidth of more than 10 MHz of PCS bandwidth in
areas where it has cellular operations.
Lincoln Telephone has been under price cap regulation at the FCC since
July 1, 1993. Price caps focus on prices rather than costs of service and
set maximum limits on prices which Local Exchange Carriers (LECs) can
charge for their services. These limits are subject to adjustment each year
to reflect inflation, a productivity factor and certain other cost changes.
The FCC is currently reviewing its rules and regulations pertaining to
price caps in the context of an evolving regulatory environment with a
ruling expected in the Spring of 1996.
53
<PAGE>
At the state level, the NPSC regulates the types of service offered and
service quality. Nebraska does not have traditional rate-of-return
regulation for telecommunications carriers, and allows telecommunications
carriers pricing flexibility for all services except basic local exchange
services in which pricing flexibility is subject to certain statutory
limitations.
Since 1986, telecommunications companies in Nebraska have been permitted
to increase local exchange rates up to 10% in any consecutive 12-month
period without review by the NPSC. However, the Company must provide at
least 60 days notice to affected customers and conduct public informational
meetings. If at least 3% of all affected subscribers sign a formal
complaint opposing the increase within 120 days from such notice, the NPSC
must hold and complete a hearing with regard to the complaint within 90
days to determine whether the proposed rates are fair, just and reasonable.
Within 60 days after the close of such hearing, the NPSC must enter an
order adjusting the rates at issue.
Regardless of whether a particular rate increase is subject to
regulatory review, the Company's ability to raise rates will be determined
by various factors, including economic and competitive circumstances in
effect at the time.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
Statement established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This Statement becomes
effective for financial statements for fiscal years beginning after
December 15, 1995. The Company does not expect a material impact on the
financial statements.
In October 1995, the Financial Accounting Standards Board issued a new
statement of accounting standards, Statement No. 123, "Accounting for
Stock-Based Compensation". Companies may retain the current approach set
forth in APB Opinion 25, "Accounting for Stock Issued to Employees". If
electing to continue following APB 25, the new fair value based method will
be required to provide expanded disclosures in the footnotes. The Company
does not intend to apply the accounting provisions of this new standard.
LABOR CONTRACTS
Lincoln Telephone and Local 7470 of the Communications Workers of
America (CWA) reached agreement on a three-year contract concerning wages,
benefits and working conditions, effective in October 1995. The contract
provides for wage increases of 10.9% over the three-year contract term,
establishing a non-contributory 401(k) program, increased pension benefits
and changes in other benefits. Similarly, a three-year agreement between
LinTel Systems and the CWA reached an agreement on a three-year contract
covering its union-eligible employees in May 1995. The Lincoln Telephone
and LinTel contracts with the CWA expire on October 14, 1998 and May 19,
1998, respectively.
54
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (Not Covered by Independent Auditors' Report)
(Dollars in thousands except per share data)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 179,916 175,417 169,317
2. Wireless communications services 33,518 10,740 7,006
3. Telephone equipment sales and services 18,768 18,100 15,270
4. Intercompany revenues (7,113) (7,611) (7,618)
5. Total revenues and sales (Note 1) 225,089 196,646 183,975
6. Income before special and non-recurring
charges (Note 2) 42,059 37,186 33,191
7. Special and non-recurring charges (Note 3) 29,546 3,581 23,166
8. Net income (Note 2) 12,513 33,605 10,025
9. Earnings available for common shares
(Note 2) 12,288 33,380 9,800
10. Earnings before special and non-recurring
charges 1.22 1.14 1.01
11. Special and non-recurring charges (0.86) (0.11) (0.71)
12. Earnings per common share (Note 2) 0.36 1.03 0.30
Selected Consolidated Balance Sheet Items
13. Total assets $ 520,321 393,184 395,279
14. Property and equipment 520,718 458,953 449,540
15. Accumulated depreciation and amortization 265,456 217,183 203,436
16. Accumulated depreciation to depreciable
plant 52.3% 48.2% 45.7%
17. Current ratio 1.1:1 1.3:1 1.1:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 122,207 48,499 48,499
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 32.0% 19.8% 20.9%
20. Common stock, premium and common stock
subscribed less treasury stock $ 107,791 37,292 41,173
21. Retained earnings 151,754 159,143 142,859
22. Total long-term debt, redeemable preferred
stock and stockholders' equity 381,752 244,934 232,531
Statistics
23. Proportionate cellular subscribers 122,852 29,989 19,245
24. Telephone access lines 254,173 246,963 238,142
25. Total number of employees 1,642 1,592 1,618
Selected Common Stock Items
26. Dividends declared per common share $ 0.570 0.530 0.490
27. Shares of common stock outstanding at
end of year 36,622,434 32,348,740 32,595,350
28. Market value common stock - high/low $21.50/14.50 20.00/13.75 20.50/12.00
29. Price/earnings ratio - high/low
(Note 5) 17.7x/11.9x 19.4x/13.3x 20.3x/11.9x
30. Book value per common share $ 7.09 6.07 5.65
55
<PAGE>
SELECTED FINANCIAL DATA (Not Covered by Independent Auditors' Report)
(Dollars in thousands except per share data)
1992 1991 1990
<S> <C> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 163,698 157,181 155,908
2. Wireless communications services 4,760 3,182 2,218
3. Telephone equipment sales and services 15,019 15,383 14,503
4. Intercompany revenues (8,143) (8,121) (7,296)
5. Total revenues and sales (Note 1) 175,334 167,625 165,333
6. Income before special and non-recurring
charges (Note 2) 29,609 27,820 24,696
7. Special and non-recurring charges (Note 3) -- -- --
8. Net income (Note 2) 29,609 27,820 24,696
9. Earnings available for common shares
(Note 2) 29,271 27,351 24,190
10. Earnings before special and non-recurring
charges 0.90 0.83 0.74
11. Special and non-recurring charges -- -- --
12. Earnings per common share (Note 2) 0.90 0.83 0.74
Selected Consolidated Balance Sheet Items
13. Total assets $ 369,116 360,976 348,434
14. Property and equipment 435,226 436,496 417,844
15. Accumulated depreciation and amortization 185,661 183,128 167,569
16. Accumulated depreciation to depreciable
plant 43.4% 42.9% 41.0%
17. Current ratio 1.3:1 1.3:1 2.2:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 78,049 87,544 93,493
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 29.2% 33.0% 36.2%
20. Common stock, premium and common stock
subscribed less treasury stock $ 40,427 44,033 45,134
21. Retained earnings 149,008 133,878 119,681
22. Total long-term debt, redeemable preferred
stock and stockholders' equity 267,484 265,455 258,308
Statistics
23. Proportionate cellular subscribers 11,308 4,852 2,742
24. Telephone access lines 232,148 226,077 221,706
25. Total number of employees 1,627 1,606 1,602
Selected Common Stock Items
26. Dividends declared per common share $ 0.430 0.400 0.370
27. Shares of common stock outstanding at
end of year 32,534,376 32,844,376 32,934,376
28. Market value common stock - high/low $14.25/10.63 14.63/10.50 16.75/9.75
29. Price/earnings ratio - high/low
(Note 5) 15.8x/11.8x 17.6x/12.7x 22.6x/13.2x
30. Book value per common share $ 5.82 5.42 5.00
56
<PAGE>
SELECTED FINANCIAL DATA (Not Covered by Independent Auditors' Report)
(Dollars in thousands except per share data)
1989 1988 1987
<S> <C> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 153,093 149,953 144,213
2. Wireless communications services 1,367 819 461
3. Telephone equipment sales and services 14,345 14,023 9,907
4. Intercompany revenues (6,724) (6,458) (5,692)
5. Total revenues and sales (Note 1) 162,081 158,337 148,889
6. Income before special and non-recurring
charges (Note 2) 25,046 25,478 21,692
7. Special and non-recurring charges (Note 3) -- -- --
8. Net income (Note 2) 25,046 25,478 21,692
9. Earnings available for common shares
(Note 2) 24,503 24,899 21,076
10. Earnings before special and non-recurring
charges 0.75 0.75 0.61
11. Special and non-recurring charges -- -- --
12. Earnings per common share (Note 2) 0.75 0.75 0.61
Selected Consolidated Balance Sheet Items
13. Total assets $ 304,908 289,806 289,426
14. Property and equipment 397,630 386,421 398,605
15. Accumulated depreciation and amortization 152,867 147,794 157,373
16. Accumulated depreciation to depreciable
plant 39.2% 38.9% 40.2%
17. Current ratio 1.3:1 1.7:1 1.6:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 63,254 69,743 71,714
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 29.2% 33.0% 33.8%
20. Common stock, premium and common stock
subscribed less treasury stock $ 45,726 45,726 41,816
21. Retained earnings 107,694 95,805 98,935
22. Total long-term debt, redeemable preferred
stock and stockholders' equity 216,674 211,265 212,465
Statistics
23. Proportionate cellular subscribers 1,185 545 181
24. Telephone access lines 216,109 210,343 204,561
25. Total number of employees 1,631 1,649 1,674
Selected Common Stock Items
26. Dividends declared per common share $ 0.370 0.333 0.291
27. Shares of common stock outstanding at
end of year 32,980,376 32,980,376 34,673,576
28. Market value common stock - high/low $ 17.31/8.56 9.13/6.57 7.25/5.07
29. Price/earnings ratio - high/low
(Note 5) 23.1x/11.4x 12.2x/8.8x 11.9x/8.3x
30. Book value per common share $ 4.65 4.29 4.06
57
<PAGE>
SELECTED FINANCIAL DATA (Not Covered by Independent Auditors' Report)
(Dollars in thousands except per share data)
1986 1985
<S> <C> <C>
Selected Consolidated Earnings Statement Items
1. Telephone operating revenues $ 140,905 126,225
2. Wireless communications services 282 233
3. Telephone equipment sales and services 4,584 4,130
4. Intercompany revenues -- --
5. Total revenues and sales (Note 1) 145,771 130,588
6. Income before special and non-recurring
charges (Note 2) 18,963 15,150
7. Special and non-recurring charges (Note 3) -- --
8. Net income (Note 2) 18,963 15,150
9. Earnings available for common shares
(Note 2) 18,319 14,488
10. Earnings before special and non-recurring
charges 0.56 0.44
11. Special and non-recurring charges -- --
12. Earnings per common share (Note 2) 0.56 0.44
Selected Consolidated Balance Sheet Items
13. Total assets $ 285,895 280,766
14. Property and equipment 384,338 369,407
15. Accumulated depreciation and amortization 144,584 130,171
16. Accumulated depreciation to depreciable
plant 38.4% 36.0%
17. Current ratio 1.7:1 1.4:1
18. Long-term debt and redeemable preferred
stock (Note 4) $ 86,391 88,190
19. Long-term debt and redeemable preferred
stock as a percent of total capitalization 40.8% 43.1%
20. Common stock, premium and common stock
subscribed less treasury stock $ 36,500 37,126
21. Retained earnings 88,599 79,407
22. Total long-term debt, redeemable preferred
stock and stockholders' equity 211,490 204,723
Statistics
23. Proportionate cellular subscribers -- --
24. Telephone access lines 201,182 199,576
25. Total number of employees 1,708 1,738
Selected Common Stock Items
26. Dividends declared per common share $ 0.275 0.275
27. Shares of common stock outstanding at
end of year 33,189,624 33,189,624
28. Market value common stock - high/low $ 6.88/4.60 5.54/3.66
29. Price/earnings ratio - high/low
(Note 5) 12.3x/8.2x 12.6x/8.3x
30. Book value per common share $ 3.77 3.51
All shares and share data have been adjusted to reflect stock splits.
Revenues and sales have been reclassified to conform to the 1995
presentation.
58
<PAGE>
Note 1: Revenues and sales have been restated to exclude discontinued
operations in 1989.
Note 2: Net earnings and earnings per common share have not been restated
to reflect the immaterial impact of discontinued operations in 1989.
Note 3: Special and non-recurring items represent extraordinary charges
and cumulative effect of change in accounting principle. 1995 amount
represents the after-tax effect of discontinuance of FAS 71 and work force
restructuring. 1994 represents the after-tax effect of non-recurring
depreciation charges on cellular equipment while 1993 is a change in
accounting principle for FAS 106.
Note 4: Excludes current installments and redemptions due in subsequent
years.
Note 5: Price/earnings ratio is before cumulative effect of change in
accounting principle.
</TABLE>
59
<PAGE>
CORPORATE OFFICERS
Thomas C. Woods III
Chairman of the Board
Frank H. Hilsabeck
President and Chief Executive Officer
James W. Strand
President-Diversified Operations
Robert L. Tyler
Senior Vice President-Chief Financial Officer
Jack H. Geist
Vice President-Diversified Operations
Kevin J. Wiley
Vice President-Diversified Operations
Bryan C. Rickertsen
Vice President-Technology
Michael J. Tavlin
Vice President-Treasurer and Secretary
Robert C. Halvorsen
Assistant Secretary
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
1440 M Street
Lincoln, NE 68508
(402) 436-3737
Mailing Address:
P.O. Box 81309
Lincoln, NE 68501-1309
STOCK LISTED
NASDAQ National Market
Symbol: LTEC
The preferred stock of The Lincoln Telephone and Telegraph Company is
traded over-the-counter.
AUDITORS
KPMG Peat Marwick LLP
1600 First Bank Building
233 South 13th Street
Lincoln, NE 68508
60
<PAGE>
COMMITTEES
EXECUTIVE
Frank H. Hilsabeck, Chairman
William W. Cook Jr.
Paul C. Schorr III
William C. Smith
AUDIT
Charles R. Hermes, Chairman
Terry L. Fairfield
John Haessler
Charles N. Wheatley
EXECUTIVE COMPENSATION
Duane W. Acklie, Chairman
Paul C. Schorr III
Charles N. Wheatley
Lyn Wallin Ziegenbein
DIRECTORS
Duane W. Acklie
Chairman
Crete Carrier Corporation
William W. Cook Jr.
President and Chief Executive Officer
The Beatrice National Bank and Trust Company
Terry L. Fairfield
President and Chief Executive Officer
University of Nebraska Foundation
James E. Geist
Retired Chairman and Chief Executive Officer
Lincoln Telecommunications Company
John Haessler
President and Chief Executive Officer
Woodmen Accident and Life Company
Charles R. Hermes
President
Dutton-Lainson Company
Frank H. Hilsabeck
President and Chief Executive Officer
Lincoln Telecommunications Company
61
<PAGE>
Donald H. Pegler Jr.
Chairman and Chief Executive Officer
Pegler-Sysco Food Services Company
Paul C. Schorr III
President and Chief Executive Officer
ComCor Holding Inc.
William C. Smith
Retired Chairman
FirsTier Financial, Inc.
James W. Strand
President-Diversified Operations
Lincoln Telecommunications Company
Charles N. Wheatley
President and Chief Executive Officer
Sahara Enterprises, Inc.
Thomas C. Woods III
Chairman of the Board
Lincoln Telecommunications Company
Lyn Wallin Ziegenbein
Executive Director
Peter Kiewit Foundation
62
<PAGE>
MARKET & DIVIDEND DATA
(Adjusted to reflect 100% stock dividend paid January 6, 1994)
Market Price Dividends Declared
Calendar 1995 1994 1995 1994
Quarter High Low High Low
1st $17.00 $14.50 $20.00 $15.50 $ .14 $ .13
2nd 16.25 14.75 16.75 13.75 .14 .13
3rd 19.00 15.25 16.75 13.75 .14 .13
4th 21.50 16.50 17.50 14.00 .15 .14
12 Mos. 21.50 14.50 20.00 13.75 .57 .53
The company has paid a dividend on its common stock every quarter since
1936.
The quarterly record dates are typically five days before the end of the
calendar quarter.
STOCKHOLDER INFORMATION
Investor Relations Center
The Form 10-K, Quarterly Reports, a prospectus and stock information may
be obtained without charge by contacting:
Investor Relations Center
Lincoln area: (402) 436-5277
From anywhere in the continental U.S.: 1-800-829-5832
e-mail: [email protected]
Annual Meeting of Stockholders
April 24, 1996
10:30 a.m.
The Cornhusker Hotel
333 South 13th Street
Lincoln, Nebraska
STOCK TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholder Services is the company's Stock Transfer
Agent, Registrar, Dividend Reinvestment Plan Administrator, and the Rights
Agent for the Stockholder Rights Plan. All questions about stockholder
accounts, stock certificates, the dividend reinvestment plan or dividend
checks should be addressed to:
Chemical Mellon Shareholder Services
85 Challenger Road, Overpeck Centre
Ridgefield Park, NJ 07660
1-800-526-0801
1-800-231-5469 (TDD)
63
<PAGE>
SECURITY ANALYSTS & PORTFOLIO MANAGERS
Direct inquiries to:
Michael J. Tavlin
Vice President-Treasurer
P.O. Box 81309
Lincoln, NE 68501-1309
(402) 436-5289
e-mail: [email protected]
DIVIDEND REINVESTMENT & STOCK PURCHASE PLAN
The company offers a dividend reinvestment and stock purchase plan.
Participants can make optional cash payments of at least $100 per payment
with a maximum of $3,000 per calendar quarter. The company pays all
administrative and investment service costs.
64
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000320446
<NAME> LINCOLN TELECOMMUNICATIONS COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 21151
<SECURITIES> 13081
<RECEIVABLES> 38183
<ALLOWANCES> 754
<INVENTORY> 9137
<CURRENT-ASSETS> 84102
<PP&E> 520718
<DEPRECIATION> 265456
<TOTAL-ASSETS> 520321
<CURRENT-LIABILITIES> 74764
<BONDS> 44000
0
4499
<COMMON> 9312
<OTHER-SE> 250233
<TOTAL-LIABILITY-AND-EQUITY> 520321
<SALES> 18768
<TOTAL-REVENUES> 225089
<CGS> 8357
<TOTAL-COSTS> 175128
<OTHER-EXPENSES> 2485
<LOSS-PROVISION> 198
<INTEREST-EXPENSE> 10518
<INCOME-PRETAX> 47476
<INCOME-TAX> 18447
<INCOME-CONTINUING> 29029
<DISCONTINUED> 0
<EXTRAORDINARY> 16516
<CHANGES> 0
<NET-INCOME> 12288
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
<PAGE>
KPMG Peat Marwick LLP
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
ACCOUNTANTS' CONSENT
The Board of Directors
Lincoln Telecommunications Company:
We consent to the incorporation by reference in the registration statement
on Forms S-3 and S-8 of Lincoln Telecommunications Company of our report,
dated February 2, 1996, relating to the consolidated balance sheets of
Lincoln Telecommunications Company and subsidiaries as of December 31, 1995
and 1994, and related consolidated statements of earnings, stockholders'
equity and cash flows and relating to the schedules to Form 10-K for each
of the years in the three-year period ended December 31, 1995, which
reports appear in the December 31, 1995 annual report on Form 10-K of
Lincoln Telecommunications Company.
/s/ KPMG Peat Marwick LLP
March 26, 1996
Lincoln, Nebraska
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 26th day of February, 1996.
---- --------
/s/ Duane W. Acklie
______________________
/s/ Cathy Glenn
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 26th day of February, 1996.
---- --------
/s/ William W. Cook Jr.
______________________
/s/ W. W. Cook III
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 19th day of February, 1996.
---- --------
/s/ Terry L. Fairfield
______________________
/s/ Linda M. Daiker
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 27th day of February, 1996.
---- --------
/s/ James E. Geist
______________________
/s/ Denise M. Barr
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 21st day of February, 1996.
---- --------
/s/ John Haessler
______________________
/s/ Pat Criger
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 19th day of February, 1996.
---- --------
/s/ Charles R. Hermes
______________________
/s/ Susan K. Abraham
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 26th day of February, 1996.
---- --------
/s/ Donald H. Pegler Jr.
______________________
/s/ Denise M. Barr
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 22nd day of February, 1996.
---- --------
/s/ Paul C. Schorr III
______________________
/s/ June S. Schorr
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 28th day of February, 1996.
---- --------
/s/ William C. Smith
______________________
/s/ Denise M. Barr
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 20th day of February, 1996.
---- --------
/s/ James W. Strand
______________________
/s/ Emily Brester
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 19th day of February, 1996.
---- --------
/s/ C. N. Wheatley
______________________
/s/ J. M. Hurley
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 28th day of February, 1996.
---- --------
/s/ Thomas C. Woods III
______________________
/s/ Emily Brester
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telecommunications Company, a Nebraska
corporations (hereinafter referred to as the "Corporation"),
will file in March of 1996 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange
Act of 1934, and annually thereafter its annual report on
Form 10-K, and
WHEREAS, the undersigned is a Director of the
Corporation;
NOW, THEREFORE, the undersigned, whose signature
appears below, hereby constitutes and appoints Michael J.
Tavlin his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him in
his name, place and stead, to sign the name of the
undersigned as Director to said annual reports on Form 10-K
and any and all amendments to said annual reports, and to
file the same with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-
fact and agent or his or her substitute may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the 19th day of February, 1996.
---- --------
/s/Lyn Wallin Ziegenbein
________________________
/s/ Patricia Thraen
____________________
Witness
