<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. 2-39373
-----------------------------------------
The Lincoln Telephone and Telegraph Company
(Exact name of registrant as specified in its charter)
Delaware 47-0223220
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 M Street, Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 402-474-2211
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 5% Preferred
Stock, ($100.00 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 28,
1995, was $0.
Number of shares of common stock outstanding
on
February 28, 1995 -- 1,000
<PAGE>
TABLE OF CONTENTS
Item Page
PART I
Description
1. Business 1-4
2 Properties 4
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
Description
5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
6. Selected Financial Data 6-7
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-11
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 11
PART III
Description
10. Directors and Executive Officers of the Registrant 12-15
11. Executive Compensation 15-23
12. Security Ownership of Certain Beneficial Owners and Management 24-26
13. Certain Relationships and Related Transactions 26
PART IV
Description
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 27-29
<PAGE>
PART I
Item 1. Business
The Lincoln Telephone and Telegraph Company (the Company) was
incorporated as a Delaware corporation on May 5, 1928, and since that date
has been involved in the telecommunications business. On February 23,
1981, the Company was reorganized and Lincoln Telecommunications Company
(LTEC or the Corporation) was established as a holding company with the
Company as its principal subsidiary. Other wholly-owned subsidiaries of
LTEC are Nebraska Cellular Telephone Corporation (NCTC), LinTel Systems
Inc. (LinTel), and Prairie Communications, Inc. (Prairie).
Landline
The Company 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 the Company'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 180,749 177,695
Business 73,424 69,268
------- -------
Total 254,173 246,963
*Excludes cellular and Company access lines.
The Company 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 switched 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 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
increase exchange rates up to 10% in any consecutive 12-month period without
review by the Nebraska Public Service Commission (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 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.
1
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Item 1. cont'd.
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.
Wireless
The Company's wireless services include cellular operations and wide
area paging services. The Company operates a cellular telecommunications
system in the Lincoln, Nebraska Metropolitan Statistical Area (MSA), and
manages the limited partnership which is the license holder for Iowa Rural
Statistical Area (RSA) 1 which serves the southwestern six counties of
Iowa. The Company also sells cellular equipment.
The following table sets forth certain information about the Company's
managed cellular operations.
<TABLE>
Cellular Operations
<CAPTION>
POPs December 31, 1995
Acquisition Percent Within Net Gross Net
System (1) Date (2) Ownership Area (3) POPs Subscribers Subscribers
<S> <C> <C> <C> <C> <C> <C>
Lincoln MSA April 23, 1987 100.0 221,000 221,000 29,294 29,294
Iowa RSA 1 June 30, 1989 11.8(4) 61,000 7,198 2,868 338
____________________________
(1) Systems are the Lincoln MSA - Lancaster County, Nebraska; and Iowa RSA 1 -
Southwestern six counties of Iowa.
(2) The date the Company's operating license was granted in the case of the
Lincoln MSA, and the date of the Corporation's initial acquisition of an
interest in Iowa RSA 1.
(3) Based upon population data for 1995, POPs shown for the Lincoln MSA are 99%
covered by the network of this system. According to estimates available to
the Company, approximately 90% of the POPs shown for Iowa RSA 1 are covered
by the network of that system.
(4) The Corporation has an 11.8% ownership interest in Iowa RSA 1. The Company
performs management services under a contract with Iowa RSA 1.
</TABLE>
The licensing, ownership, construction, operation and sale of
controlling interests in cellular telephone systems are subject to
regulation by the Federal Communications Commission (FCC). The FCC license
for the Company's Lincoln MSA cellular operations expires October 1996,
while FCC licenses for the Iowa RSA 1 cellular operations expires in
October 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
2
<PAGE>
Item 1. cont'd.
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 period for the Lincoln MSA has expired and
virtually all areas are served. The fill-in period for the Iowa RSA 1
expired in 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.
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, once 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
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 Corporation with the potential for more
competition in the local exchange market, it also provides opportunities.
The Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation is strengthening its marketing and
customer service programs to enhance and reward customer loyalty in order
3
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Item 1. cont'd.
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 was generally 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 was generally granted to a company that does not
provide local telephone service and is not affiliated with a local service
company in the area. The Company currently operates as the B-licensee in
the Lincoln, Nebraska MSA and the Iowa RSA 1 also operates as the B-
licensee.
The Company faces significant competition from the A-licensee 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. The Company sells
cellular mobile equipment in competition with numerous equipment retailers
Employees.
The Company employed 1,264 persons at the end of 1995. As of December
1995, 789 employees, approximately 62 percent of the Company's employees,
were represented by the Communications Workers of America (CWA), which is
affiliated with the AFL-CIO. A new three-year contract with the CWA which
expires October 14, 1998, was signed in October 1995. The new contract
provides for wage increases of 10.9% over three years, increased pension
benefits, changes in dental care programs, and the establishment of a
401(k) plan for union-eligible employees. See Item 7 at page 11 for a
discussion of the Company's Voluntary Early Retirement Program and operator
service work force reduction.
Item 2. Properties
The Company'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.
The Company owns the equipment, plant and facilities which are
utilized in its telephone system. The Company leases five locations for
its business offices, with annual rentals of approximately $130,000. The
duration of said leases range from one to six years. The Company owns its
remaining business office locations. Additionally, the Company leases the
majority of the locations on which the sites of towers for its Lincoln MSA
cellular system and wide-area paging network 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.
It is the opinion of Company management, including the Vice President-
Technology of the Company, that the properties of the Company are suitable
and adequate to provide modern and effective telecommunications services
within its service area, including both local and long distance service.
4
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Item 2. cont'd.
The capacity for furnishing these services, both currently and for
forecasted growth, are under constant surveillance by 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.
The Company'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, and such systems continue to be upgraded. 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
No matter was submitted to the holders of the Company's 5% Preferred
Stock in 1995. Such holders have voting rights only to the extent provided
in the Company's Certificate of Incorporation and in accordance with
Delaware General Corporation Law.
5
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information
Not Applicable.
(b) Holders
Since the Company's reorganization in 1981, all outstanding
shares of the Company's Common Stock have been owned by its
corporate parent, LTEC.
(c) Dividends
Quarterly dividends on the Company's Common Stock held by LTEC
are paid on the 10th day of January, April, July and October.
Total dividends paid to LTEC by the Company in 1995 were
$23,500,000 and in 1994 were $21,500,000. The agreements
relating to the long-term debt of the Company restrict the
payment of dividends. Under the most restrictive provisions of
these agreements, approximately $15,900,000 of retained earnings
of the Company were available for payment of dividends as of
December 31, 1995.
Item 6. Selected Financial Data
<TABLE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
<CAPTION>
Selected Financial Data (Not Covered by Independent Auditors' Report)
<S> <C> <C> <C> <C> <C>
Dollars in thousands 1995 1994 1993 1992 1991
Selected Earnings Statement Items
1. Operating revenues $ 183,303 174,556 163,539 156,760 149,312
2. Income before extraordinary item
and cumulative effect of change
in accounting principle 22,325 30,169 28,702 26,719 24,203
3. Extraordinary item and cumulative
effect of change in accounting
principle 16,516 -- 22,999 -- --
4. Net income 5,809 30,169 5,703 26,719 24,203
5. Earnings available for common shares 5,584 29,944 5,478 26,381 23,734
Selected Balance Sheet Items
6. Total assets $ 293,614 327,752 328,476 307,700 299,059
7. Property and equipment 477,291 456,295 447,689 433,786 435,211
8. Accumulated depreciation 254,412 215,758 202,299 184,737 182,287
9. Accumulated depreciation to
depreciable plant 54.3% 48.2% 45.6% 43.3% 42.8%
10. Current ratio .9:1 1.2:1 1:1 1.3:1 1.2:1
11. Long-term debt and redeemable
preferred stock* $ 48,499 48,499 48,499 78,049 87,544
12. Long-term debt and redeemable
preferred stock as a percent
of total capitalization 28.8% 25.9% 27.0% 35.0% 39.5%
6
<PAGE>
Item 6. cont'd.
Selected Balance Sheet Items (cont'd) 1995 1994 1993 1992 1991
13. Common stock and premium $ 32,495 32,495 32,495 32,495 32,495
14. Retained earnings 87,649 106,565 98,621 112,143 101,837
15. Total long-term debt and
stockholders' equity 168,643 187,559 179,615 222,687 221,876
Telephone Statistics
16. Landline access lines in service** 254,173 246,963 238,142 232,148 226,077
17. Number of employees 1,264 1,392 1,422 1,429 1,459
18. Total salaries $ 50,087 48,994 48,066 46,211 45,570
* Excludes current installments and redemptions due in subsequent years.
** Excludes Company access lines.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Construction
The Company is continuing to invest in new technology. Net cash
expenditures for capital additions to property and equipment amounted to
$37,270,000 in 1995, $30,421,000 in 1994, and $24,548,000 in 1993. Capital
additions exceeded cash provided by operating activities less dividends
paid in 1995. Cash provided by operating activities, less dividends,
exceeded capital additions in 1994 and 1993. Gross additions to telephone
property and equipment are expected to approximate $41,439,000 in 1996.
The Company anticipates funding this construction primarily from operating
activities.
Cash and Cash Equivalents
The Company had cash, cash equivalents, and temporary investments of
$25,021,000 and $37,388,000 at December 31, 1995 and 1994, respectively.
There were no short-term borrowings during 1995. A note payable for
$35,000,000 was issued in 1993 to reduce long term debt, and $8,000,000
remained at December 31, 1995.
Results of Operations
Net Earnings
Earnings available for common shares were $5,584,000 in 1995, compared
to $29,944,000 in 1994, and $5,478,000 in 1993. Before restructuring
charges and an extraordinary charge in 1995, earnings available for common
shares were $35,129,000. Prior to a one-time accounting charge related to
retirees' health benefits effective January 1, 1993, earnings in 1993
available for common shares were $28,477,000.
7
<PAGE>
Item 7. cont'd.
Operating Revenues
Operating revenues increased by $8,747,000 or 5.0% to $183,303,000 in
1995 over 1994, compared to growth of $10,780,000 or 6.6% in 1994 over
1993.
Local Network Services
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 to 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 higher demand for enhanced services. Telephone access lines in
service at December 31, 1995, and 1994 increased by 2.9% and 3.7%
respectively, over the prior year. In each case, business and Centrex
lines led the increases.
Access Revenues
Access service revenues received from interexchange carriers for their
use of local exchange facilities in providing long distance service 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% over the 1993 total of $47,531,000. These increases were due
primarily to increased volume of access minutes which increased by 7.1% in
1995 and by 6.5% in 1994.
Long Distance Revenues
Long distance revenues in 1995 were $13,376,000, a decrease of
$204,000 or 1.5% from the 1994 total of $13,580,000. In 1994, long
distance revenues decreased $907,000 or 6.3% from the 1993 total of
$14,487,000. Long distance revenues are received from providing services
within the Company's service area, and are primarily message toll, private
line services, and operator services. The decrease in 1994 was principally
due to lower revenue under a new agreement to provide operator services for
AT&T. Long distance rates were reduced by approximately $1,125,000
annually beginning on March 1, 1993, pursuant to an order of the NPSC.
Wireless Communication Revenues
Wireless communication services revenues were $14,060,000 in 1995, an
increase of $3,320,000 or 30.9% from the 1994 total of $10,740,000. In
1994, wireless revenues increased $3,734,000 or 53.3% over the 1993 total
of $7,006,000. These increases were due to a 36.9% increase in cellular
subscriber lines in 1995 over 1994, in 1994 cellular subscribers lines
increased 57.9% over 1993.
8
<PAGE>
Item 7. cont'd.
Operating Expenses
Total operating expenses were $142,954,000 in 1995, an increase of
$21,874,000 or 18.1% from 1994. Total operating expenses increased
$10,155,000 or 9.2% from 1993 to 1994.
Depreciation expenses amounted to $32,859,000 in 1995, $35,274,000 in
1994, and $28,208,000 in 1993. The composite depreciation rate for
property and equipment was 7.2% in 1995, 7.1% in 1994, and 6.5% in 1993.
The rate does not include the extraordinary charge in 1995 or the
additional non-recurring depreciation recognized in 1994. In 1994, the
Company recognized additional non-recurring depreciation of approximately
$3,761,000 relating to cellular equipment. Due to changes in technology,
customer growth, and usage demand, an agreement was made with AT&T to
install a new system with digital and analog capacity. The new system
increased capacity and performance. The new system became operational in
April 1995. The NPSC authorized new depreciation rates for telephone
equipment in 1994, which generated approximately $2,700,000 of additional
expense.
Other operating expenses were $85,755,000 in 1995, $82,681,000 in
1994, and $79,780,000 in 1993. Annual increases were led by the increased
cost of employee benefits. Sales commissions and other costs of acquiring
cellular customers also increased.
Restructuring charges, $1,552,000 from operator services force
reduction in September 1995 and $19,663,000 from the voluntary early
retirement program recognized in December 1995, increased operating
expenses $21,215,000 in 1995.
Taxes, other than payroll and income, are principally local property
taxes. These taxes amounted to $3,125,000 in 1995 and 1994, compared to
$2,937,000 in 1993.
Income Taxes
Income tax expenses in 1995 were $13,653,000, compared to $18,936,000
in 1994 and $17,239,000 in 1993. The decrease was due to decreased
operating income.
Extraordinary Item
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 it 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, Lincoln
Telephone decided, in the fourth quarter of 1995, that the principles
prescribed by FAS 71 were no longer applicable. As a result of that
decision, a non-cash, extraordinary charge of approximately $16,516,000,
net of an income tax benefit of approximately $9,351,000 was incurred in
December 1995.
An increase to accumulated depreciation of approximately $13,305,000
after tax was necessary as the estimated useful lives prescribed by
9
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Item 7. cont'd.
regulators were not appropriate considering the rapid rate of technological
changes in the telecommunications industry. This 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.
Upon 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 with a net after-tax charge of $3,211,000, and the related
deferred taxes were adjusted to reflect application of FAS 109 consistent
with deregulated entities.
Voluntary Early Retirement Program
In November 1995, LTEC offered a voluntary early retirement program to
eligible employees in an effort to position itself for the long term. The
existing 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 319 management and non-management employees of the
Company accepted the offering. The Company recorded a reduction to its
pension asset, the source of funding for the program, and recognized a pre-
tax restructuring charge of $19,663,000, $11,854,000 after tax.
In July 1995, the Company 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.
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
10
<PAGE>
Item 7. cont'd.
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 this standard. The new standard is not expected
to have a significant impact on the financial statements.
Item 8. Financial Statements and Supplementary Data
See pages F-3 through F-22 herein.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
11
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following sets forth certain information about each director,
including each person's business experience for the past five years.
Information presented is stated as of February 29, 1996.
All members of the Company's Board of Directors, or nominees for
membership, are also members of or nominees for membership to the Board of
Directors of LTEC.
NOMINEES FOR TERM TO EXPIRE IN 1999
DUANE W. ACKLIE; Director since 1983; Age 64; Lincoln, Nebraska. Mr.
Acklie is Chairman of Crete Carrier Corporation (a motor carrier) of
Lincoln, Nebraska, and has held such position since 1991. He was President
and Chief Executive Officer of Crete Carrier Corporation from 1971 to 1991.
Mr. Acklie is Chairman of First National Bank, Lincoln, Lincoln, Nebraska.
TERRY L. FAIRFIELD; Director since 1993; Age 47; Lincoln, Nebraska. Mr.
Fairfield is President and Chief Executive Officer of the University of
Nebraska Foundation, Lincoln, Nebraska. He has held such position since
1987.
JOHN HAESSLER; Director since 1993; Age 59; Lincoln, Nebraska. Mr.
Haessler is President and Chief Executive Officer of Woodmen Accident and
Life Company of Lincoln, Nebraska, and has held such position since 1986.
(See Note 1 below.)
WILLIAM C. SMITH; Director since 1983; Age 62; Lincoln, Nebraska. Mr.
Smith retired in 1989 from the position of Chairman and Chief Executive
Officer of FirsTier Financial, Inc. of Omaha, Nebraska, a position which he
had held since 1988. Mr. Smith is currently self-employed in business and
financial consulting.
LYN WALLIN ZIEGENBEIN; Director since 1992; Age 43; Omaha, Nebraska. Mrs.
Ziegenbein is Executive Director of the Peter Kiewit Foundation of Omaha,
Nebraska, and has held such position since 1983. (See Note 2 below.)
PRESENT TERM EXPIRES IN 1997
WILLIAM W. COOK, JR.; Director since 1981; Age 59; Beatrice, Nebraska. Mr.
Cook is Chairman, President and Chief Executive Officer of Beatrice
National Bank & Trust Co., of Beatrice, Nebraska, and has held such
position since 1993. He was President and Chief Executive Officer of such
company from 1971 to 1993.
JAMES E. GEIST; Director since 1973; Age 66; Lincoln, Nebraska. Mr. Geist
retired in 1993 from the positions of Chairman of the Board and Chief
Executive Officer of the Corporation and its principal subsidiary, The
Lincoln Telephone and Telegraph Company, and also retired from the
positions of Chairman of the Board of the Corporation's other subsidiaries,
LinTel Systems Inc. and Prairie Communications, Inc., all of Lincoln,
Nebraska. Mr. Geist is currently President of Geist, Inc., an equipment
manufacturer.
12
<PAGE>
Item 10. cont'd.
DONALD H. PEGLER, JR.; Director since 1979; Age 69; Lincoln, Nebraska. Mr.
Pegler is Chairman of the Board and Chief Executive Officer of Pegler-Sysco
Food Services Company (distributors of institutional food, food service
supplies and equipment), of Lincoln, Nebraska, and has held such position
since 1989.
CHARLES N. WHEATLEY; Director since 1993; Age 45; Chicago, Illinois. Mr.
Wheatley is President and Chief Executive Officer of Sahara Enterprises,
Inc. (a diversified holding company) and has held such position since July,
1992. He was Vice President and Secretary of Sahara Enterprises, Inc. from
1985 to July 1992. Mr. Wheatley is a Director of Sahara Enterprises, Inc.
THOMAS C. WOODS, III; Director since 1979; Age 50; Lincoln, Nebraska. Mr.
Woods is Chairman of the Board of the Corporation and its principal
subsidiary, The Lincoln Telephone and Telegraph Company. He was the
Corporation's Vice Chairman of the Board-Corporate Relations and
Communications from March 1990 to April 1993. Mr. Woods is a director of
Sahara Enterprises, Inc.
PRESENT TERM EXPIRES IN 1998
CHARLES R. HERMES; Director since 1992; Age 53; Hastings, Nebraska. Mr.
Hermes is President of Dutton-Lainson Company (wholesale electrical and
plumbing supplies, and a manufacturer of hardware and marine specialties)
of Hastings, Nebraska, and has held such position since 1974.
FRANK H. HILSABECK; Director since 1990; Age 51; Lincoln, Nebraska. Mr.
Hilsabeck is President and Chief Executive Officer of the Corporation, and
is President of its principal subsidiary, The Lincoln Telephone and
Telegraph Company. He was the Corporation's President and Chief Operating
Officer from March 1991 to May 1993, was President-Telephone Operations
from March 1990 to March 1991.
PAUL C. SCHORR, III; Director since 1973; Age 59; Lincoln, Nebraska. Mr.
Schorr is President and Chief Executive Officer of ComCor Holding
Incorporated (an electrical contractor specializing in construction
consulting services) of Lincoln, Nebraska, and has held such position since
1989. He was also President of Fischbach Corporation (a diversified
electrical/mechanical contractor) from 1990 to 1992.
JAMES W. STRAND; Director since 1990; Age 49; Lincoln, Nebraska. Mr.
Strand is President-Diversified Operations of the Corporation, Executive
Vice President-Marketing and Customer Services of its principal subsidiary,
The Lincoln Telephone and Telegraph Company and is President of its
subsidiaries, LinTel Systems Inc., Prairie Communications, Inc., and is
Vice Chairman of the Board of Nebraska Cellular Telephone Corporation.
_______________________
Note 1. Woodmen Accident and Life Company is the insurer from which
the Corporation and its principal subsidiary, The Lincoln Telephone and
Telegraph Company, purchase key man life insurance and employee group life
insurance. The total net premiums paid for such insurance coverages in 1995
were $1,564,442. The Corporation believes that the rates paid for such
insurance are comparable to market rates.
13
<PAGE>
Item 10. cont'd.
Note 2. The Woods & Aitken law firm, in which Mr. John H. Ziegenbein,
the husband of Mrs. Ziegenbein, is of counsel, provided legal services to
the Corporation and its subsidiaries, The Lincoln Telephone and Telegraph
Company, LinTel Systems Inc., Nebraska Cellular Telephone Corporation, and
Prairie Communications, Inc., during 1995 for which it received fees in the
amount of $195,935.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
During 1995, six meetings of the Board of Directors were held. Two
directors, Mr. Cook and Mr. Pegler, attended fewer than 75% of the
aggregate number of meetings of the Board of Directors and the committees
on which they served. The Corporation has no standing nominating
committee, but does have the following three standing committees:
Executive Committee
The Executive Committee, in accordance with By-Law 17 of the Corporation's
By-Laws, and subject to the limitations of the Nebraska Business
Corporation Act, possesses and may exercise all powers of the Board of
Directors. The Committee did not meet during 1995. Committee members
during 1995 were: Frank H. Hilsabeck, Chairman; William W. Cook, Jr.; Paul
C. Schorr, III; and William C. Smith.
Audit Committee
The Audit Committee recommends the independent auditors for the Corporation
to the full Board of Directors, reviews the scope of the audit and approves
the fees for the auditors. In addition, the Committee reviews the work of
the Corporation's Internal Audit Section. The Committee met four times
during 1995. Committee members during 1995 were: Charles R. Hermes,
Chairman; Terry L. Fairfield; John Haessler; and Charles N. Wheatley.
Executive Compensation Committee
The Executive Compensation Committee reviews and makes recommendations to
the full Board of Directors for compensation levels of the Corporation's
officers and administers the 1989 Stock and Incentive Plan participated in
by executive officers and other key employees. The Committee met four
times during 1995. Committee members during 1995 were: Duane W. Acklie,
Chairman; Paul C. Schorr, III; Charles N. Wheatley; and Lyn Wallin
Ziegenbein.
14
<PAGE>
Item 10. cont'd.
Executive Officers of Registrant
First Year In
Officer Age Position Held Present Office
Frank H. Hilsabeck 51 President and Director 1993
James W. Strand 49 Executive Vice President- 1990
Marketing and Customer
Services and Director
Robert L. Tyler 60 Senior Vice President-Chief 1991
Financial Officer
Michael J. Tavlin 49 Vice President-Treasurer and 1986
Secretary
Bryan C. Rickertsen 48 Vice President-Technology 1995
Term of office of above named executive officers: At the meeting of the
Board of Directors each year held immediately following the Annual Meeting
of Stockholder, the officers are elected to serve for the ensuing year, or
until their successors are duly elected and qualified.
Compliance with Section 16(a) of the Exchange Act
Other than Thomas C. Woods, III who, as a co-personal representative
of the Estate of Thomas C. Woods, Jr., is the beneficial owner of 12 shares
of the Company's 5% Preferred Stock, no current officer or director of the
Company beneficially owns any shares of Preferred Stock of the Company. In
making the foregoing statements, the Company has relied on the
representations of such officers and directors.
Item 11. Executive Compensation
The following Summary Compensation Table shows the compensation for
the past three years for each of the Company's five most highly compensated
executive officers, including the Company's Chief Executive Officer (the
"named executive officers"). All of the five named executive officers are
also officers of LTEC. All compensation of such officers is paid by LTEC
and is reported herein. LTEC collects from the Company fees for management
services provided to the Company, which fees recover a portion of the
compensation and expenses paid by LTEC, including compensation of these
officers. The amounts collected from the Company are based upon
approximations of time spent in managing the Company's activities. The
percentage of the named executive officers' compensation paid by the
Company to LTEC for 1993 through 1995 is set forth in following footnote
(1).
15
<PAGE>
Item 11. cont'd.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Number of
Securities
Underlying All
Restricted Stock Other
Name and Salary Bonus Stock Options Compensation
Principal Position Year ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
Frank H. Hilsabeck 1995 270,000 61,392 61,368 16,350 4,500
President & Chief 1994 225,000 52,210 52,190 0 4,500
Executive Officer 1993 196,167 52,211 52,189 0 6,040
and Director
James W. Strand 1995 184,800 27,611 27,589 8,400 4,500
President-Diversified 1994 154,000 22,872 22,848 0 4,500
Operations & Director 1993 146,000 26,400 26,400 0 4,380
Robert L. Tyler 1995 138,000 18,193 18,167 5,450 4,140
Senior Vice President-1994 124,000 16,804 16,796 0 3,720
Chief Financial
Officer 1993 111,000 19,805 19,795 0 3,331
Michael J. Tavlin 1995 107,000 12,610 13,590 3,500 3,210
Vice President- 1994 101,000 12,015 11,985 0 3,030
Treasurer & Secretary 1993 96,000 13,817 13,783 0 2,880
Bryan C. Rickertsen 1995 100,250 11,109 11,091 1,900 3,008
Vice President- 1994 85,700 8,402 8,398 0 2,571
Technology 1993 81,400 9,313 9,287 0 2,442
(1) The percent of compensation paid by the Company to the following LTEC
officers for 1993 through 1995 is as follows:
Name 1995 1994 1993
Frank H. Hilsabeck 85.5% 90.7% 90.7%
James W. Strand 45.0% 40.0% 30.0%
Robert L. Tyler 88.4% 87.3% 86.3%
Michael J. Tavlin 70.0% 80.0% 80.0%
Bryan C. Rickertsen 100.0% 100.0% 100.0%
(2) The LTEC 1989 Stock and Incentive Plan (the "Plan") is administered by
the Executive Compensation Committee of LTEC's Board of Directors (the
"Committee") constituted of members of such Board not eligible to
participate in the Plan, and permits the award of Short-Term
Incentives, Stock Options, Stock Appreciation Rights and Restricted
Stock. The bonus amounts shown reflect the cash bonus amounts paid
pursuant to the terms of the Plan attributable to the fiscal years of
the Company shown. On April 26, 1989, the stockholders of LTEC
approved the Plan.
16
<PAGE>
Item 11. cont'd.
(3) Pursuant to the terms of the Plan, a participant may elect to receive
up to forty percent (40%) of the amount of any Short-Term Incentive
award in Restricted Stock of LTEC. Each of the listed individuals has
so elected. When a participant elects to receive such portion of such
award in shares of Restricted Stock, the number of shares awarded is
based upon the closing price of LTEC's Common Stock as of the date of
award, and the number of shares awarded is increased by a multiple
determined by the Committee, which for each of the years shown was 1.5
times the stock portion. The dollar value of the Restricted Stock
awards are attributable to the Company's fiscal year as indicated.
The percentage of such awards allocated to the Company for 1993
through 1995 is shown in footnote (1) to the Summary Compensation
Table. The number of shares of Restricted Stock awarded and values
thereof for each named executive officer and the aggregate value as of
December 31, 1995, are as follows:
Number of Restricted Shares
Name 1993 Award 1994 Award 1995 Award Aggregate Value
Mr. Hilsabeck 2,821 3,070 2,905 $185,816
Mr. Strand 1,427 1,344 1,306 86,127
Mr. Tyler 1,070 988 860 61,643
Mr. Tavlin 745 705 596 43,222
Mr. Rickertsen 502 494 525 32,131
----- ----- ----- -------
Totals 6,565 6,601 6,192 $408,939
The restrictions against sale, transfer, pledge or assignment of the
Restricted Stock will lapse, and the awards have vested or will vest
as follows: 1993 Awards - January 31, 1996; 1994 Awards - January 31,
1997; and 1995 Awards - January 31, 1998. Restrictions will lapse
sooner if the participant dies, becomes disabled, retires or there is
a change in control of the Corporation during the period of
restriction.
Dividends are paid during the period of restriction on the shares of
Restricted Stock to the executive officer holding such shares and
voting rights may be exercised.
(4) The options shown for 1995 were awarded on March 15, 1995, not
attributable to any past performance.
(5) The Corporation maintains a 401(k) Savings and Stock Ownership Plan
for the benefit of its non-union-eligible employees, including the
named executive officers. Pursuant thereto the Corporation (a) has
contributed 1.75% of the employee's base salary in the form of the
Corporation's Common Stock for the employee's benefit (to the
following maximum base salary amounts: 1993 - $235,840; 1994 -
$150,000; and 1995 - $150,000; and (b) has contributed on a matching
basis, at the rate of 25% for each 1% of the employee's salary
contributed to the 401(k) account, up to a maximum of 1.25% of such
salary contribution. Such match is also made in shares of the
Corporation's Common Stock.
17
<PAGE>
Item 11. cont'd.
LTEC has in effect the 1989 Stock and Incentive Plan which was
approved by LTEC's stockholders and pursuant to which options to purchase
shares of Common Stock of LTEC are granted to officers and other key
employees of LTEC and its subsidiaries.
The following table shows information concerning the exercise of stock
options by each of the named executive officers during the 1995 fiscal
year, and the number of unexercised options existing at the end of the year
1995 for each of the named executive officers, and the 1995 year-end value
of unexercised options.
<TABLE>
OPTION EXERCISES IN FISCAL 1995
AND FISCAL 1995 YEAR-END OPTION VALUE
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of Value of
Securities Underlying Unexercised
Unexercised In-The-Money
Options at Options at
Shares 12/29/95 (#) 12/29/95($)
Acquired on Realized Exer- Unexer- Exer- Unexer-
Name on Exercise(#) ($) cisable cisable cisable cisable
Frank H. Hilsabeck 0 0 17,500 16,350 156,313 75,619
James W. Strand 0 0 11,900 8,400 104,663 38,850
Robert L. Tyler 0 0 12,300 5,450 109,888 25,200
Michael J. Tavlin 0 0 8,100 3,550 71,338 16,419
Bryan C. Rickertsen 0 0 6,400 1,900 57,600 8,788
</TABLE>
The following table illustrates the annual pension plan benefit
provided by the Company's Pension Plan, as supplemented by the Executive
Benefit Plan, for eligible executive employees upon retirement at age 65,
assuming no optional forms of benefit have been elected. The Pension Plan
is not integrated with Social Security and is maintained for all employees
of the Company and its affiliates.
18
<PAGE>
Item 11 cont'd.
<TABLE>
PENSION PLAN TABLE
Estimated Annual Pension at Normal Retirement
Age for Representative Years of Credited Service
<CAPTION>
Highest 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years 45 Years 50 Years
Consecutive Service Service Service Service Service Service Service Service
Five-Year (34.875 (52.00 (59.375 (67.00 (74.875 (82.00 (89.125 (96.25
Average Percent Percent Percent Percent Percent Percent Percent Percent
Compensation Factor) Factor) Factor) Factor) Factor) Factor) Factor) Factor)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 90,000 $ 31,388 $ 46,800 $ 53,438 $ 60,300 $ 67,388 $ 73,800 $ 80,213 $ 86,625
120,000 41,850 62,400 71,250 80,400 89,850 98,400 106,950 115,500
150,000 52,313 78,000 89,063 100,500 112,313 123,000 133,688 144,375
180,000 62,775 93,600 106,875 120,600 134,775 147,600 160,425 173,250
210,000 73,238 109,200 124,688 140,700 157,238 172,200 187,163 202,125
240,000 83,700 124,800 142,500 160,800 179,700 196,800 213,900 231,000
270,000 94,163 140,400 160,313 180,900 202,163 221,400 240,638 259,875
300,000 104,625 156,000 178,125 201,000 224,625 246,000 267,375 288,750
330,000 115,088 171,600 195,938 221,100 247,088 270,600 294,113 317,625
360,000 125,550 187,200 213,750 241,200 269,550 295,200 320,850 346,500
</TABLE>
Compensation covered by the Pension Plan is a participant's salary, as
shown in the Summary Compensation Table on page 15 herein, (whether or not
such compensation has been deferred at participant's election). Benefits
are based on a participant's average compensation for five consecutive
years, or, in the case of a participant who has been employed for less than
five full years, the period of his employment covered by the Pension Plan.
Under the Pension Plan, only salary as shown in the Summary Compensation
Table up to the limits imposed by the Internal Revenue Code is taken into
account. The 1995 compensation limit applicable to the Pension Plan is
$150,000.
Included in the information reflected in the above table are the
supplemental retirement benefits which the Corporation provides pursuant to
an Executive Benefit Plan for the benefit of Messrs. Hilsabeck, Strand,
Executive Benefit Plan also provides pre-retirement death benefits and
long-term disability benefits. Pension benefits which exceed the
limitations imposed by the Internal Revenue Code are payable under the
Executive Benefit Plan. All pension benefits payable under the Executive
Benefit Plan will be paid outside the Pension Plan as an operating expense.
The named executive officers have the following years of service with
the Company as of December 31, 1995: Frank H. Hilsabeck, 28; James W.
Strand, 22; Robert L. Tyler, 36; Michael J. Tavlin, 9; and Bryan C.
Rickertsen, 16 years.
COMPENSATION OF DIRECTORS
Full-time officers of the Company do not receive additional
compensation for serving as members of the Board of Directors of the
Company. No additional compensation is paid if a full-time officer serves
on any committee of such Board of Directors.
19
<PAGE>
Item 11. cont'd.
Effective April 26, 1995, non-employees serving as members of the
Corporation's Board of Directors are paid: (a) an annual retainer of
$8,400, paid in monthly installments of $700; (b) an additional fee of $700
for attendance at each meeting of the Board; (c) an additional fee of
$1,000 for attendance at any meeting of a Board Committee by the Committee
Chairman; (d) an additional fee of $700 for attendance at any meeting of a
Board Committee by other Committee members; and (e) reimbursement of
expenses incurred in connection with such meetings. Non-employee Directors
of the Corporation are not compensated for serving as Directors of the
Corporation's principal subsidiary, The Lincoln Telephone and Telegraph
Company. Total fees paid to Directors in 1995 were $168,210.
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
LTEC has agreements with Messrs. Hilsabeck, Strand, Tyler, Tavlin and
Rickertsen which provide that the executive is entitled to benefits if,
after a change in control (as defined), the executive officer's employment
is ended through (i) termination by LTEC other than by reason of death or
disability or for cause (as defined), or (ii) termination by the executive
officer following the first anniversary of the change in control or due to
a breach of the agreement by LTEC or a significant adverse change in his
responsibilities. As used in such agreements, (a) "change in control"
means (i) if any person is or becomes a thirty percent beneficial owner of
the Corporation or (ii) a change in a majority of the members of the Board
of Directors of the Corporation over a two consecutive year period; and (b)
"cause" means termination of an executive's employment by the Corporation
after a change in control based upon willful and intentional conduct
causing serious injury to the Corporation, conviction for a felony or
willful and unreasonable neglect or refusal to perform the executive's
duties. The benefits provided are: (a) a cash termination payment of up
to three times the sum of executive officer's annual salary and his highest
annual bonus during the three years before the termination and (b)
continuation of equivalent hospital, medical, dental, accident, disability
and life insurance coverage as in effect at the termination. The
agreements provide that if any portion of the benefits under the agreements
or under any other agreement would constitute an "excess parachute payment"
for purposes of the Internal Revenue Code of 1986 (the "Code"), benefits
are reduced so that the executive officer is entitled to receive $1.00 less
than the maximum amount which he can receive without becoming subject to
the 20% excise tax imposed by the Code or which LTEC may pay without loss
of deduction under the Code.
In accordance with agreements pursuant to LTEC's Executive Benefit
Plan, in the event of a change in control of LTEC, entitlement to benefits
payable to the named executive officers shall become vested, provided that
such employee shall comply with specified non-competition and
confidentiality requirements of such agreements. The vested amount shall
equal 25% of average final compensation irrespective of the employee's net
credited service on the date of employee's retirement. If after the change
of control the employee's employment is terminated for reasons other than
death or retirement, the vested 25% of average final compensation shall be
payable on the later of his attaining age 60 or his date of termination.
20
<PAGE>
Item 11. cont'd.
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation Committee of the Board is responsible for
all aspects of the Company's compensation package offered to its corporate
officers, including the named executive officers. The following report was
approved by the members of the Executive Compensation Committee.
Compensation Policies: The Corporation's principal executive
compensation objective is to compensate executive officers in a manner that
will attract and retain the services of an outstanding management team and
provide incentives to motivate superior performance by key employees. In
light of that objective, the Executive Compensation Committee of the Board
of Directors (the "Committee"), which also serves as the executive
compensation committee for the Company (the principal subsidiary of the
Corporation), has approved a compensation program for the Corporation's
executive officers consistent with the policies described below. There are
currently seven executive officers (including one person who is an employee
of the Company).
To attract and retain employees, the Corporation's compensation
program provides a base salary and an overall compensation package that are
intended to be competitive and are based upon the following factors.
First, the Committee reviews the financial performance of the Corporation
as compared to the peer group of telecommunications companies (as shown in
the Performance Graph on page 23 which graphically illustrates returns on
investments by stockholders over a five-year period, including reinvestment
of dividends). Second, the Committee reviews competitive, legislative,
regulatory and operational issues which the Corporation has faced during
the past fiscal year, or will face during the ensuing fiscal year. In its
discussions, the Committee evaluates the proactive and reactive actions of
the executive officers concerning these first two factors and subjectively
incorporates the evaluation into its compensation decisions. Third, and
most important to the Committee's considerations, the Committee considers
surveys of executive compensation obtained from available sources. Such
surveys take into account both the telecommunications industry and other
industries nationwide. The surveys include the five mid-sized
telecommunications companies in the Corporation's peer group, as well as a
number of other similarly sized companies in telecommunications or related
industries. The 1994 and 1995 surveys indicated that the compensation of
the Corporation's Chief Executive Officer was significantly below the mid-
point of the survey results after giving consideration to the size of the
Corporation compared to the size of the companies in the survey. Certain
other officers were also below the mid-point of the survey results. The
Committee's actions concerning 1995 salary level adjustments for these
officers included steps to more closely align the salary of the Chief
Executive Officer and other Corporation officers with the mid-point of the
survey results.
To provide incentives to motivate performance, the Corporation's
executive compensation program establishes a direct relationship between
compensation and the Corporation's performance and encourages executives to
acquire an ownership interest in the Corporation. Pursuant to the
provisions of the Plan, eligible executives, who have been
chosen in advance by the Committee, receive a portion of their compensation
in the form of incentive awards ("Short-Term Incentive awards"). The
21
<PAGE>
Item 11. cont'd.
amounts of such Short-Term Incentive awards are established in accordance
with ranges of earnings and return on equity realized by the Corporation as
pre-determined by the Committee. The minimum return on equity required to
award short-term incentives for 1995 was 15%. Actual results for 1995
adjusted by the Committee for a portion of the special one-time or
extraordinary items exceeded that level. In 1995, the Corporation's
earnings and return on equity yielded an aggregate short-term incentive
pool of $330,200 or 22.0% of composite salaries for eligible executives.
The portion of such incentive pool received by an executive is based on his
or her position of responsibility and individual performance.
Further, to align the interests of executives with stockholder
interests and to provide a means for the acquisition of an ownership
interest in the Corporation, executives are encouraged to elect to receive
up to 40% of the cash portion of the Short-Term Incentive awards in
Restricted Stock of the Corporation. If such an election is made, the
Committee may increase the stock portion of the award by a multiple not to
exceed two times such stock portion. For 1995, the Committee determined
1.5 to be an appropriate multiple to be applied to the stock portion of the
award to incent ownership, and in view of the two-year period of
restrictions. Finally, the Committee may grant stock options under the
Plan to key executives in amounts that are competitive based upon market
considerations, which are exercisable after three years.
Chief Executive Officer Compensation: The compensation for Mr. Frank
H. Hilsabeck, President and Chief Executive Officer, reported for 1995
reflects the application of the policies described above.
Mr. Hilsabeck also received a Short-Term Incentive award for 1995. On
December 14, 1994, the Committee adopted performance goals for the
Corporation for 1995 for purposes of the Corporation's Short-Term Incentive
awards. As a result of the Corporation's earnings and return on equity and
his performance in 1995, Mr. Hilsabeck received a Short-Term Incentive
award of $102,300 or approximately 27.3% of the aggregate award.
Consistent with the Corporation's desire to encourage acquisition of
an ownership interest in the Corporation, Mr. Hilsabeck elected to receive
Restricted Stock pursuant to the Plan to the maximum permitted of 40% of
the Short-Term Incentive award. The Committee had previously determined to
increase the value of the portion of the award used for the granting of
Restricted Stock by a multiple of 1.5, thereby enabling Mr. Hilsabeck to
receive Restricted Stock with a value of $61,368, as well as a cash award
of $61,392. As of December 29, 1995, Mr. Hilsabeck held unvested
Restricted Stock with an aggregate value of $185,816, including the 1995
award.
Mr. Hilsabeck also participated in other employee benefit plans
available to other executive officers during 1995, which the Committee
believes are competitive, including the Pension Plan, Executive Benefit
Plan, the 401(k) Savings and Stock Ownership Plan and life and health
insurance programs.
Internal Revenue Code Section 162(m). Section 162(m) of the Internal
Revenue Code (the "Code") eliminates, subject to certain exceptions, the
deductibility of executive compensation to the extent that any executive's
compensation for any year exceeds $1 million. Exceptions to amounts
22
<PAGE>
Item 11. cont'd.
included in executive compensation for purposes of Section 162(m) involve
various types of performance-based compensation. As noted above, it is the
Executive Compensation Committee's policy to base a substantial amount of
executive compensation on the Corporation's performance. Currently the
cash compensation levels for the Corporation's executive officers fall
significantly below $1 million. In the event that in the future the annual
remuneration of any executive of the Corporation approaches $1 million, the
Committee will consider the various alternatives to preserving the
deductibility of compensation payments to the extent reasonably practicable
and consistent with its compensation objectives.
Members of the Executive Compensation Committee for 1995 were:
Duane W. Acklie, Chairman Charles N. Wheatley
Paul C. Schorr, III Lyn Wallin Ziegenbein
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Executive Compensation Committee are
identified above. Mrs. Ziegenbein, a member of the Executive Compensation
Committee, is the spouse of John H. Ziegenbein, of counsel in the law firm
of Woods & Aitken. Woods & Aitken acted as outside counsel for the
Corporation for 1995 for which it received fees of $195,935.
PERFORMANCE GRAPH
The following graph sets forth a comparison of the cumulative total
stockholder return by quarter, commencing December 1990 and ending
December 1995, on an investment of $100 in (a) shares of the Corporation's
Common Stock; (b) shares of Standard & Poor's telephone company composite;
(c) shares of Standard & Poor's 500 company composite; and (d) shares of
the Corporation's telephone company peer group identified below. The
cumulative total market appreciation includes the cumulative amount of
dividends for the five-year period, assuming dividend reinvestment.
Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95
Lincoln Telecommunications $100 $ 94 $107 $158 $150 $192
S&P 500 $100 $130 $140 $155 $157 $215
S&P Telephone Index $100 $108 $118 $136 $130 $197
Custom Compositie Index $100 $106 $128 $149 $153 $190
(5 Stocks)
The 5-Stock Custom Composite Index includes: Alltel Corp., Cincinnati
Bell, Inc., Century Telephone Enterprises, Frontier Corp., and Southern New
England Telecommunications Corp.
23
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners.
As of December 31, 1995, the owner of more than 5% of the Company's
Common Stock was as follows:
Name and Address Amount & Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
Lincoln Telecommunications 1,000 shares 100%
Company
1440 M Street
Lincoln, Nebraska 68508
(b)Security Ownership of Management.
Other than Thomas C. Woods, III who, as a co-personal representative
of the Estate of Thomas C. Woods, Jr., is the beneficial owner of 12 shares
of the Company's 5% Preferred Stock, no shares of the Company's 5%
Preferred Stock are owned by Management. Set forth below is a table
indicating as of February 29, 1996 the shares of Common Stock of the
Company's parent, LTEC, beneficially owned by each director and nominee;
each of the named executive officers; and directors, nominees and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Name of Beneficial Principal Amount and Nature of Percent of
Owner Position Beneficial Ownership Class
(Note 1)
<S> <C> <C> <C>
Thomas C. Woods, III. Chairman of the Board 54,531 Direct 9.02%
and Director 3,248,624 Indirect* Note 3
Frank H. Hilsabeck President & Chief 30,604 Direct Note 2
Executive Officer 5,594 Indirect*
and Director
James W. Strand President-Diversified 15,838 Direct Note 2
Operations and Director 5,479 Indirect*
Robert L. Tyler Senior Vice President- 21,381 Direct Note 2
Chief Financial Officer 3,887 Indirect*
Jack H. Geist Vice President- 20,585 Direct Note 2
Diversified Operations 15,843 Indirect*
Kevin J. Wiley Vice President- 14 Direct Note 2
Diversified Operations 116 Indirect*
Bryan C. Rickertsen Vice President- 16,224 Direct Note 2
Technology 1,472 Indirect*
Michael J. Tavlin Vice President- 16,378 Direct Note 2
Treasurer and Secretary 2,203 Indirect*
24
<PAGE>
Item 12. cont'd
Name of Beneficial Principal Amount and Nature of Percent of
Owner Position Beneficial Ownership Class
(Note 1)
Duane W. Acklie Director 93,913 Direct Note 2
61,200 Indirect*
William W. Cook, Jr. Director 7,051 Direct Note 2
921 Indirect*
Terry L. Fairfield Director None Direct Note 2
34,312 Indirect*
James E. Geist Director 23,932 Direct Note 2
31,695 Indirect*
John Haessler Director 6,000 Direct Notes 2
252,432 Indirect* & 4
Charles R. Hermes Director 2,000 Direct Note 2
34,418 Indirect*
Donald H. Pegler, Jr. Director 800 Direct Note 2
40,000 Indirect*
Paul C. Schorr, III. Director 1,804 Direct Note 2
27,879 Indirect*
William C. Smith Director 2,400 Direct Note 2
None Indirect
Charles N. Wheatley Director None Direct 8.8%
3,222,920 Indirect* Note 3
Lyn Wallin Ziegenbein Director 4,000 Direct Note 2
10 Indirect*
All Directors and
Executive Officers
as a Group (19 persons) TOTAL 4,129,684** 11.28%
* Includes shares held by individual's spouse, held by the individual
in custodianship for minor children, or held by a corporation with which
the individual is affiliated, and to the extent listed as owned by the
director or named executive officer should not be construed as an admission
of beneficial ownership.
** Total shares and percent of class ownership do not reflect the
cumulative effect of beneficial ownership by Messrs. Woods and Wheatley of
shares held of record by Sahara Enterprises, Inc. (See Note 3 below.)
25
<PAGE>
Item 12. cont'd.
Note 1. Approximate number of shares of Common Stock owned, directly
or indirectly, as of February 29, 1996. This information has been
furnished by each Director or Officer. Also includes all Short-Term
Incentive awards of Restricted Stock of the Corporation under the 1989
Stock and Incentive Plan (the "Plan") and any Long-Term Incentive awards of
Stock Options under the Plan which are exercisable within 60 days of the
date hereof, in the following amounts: Frank H. Hilsabeck, 17,500;
James W. Strand, 11,900; Robert L. Tyler, 12,300; Michael J. Tavlin, 8,100;
Jack H. Geist, 0; Bryan C. Rickertsen, 6,400; and Kevin J. Wiley, 0.
Note 2. Owns less than one percent of the Corporation's outstanding
Common Stock.
Note 3. The shares of the Corporation's Common Stock shown as
indirectly owned by Messrs. Woods and Wheatley are held as follows:
3,176,776 shares included in each individual's indirect ownership total
were held of record by Sahara Enterprises, Inc., as of February 29, 1996.
Messrs. Woods and Wheatley each serve as Directors and Mr. Wheatley serves
as President and Chief Executive Officer of Sahara Enterprises, Inc. The
balance of Mr. Woods' indirect ownership total is held by his spouse, held
in trust, or held as a Co-Personal Representative of the Estate of Thomas
C. Woods, Jr. The balance of Mr. Wheatley's indirect ownership total
consists of shares held as trustee of various Woods family trusts.
Note 4. The shares of the Corporation's Common Stock shown as
indirectly owned by Mr. Haessler include 252,432 shares held by Woodmen
Accident and Life Company, a mutual insurance company, of which Mr.
Haessler is President and Chief Executive Officer.
</TABLE>
(c) Changes in control.
None.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others.
See pages 22 through 24 herein.
(b) Certain Business Relationships.
See pages 22 through 24.
(c) Indebtedness of Management.
Not applicable.
(d) Transactions with Promoters.
Not applicable.
26
<PAGE>
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 this Annual
Report Form 10-K
1. Financial Statements:
Independent Auditors' Report F-2
Balance Sheets, December 31, 1995 and 1994 F-3
Statements of Earnings, Years ended December 31, 1995, 1994,
and 1993 F-4
Statements of Stockholder's Equity,
Years ended December 31, 1995, 1994, and 1993 F-5
Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993 F-6 - F-7
Notes to Financial Statements, December 31, 1995, 1994,
and 1993 F-8 - F-22
2. Financial Statement schedules required by Item 8 of this form.
Independent Auditors' Report S-3
Schedule II - Valuation and Qualifying Accounts -
Years ended December 31, 1995 1994 and 1993 S-4
All other schedules are omitted because they are not applicable or the
information required is immaterial or is presented within the
financial statements and notes thereto.
3. The following exhibits are filed herewith or are incorporated by
reference herein.
Exhibit 3: Articles of Incorporation and By-Laws
Certificate of Incorporation as amended effective through
April 24, 1985, was filed as an exhibit to the Company's
Form 10-K for the year ending December 31, 1992, and By-
Laws as amended through December 14, 1994, were filed as
an exhibit to the Company's Form 10K/A for the year ended
December 31, 1994.
Exhibit 4: Instruments Defining the Rights of Security Holders,
including Indentures
The Indenture (incorporated by reference to Exhibit 4.4 to
LTEC's Form 10-K for year ended December 31, 1990) and
Supplemental Indenture Eleven dated June 1, 1990
(incorporated by reference to LTEC's Form 10-K for the
year ended December 31, 1990).
27
<PAGE>
Item 14. (a) cont'd.
Exhibit 10: Material Contracts
The 1989 Stock and Incentive Plan approved by LTEC's
stockholders on April 26, 1989, was filed as an exhibit
to Form S-8, File 33-39551, effective March 22, 1991, and
is incorporated herein by this reference. A specimen of
the Executive Benefit Plan agreement, as amended through
January 1, 1993, provided to the executive officers and
director-level managers of the Company, and a specimen of
the Key Executive Employment and Severance Agreement
provided to the executive officers of the Corporation and
its affiliates on December 23, 1987, was filed as an
exhibit to LTEC's Form 10-K for the year ending December
31, 1992, and is incorporated herein by reference.
Exhibit 24: Powers of Attorney
Attached hereto.
Exhibit 27: Financial Data Schedule
Attached hereto.
Exhibits 9, 11, 12, 16, 18, 19, 22, 23 and 28 are not applicable.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(c) All exhibits required by Item 601 of Regulation S-K are incorporated
by reference or attached as indicated in paragraph (a) 3 above.
(d) Not applicable.
28
<PAGE>
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 TELEPHONE AND TELEGRAPH COMPANY
/s/ Michael J. Tavlin March 29, 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
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_____________________
Lyn Wallin Ziegenbein Director Attorney-in-Fact
/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
29
<PAGE>
KPMG
THE LINCOLN TELEPHONE AND
TELEGRAPH COMPANY
Financial Statements
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
KPMG Peat Marwick LLP
233 South 14th Street, Suite 1600
Lincoln, NE 68508-2041
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Lincoln Telephone and Telegraph Company:
We have audited the accompanying balance sheets of The Lincoln Telephone
and Telegraph Company (Lincoln Telephone) as of December 31, 1995 and 1994,
and the related statements of earnings, stockholder's equity and cash flows
for each of the years in the three-year period ended December 31, 1995.
These financial statements are the responsibility of Lincoln Telephone'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 Telephone at
December 31, 1995 and 1994 and the results of its operations and its 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 financial statements, Lincoln Telephone
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 10, Lincoln Telephone adopted FAS No. 109,
Accounting for Income Taxes, and FAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, in 1993.
/s/ KPMG Peat Marwick LLP
February 2, 1996
F-2
<PAGE>
<TABLE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Balance Sheets
December 31, 1995 and 1994
<CAPTION>
Assets 1995 1994
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,496 17,270
Temporary investments, at cost 11,525 20,118
Receivables, net of allowance for doubtful
receivables of $155,000 in 1995 and $192,000
in 1994 29,878 22,872
Materials, supplies and other assets 5,123 4,987
Due from affiliated company 709 22
Income tax recoverable 485 -
------- -------
Total current assets 61,216 65,269
------- -------
Property and equipment 477,291 456,295
Less accumulated depreciation and amortization 254,412 215,758
------- -------
Net property and equipment 222,879 240,537
Investments and other assets 339 3,517
Deferred charges 9,180 18,429
------- -------
$ 293,614 327,752
======= =======
Liabilities and Stockholder's Equity
Current liabilities:
Note payable to bank $ 8,000 17,000
Accounts payable and accrued expenses 44,230 25,828
Income taxes payable - 1,331
Dividends payable 6,556 5,556
Advance billings and customer deposits 6,456 6,197
------- -------
Total current liabilities 65,242 55,912
------- -------
Deferred credits:
Unamortized investment tax credits 2,696 3,832
Deferred income taxes 4,769 19,568
Other 52,264 60,881
------- -------
Total deferred credits 59,729 84,281
Long-term debt 44,000 44,000
Preferred stock, 5% redeemable 4,499 4,499
Stockholder's equity 120,144 139,060
------- -------
$ 293,614 327,752
======= =======
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Statements of Earnings
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands)
<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 13,376 13,580 14,487
Other wireline communication services 23,291 24,060 22,751
------- ------- -------
Total telephone revenues 161,811 156,299 149,352
Wireless communications services 14,060 10,740 7,006
Telephone equipment sales and services 7,432 7,517 7,181
------- ------- -------
Total operating revenues 183,303 174,556 163,539
------- ------- -------
Operating expenses:
Depreciation 32,859 31,513 28,208
Additional non-recurring depreciation on
cellular equipment - 3,761 -
Other operating expenses 85,755 82,681 79,780
Restructuring charges 21,215 - -
Taxes, other than payroll and income 3,125 3,125 2,937
------- ------- -------
Total operating expenses 142,954 121,080 110,925
------- ------- -------
Operating income 40,349 53,476 52,614
------- ------- -------
Non-operating income and expense:
Income from interest and other investments 3,395 1,833 1,411
Interest expense and other deductions 7,766 6,204 8,084
------- ------- -------
Net non-operating expense 4,371 4,371 6,673
------- ------- -------
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle 35,978 49,105 45,941
Income taxes 13,653 18,936 17,239
------- ------- -------
Income before extraordinary item and
cumulative effect of change in
accounting principle 22,325 30,169 28,702
Extraordinary item (16,516) - -
Cumulative effect of change in accounting principle - - (22,999)
------- ------- -------
Net income 5,809 30,169 5,703
Preferred dividends 225 225 225
------- ------- -------
Earnings available for common shares $ 5,584 29,944 5,478
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Stockholder's equity:
Common stock of $3.125 par value per share.
Authorized 10,000 shares; issued
1,000 shares $ 3 3 3
------- ------- -------
Premium on common stock 32,492 32,492 32,492
------- ------- -------
Retained earnings:
Beginning of year 106,565 98,621 112,143
Net income 5,809 30,169 5,703
Dividends declared:
5% cumulative preferred - $5.00 per share (225) (225) (225)
Common - $24,500 per share in 1995,
$22,000 per share in 1994 and $19,000 per
share in 1993 (24,500) (22,000) (19,000)
------- ------- -------
End of year 87,649 106,565 98,621
------- ------- -------
Total stockholder's equity $ 120,144 139,060 131,116
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
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 $ 5,809 30,169 5,703
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 32,891 35,305 28,306
Extraordinary item 16,516 - -
Cumulative effect of change in accounting
principle - - 22,999
Restructuring changes 21,215 - -
Deferred income taxes (6,949) (1,986) (14,312)
Changes in assets and liabilities
resulting from operating activities:
Receivables (7,006) (2,178) (1,035)
Other assets (3,438) 1,033 (11,018)
Accounts payable and accrued expenses 2,231 6,222 (1,706)
Other liabilities (2,226) (404) 28,745
------ ------ ------
Total adjustments 53,234 37,992 51,979
------ ------ ------
Net cash provided by operating
activities 59,043 68,161 57,682
------ ------ ------
Cash flows used for investing activities:
Expenditures for property and equipment (39,384) (31,393) (24,491)
Net salvage on retirements 2,114 972 (57)
------ ------ ------
Net capital additions (37,270) (30,421) (24,548)
Purchases and sales of investments and
other assets, net (1,415) (1,545) (687)
Purchases of temporary investments (4,417) (16,510) (33,242)
Maturities and sales of temporary investments 13,010 20,664 27,735
------ ------ ------
Net cash used for investing
activities (30,092) (27,812) (30,742)
------ ------ ------
Cash flows used for financing activities:
Dividends to stockholders (23,725) (21,725) (18,225)
Proceeds from issuance of note payable to bank - 1,000 35,000
Payments on note payable to bank (9,000) (14,000) (5,000)
Payments on long-term debt - - (34,875)
------ ------ ------
Net cash used in financing
activities (32,725) (34,725) (23,100)
------ ------ ------
(CONTINUED)
F-6
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Statements of Cash Flows (Cont'd)
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
(Dollars in thousands)
Net (decrease) increase in cash and cash
equivalents (3,774) 5,624 3,840
Cash and cash equivalents, beginning of year 17,270 11,646 7,806
------ ------ ------
Cash and cash equivalents, end of year $ 13,496 17,270 11,646
====== ====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,168 5,459 7,043
====== ====== ======
Income taxes $ 23,431 22,704 18,225
====== ====== ======
See accompanying notes to financial statements.
</TABLE>
F-7
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Lincoln Telephone and Telegraph Company (Lincoln Telephone) is a
corporation of which all of the outstanding common stock is owned by
Lincoln Telecommunications Company (LTEC). Lincoln Telephone
provides local and long-distance telephone service in 22
southeastern counties of Nebraska and cellular telecommunication
service in the Lincoln, Nebraska Metropolitan Service Area. Lincoln
Telephone maintains its records in accordance with generally
accepted accounting principles and 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. 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. Lincoln Telephone
capitalizes estimated costs of debt and equity funds used for
construction purposes. No significant costs were capitalized during
the three 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
Lincoln Telephone files a consolidated income tax return with LTEC
and LTEC's other subsidiaries. Lincoln Telephone's share of the
consolidated tax liability is determined by computing the Lincoln
Telephone's liability as if a separate return had been filed.
Lincoln Telephone adopted FAS 109, Accounting for Income Taxes
effective January 1, 1993. The adoption of FAS 109 did not have a
significant impact on the statement of earnings in 1993 as the
provisions of FAS 71 were applied at that time. 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
F-8
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes, Continued
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
Lincoln Telephone has a non-contributory qualified defined benefit
pension plan which covers substantially all employees. Lincoln
Telephone also has a qualified defined contribution profit-sharing
plan which covers 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 statements of cash flows, Lincoln Telephone
considers all temporary investments with an original maturity of
three months or less when purchased to be cash equivalents. Cash
equivalents of $13,037,000 and $16,012,000 at December 31, 1995 and
1994, respectively, consist of short-term fixed income securities.
Reclassifications
Certain amounts previously reported for prior periods have been
reclassified to conform to the current period presentation in the
accompanying statements of earnings. The reclassifications had no
effect on the results of operations or stockholder's 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
F-9
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(2) EXTRAORDINARY ITEM - DISCONTINUANCE OF REGULATORY ACCOUNTING
PRINCIPLES, CONTINUED
those costs. Having achieved price regulation and recognizing
potential increased competition, Lincoln Telephone concluded, in the
fourth quarter of 1995, that the principles prescribed by FAS 71 were
no longer appropriate.
As a result of Lincoln Telephone's conclusion, a non-cash,
extraordinary charge was incurred 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.
(3) PROPERTY AND EQUIPMENT
The table on the following page summarizes the property and
equipment at December 31, 1995 and 1994.
F-10
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(3) PROPERTY AND EQUIPMENT, CONTINUED
1995 1994
Accumulated Accumulated
depreciation depreciation
and and
Classification Cost amortization Cost amortization
(Dollars in thousands)
Land $ 2,783 - 2,772 -
Buildings 27,180 11,547 26,159 10,899
Equipment 429,968 238,330 410,665 200,706
Motor vehicles and other
work equipment 11,413 4,535 10,679 4,153
------- ------- ------- -------
Total in service 471,344 254,412 450,275 215,758
Under construction 5,947 - 6,020 -
------- ------- ------- -------
$ 477,291 254,412 456,295 215,758
======= ======= ======= =======
The composite depreciation rate for property and equipment was 7.2% in
1995 and 7.1% in 1994 and 6.5% in 1993. The rate does not include the
extraordinary charge 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 $42.6
million. Lincoln Telephone anticipates funding construction primarily
through operations.
Due to changes in technology, customer growth, and usage demand for
cellular services in their respective markets, Lincoln Telephone
installed new cellular telephone systems replacing existing systems
serving these markets. The systems 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, Lincoln Telephone wrote down the value of these assets
by approximately $3,398,000. During the fourth quarter of 1994,
Lincoln Telephone 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.
Substantially all property and equipment, with the exception of motor
vehicles, is mortgaged or pledged to secure the first mortgage bonds.
Under certain circumstances, as defined in the bond indenture, all
assets become subject to the lien of the indenture.
F-11
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(4) TEMPORARY INVESTMENTS
All of Lincoln Telephone's investments in debt and equity securities
are classified as available for sale. Lincoln Telephone 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 $ 1,222 36 (43) 1,215
U. S. Government obligations 502 - (3) 499
U. S. Government agency
obligations 7,253 120 (52) 7,321
Corporate debt securities 2,548 30 (72) 2,506
------ --- --- ------
$ 11,525 186 170 11,541
====== === === ======
1994
Equity securities $ 1,505 - (89) 1,416
U. S. Government obligations 505 - (66) 439
U. S. Government agency
obligations 8,346 42 (131) 8,257
Corporate debt securities 9,762 4 (454) 9,312
------ --- --- ------
$ 20,118 46 (740) 19,424
====== === === ======
The net unrealized gain (loss) on investments available for sale is
not reported separately as a component of stockholder's equity due to
its insignificance to the balance sheet 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 $ 6,857 6,953 16,094 15,810
Due after five years
through ten years 3,446 3,373 2,519 2,198
------ ------ ------ ------
$ 10,303 10,326 18,613 18,008
====== ====== ====== ======
F-12
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(4) TEMPORARY INVESTMENTS, CONTINUED
The gross realized gains and losses on the sale of securities were
insignificant to the financial statements for the years ended December
31, 1995 and 1994.
(5) 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.
(6) DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Lincoln Telephone's parent, LTEC, has an employee and stockholder
dividend reinvestment and stock purchase plan (Plan) which is
available to Lincoln Telephone's employees.
Stock for the 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.
Expenses incurred related to the Plan were approximately $28,700,
$30,700 and $24,000 in 1995, 1994 and 1993, respectively.
(7) LONG-TERM DEBT AND NOTE PAYABLE
Long-term debt at December 31, 1995 and 1994 consists of 9.91% First
Mortgage Bonds of $44 million. The First Mortgage Bonds are due June
1, 2000 with interest payable semi-annually.
Lincoln Telephone has a variable-rate note payable to a bank with an
interest rate of 6.26% at December 31, 1995 that is due in February
1996. The weighted-average interest rate on the note payable was 6.3%
and 4.6% for the years ended December 31, 1995 and 1994, respectively.
The long-term debt agreement and the note payable to bank contain
various restrictions including those relating to payment of dividends
by Lincoln Telephone to its stockholder (LTEC). In management's
opinion, Lincoln Telephone has complied with all such requirements.
At December 31, 1995, approximately $15.9 million of retained earnings
were available for the payment of cash dividends to LTEC under the
most restrictive provisions of such agreements.
F-13
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(8) INCOME TAXES
The components of income taxes from operations before extraordinary
item and cumulative effect of change in accounting principle follow:
1995 1994 1993
(Dollars in thousands)
Current:
Federal $ 19,130 17,953 14,546
State 2,484 4,006 3,217
------ ------ ------
21,614 21,959 17,763
------ ------ ------
Investment tax credits (1,136) (1,060) (1,360)
------ ------ ------
Deferred:
Federal (5,883) (1,908) 392
State (942) (55) 444
------ ------ ------
(6,825) (1,963) 836
------ ------ ------
Total income tax expense $ 13,653 18,936 17,239
====== ====== ======
The following is 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.
<TABLE>
<CAPTION>
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" tax
expense $ 12,592 35.0% $ 17,187 35.0% $ 16,079 35.0%
State income tax expense,
net of Federal income tax
benefit 2,042 5.7 2,568 5.2 2,380 5.2
Nontaxable interest income (103) (.3) (104) (.2) (58) (.1)
Amortization of regulatory
deferred charge 1,914 5.3 1,914 3.9 1,914 4.2
Amortization of regulatory
deferred liabilities (1,790) (5.0) (1,891) (3.9) (2,006) (4.4)
Amortization of investment tax
credits (1,136) (3.2) (1,060) (2.1) (1,360) (3.0)
Other 134 .5 322 .6 290 .6
------ ---- ------ ---- ------ ----
Actual income tax expense $ 13,653 38.0 18,936 38.5% $ 17,239 37.5%
====== ==== ====== ==== ====== ====
</TABLE>
F-14
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(8) INCOME TAXES, CONTINUED
The significant components of deferred income tax attributable to
income from operations for the year ended December 31, 1995, 1994 and
1993 were as follows:
1995 1994 1993
(Dollars in thousands)
Deferred tax expense (benefit)
(exclusive of the effects of
amortization below) $ (6,949) (1,986) 928
Amortization of regulatory
deferred charges 1,914 1,914 1,914
Amortization of regulatory
deferred liabilities (1,790) (1,891) (2,006)
----- ----- -----
$ (6,825) (1,963) 836
===== ===== =====
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 on the 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 2,686 2,214
------ ------
Total gross deferred tax assets 27,876 23,810
Less valuation allowance - -
------ ------
Net deferred tax assets 27,876 23,810
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to
depreciation differences 30,820 38,577
Regulatory deferred charges - 3,527
Other 1,825 1,274
------ ------
Total gross deferred tax liabilities 32,645 43,378
------ ------
Net deferred tax liabilities $ 4,769 19,568
====== ======
As a result of the nature and amount of the temporary differences
which give rise to the gross deferred tax liabilities and Lincoln
Telephone's expected taxable income in future years, no valuation
allowance for deferred tax assets as of December 31, 1995 and 1994 was
necessary.
F-15
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(9) BENEFIT PLANS
Lincoln Telephone has a non-contributory defined benefit pension plan
covering substantially all employees with at least one year of
service. Other companies affiliated with Lincoln Telephone through
common ownership also participate in the plan. Annual contributions
to the plan are designed to fund current and past service costs as
determined by independent actuarial evaluations.
The net periodic pension credit for all affiliated companies amounted
to $1,389,000, $1,570,000 and $690,000 in 1995, 1994 and 1993,
respectively. The net periodic pension credit is comprised as shown
below. The components of pension costs for individual affiliates are
not available.
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)
====== ====== ======
Continued)
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 benefit pension
obligation:
Vested $ 131,751 100,817
Nonvested 16,569 15,097
------- -------
Accumulated benefit pension obligation $ 148,320 115,914
======= =======
Projected benefit pension obligation $ 164,932 133,108
Less, plan assets at market value 207,940 177,196
------- -------
Excess of plan assets over projected
benefit pension 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
======= ======
F-16
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(9) BENEFIT PLANS, CONTINUED
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
In addition to the defined benefit pension plan, LTEC has a defined
contribution profit-sharing plan which covers any non-union-eligible
employees of Lincoln Telephone who have completed one year of service.
Participants may elect to deposit a maximum of 15% of their wages up
to certain limits. Lincoln Telephone matches 25% of the participant's
contributions up to 5% of their wages. The profit-sharing plan also
has a provision for an employee stock ownership fund, to which Lincoln
Telephone has contributed an additional 1.75% of each eligible
participant's wage. Lincoln Telephone's matching contributions and
employee stock ownership fund contributions are used to acquire common
stock of LTEC. Lincoln Telephone's combined contributions totaled
$556,300, $550,100, and $521,700 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 Lincoln
Telephone's long distance operator service needs. Lincoln Telephone
offered retirement and separation incentives along with out-placement
services to those employees affected by the work force adjustment. As
a result, Lincoln Telephone recognized a restructuring charge of $1.5
million. The charge reduced Lincoln Telephone's pension asset by $1.1
million for pension enhancements. The charge included severance
payments of approximately $400,000.
In addition, in November 1995, Lincoln Telephone 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. Lincoln Telephone
implemented an enhancement to Lincoln Telephone's pension plan by
adding five years to both the age and net credited service for
eligible employees. The program also provides for the employees to
receive a lump-sum payment and a supplemental monthly income payment
in addition to their normal pension. As a result of 319 employees
accepting this voluntary early retirement offer, Lincoln Telephone
recorded a reduction to its pension asset and recognized a
restructuring charge of $19.7 million at December 31, 1995. The
charge included pension enhancements of $22.7 million and curtailment
gains of $3.0 million.
F-17
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(10) POSTRETIREMENT BENEFITS
Lincoln Telephone 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 Lincoln Telephone's employees may become eligible
for those benefits if they have 15 years of service with normal or
early retirement.
Lincoln Telephone 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. Lincoln Telephone elected to record
the accumulated benefit obligation upon adoption. After taxes, this
one-time charge amounted to $22,999,000, net of income tax benefit of
$15,148,000. 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 Lincoln
Telephone's assessment of its long-term competitive environment.
The following table presents the plan's status reconciled with amounts
recognized in Lincoln Telephone's 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 11,551 11,508
Other active plan participants 9,663 7,276
------ ------
50,734 49,656
Plan assets at fair value - -
Unrecognized prior service cost (1,633) (164)
Unrecognized net loss (5,666) (7,969)
------ ------
Accrued postretirement benefit cost $ 43,435 41,523
====== ======
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 $ 358 400 284
Interest cost 3,862 3,625 3,574
Net deferral and amortization 206 158 -
----- ----- -----
Net periodic postretirement
benefit costs $ 4,426 4,183 3,858
===== ===== =====
F-18
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(10) POSTRETIREMENT BENEFITS, CONTINUED
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 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 rate of increase was assumed to decrease
gradually to 5.5% by the year 2004. The health care cost trend rate
assumptions have a significant effect on the amounts reported. 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.
(11) STOCK AND INCENTIVE PLAN
LTEC has adopted 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 of Lincoln Telephone and its
affiliates conditioned upon LTEC and its subsidiaries 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 LTEC common stock or a combination of cash and shares.
F-19
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(11) STOCK AND INCENTIVE PLAN, CONTINUED
Stock option activity under the plan is summarized below:
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
======= ======= =======
LTEC paid a 100% stock dividend to stockholders of record on December
27, 1993. Share and per share information pertaining to LTEC has been
retroactively adjusted to give effect to the stock dividend.
The plan also provides for the granting of stock appreciation rights
(SARs) to holders of options, in lieu of stock options, upon lapse of
stock options or independent of stock options. Such rights offer
optionees the alternative of electing not to exercise the related
stock option, but to receive instead an amount in cash, stock or a
combination of cash and stock equivalent to the difference between the
option price and the fair market value of shares of LTEC 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 LTEC 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 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 $307,000 $297,000 and $374,000,
respectively. Pursuant to the plan, 2,000,000 shares of LTEC common
stock are reserved for issuance under this plan.
(12) RELATED PARTY TRANSACTIONS
Lincoln Telephone had sales to LinTel Systems, Inc., a subsidiary of
LTEC, for access and billing services of approximately $4,342,000 in
1995, $5,165,000 in 1994 and $5,463,000 in 1993.
F-20
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED), CONTINUED
First Second Third Fourth
1995 quarter quarter quarter quarter Total
(Dollars in thousands)
Operating revenues $ 44,847 45,382 46,701 46,373 183,303
====== ====== ====== ====== =======
Income (loss) before
extraordinary item $ 7,583 8,394 8,379 (2,301) 22,325
Extraordinary item - - - (16,516) (16,516)
------ ------ ------ ------ ------
Net income (loss) $ 7,853 8,394 8,379 (18,817) 5,809
====== ====== ====== ====== ======
1994
Operating revenues $ 42,670 43,210 44,244 44,432 174,556
====== ====== ====== ====== =======
Net income (loss) $ 5,273 7,883 8,423 8,590 30,169
====== ====== ====== ====== =======
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
operation as previously reported.
During the fourth quarter 1995, Lincoln Telephone recognized a
restructuring charge of $19.7 million. The charge had the effect of
reducing net income by $11.9 million for the quarter ended December
31, 1995.
(14) MAJOR CUSTOMERS
Lincoln Telephone derives significant revenues from AT&T principally
from network access and billing and collecting service. For the years
ended 1995, 1994 and 1993, Lincoln Telephone recognized revenue of
$27,808,000, $29,680,000 and $29,937,000, respectively. This
represented approximately 15.2%, 17.0% and 18.3% of revenues for the
years ended 1995, 1994 and 1993, respectively. No other customer
accounted for more than 10% of revenues.
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Investments and Other
Assets, Receivables and Accounts Payable
The carrying amount approximates fair value because of the short
maturity of these instruments.
Temporary Investments
The fair values of Lincoln Telephone's marketable investment
securities are based on quoted market prices. See note 4 for the
estimated fair value of temporary investments.
F-21
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Notes to Financial Statements
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Long-Term Debt
The fair value of Lincoln Telephone's long-term debt instrument is
based on the amount of future cash flows associated with the
instrument discounted using Lincoln Telephone's current borrowing
rate on similar debt instruments of comparable maturity. The long-
term debt has a carrying value of $44 million at December 31, 1995
and 1994 and an estimated fair value of $51.2 million and $46.7
million at December 31, 1995 and 1994, respectively.
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.
F-22
<PAGE>
KPMG
THE LINCOLN TELEPHONE
AND TELEGRAPH COMPANY
Independent Auditors' Report and Schedule
Form 10-K Securities and Exchange Commission
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
S-1
<PAGE>
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Index to Schedule Filed
Schedule
Independent Auditors' Report
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 financial
statements and notes thereto.
S-2
<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
The Lincoln Telephone and Telegraph Company:
Under date of February 2, 1996, we reported on the balance sheets of The
Lincoln Telephone and Telegraph Company as of December 31, 1995 and 1994,
and the related statements of earnings, stockholder's equity and cash flows
for each of the years in the three-year period ended December 31, 1995.
These 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 financial
statements, we also audited the related financial statement schedule as
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic 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 II
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
Additions Deductions
Balance at charged to from Balance
beginning costs and allowance at end
Description of year expenses (note) of year
(Dollars in thousands)
Year ended December 31, 1995,
Allowance deducted from asset
accounts, allowance for
doubtful receivables $ 192 684 721 155
=== === === ===
Year ended December 31, 1994,
Allowance deducted from asset
accounts, allowance for
doubtful receivables $ 94 480 382 192
=== === === ===
Year ended December 31, 1993,
Allowance deducted from asset
accounts, allowance for
doubtful receivables $ 105 440 451 94
=== === === ===
Note: Customers' accounts written-off, net of recoveries.
S-4
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000059584
<NAME> LINCOLN TELEPHONE AND TELEGRAPH COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 13496
<SECURITIES> 11525
<RECEIVABLES> 30033
<ALLOWANCES> 155
<INVENTORY> 5123
<CURRENT-ASSETS> 61216
<PP&E> 477291
<DEPRECIATION> 254412
<TOTAL-ASSETS> 293614
<CURRENT-LIABILITIES> 65242
<BONDS> 44000
0
4499
<COMMON> 3
<OTHER-SE> 120141
<TOTAL-LIABILITY-AND-EQUITY> 293614
<SALES> 2879
<TOTAL-REVENUES> 183303
<CGS> 3180
<TOTAL-COSTS> 142954
<OTHER-EXPENSES> 4371
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 7766
<INCOME-PRETAX> 35978
<INCOME-TAX> 13653
<INCOME-CONTINUING> 22325
<DISCONTINUED> 0
<EXTRAORDINARY> 16516
<CHANGES> 0
<NET-INCOME> 5809
<EPS-PRIMARY> 5809.00
<EPS-DILUTED> 5809.00
</TABLE>
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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/ S. M. Hurley
____________________
Witness
<PAGE>
Exhibit 24
POWER OF ATTORNEY
WHEREAS, Lincoln Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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 Telephone and Telegraph Company, a
Delaware corporation (hereinafter referred to as the
"Company"),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
