-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HPBNyF5WfgNVlxAAaWFLtRg9m6W6/R7KWO2aQobH+uVIF0xvNQZ6TGODd0mE5h3U QaHW6znbEI7/k3Fe1icZ2Q== 0000059584-96-000002.txt : 19960327 0000059584-96-000002.hdr.sgml : 19960327 ACCESSION NUMBER: 0000059584-96-000002 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19960326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN TELEPHONE & TELEGRAPH CO CENTRAL INDEX KEY: 0000059584 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 002-64511 FILM NUMBER: 96538692 BUSINESS ADDRESS: STREET 1: 1440 M STREET CITY: LINCOLN STATE: NE ZIP: 68508 BUSINESS PHONE: 4024742211 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------- FORM 10-K/A X AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1994 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 ----------------------------------------- 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 The undersigned Registrant hereby amends its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 to include, in their entireties, the following Report of Independent Public Accountants and accompanying financial statements and the text of Exhibit 3. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Financial Statements December 31, 1994, 1993 and 1992 (With Independent Auditors' Report Thereon) 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 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, 1994 and 1993, 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, 1994. 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, 1994 and 1993 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in notes 7 and 9 to the financial statements, Lincoln Telephone adopted Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, and Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, in 1993. February 3, 1995 THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Balance Sheets December 31, 1994 and 1993
Assets 1994 1993 (Dollars in thousands) Current assets: Cash and cash equivalents $ 17,270 11,646 Temporary investments, at cost (note 3) 20,118 24,272 Receivables, less allowance for doubtful receivables of $192,000 in 1994 and $94,000 in 1993 22,872 20,694 Materials, supplies and other assets 4,987 4,723 Due from affiliated company 22 121 ------- ------- Total current assets 65,269 61,456 ------- ------ Property and equipment (note 2) 456,295 447,689 Less accumulated depreciation and amortization 215,758 202,299 ------- ------- Net property and equipment 240,537 245,390 ------- ------- Investments and other assets 3,517 1,976 ------- ------- Deferred charges (note 7) 18,429 19,654 ------- ------- $ 327,752 328,476 ======= ======= Liabilities and Stockholder's Equity Current liabilities: Note payable to bank (note 6) $ 17,000 30,000 Accounts payable and accrued expenses 25,828 19,606 Income taxes payable 1,331 2,076 Dividends payable 5,556 5,056 Advance billings and customer deposits 6,197 6,058 ------- ------- Total current liabilities 55,912 62,796 ------- ------- Deferred credits: Unamortized investment tax credits 3,832 4,892 Deferred income taxes (note 7) 19,568 21,554 Other (notes 7 and 9) 60,881 59,619 ------- ------- Total deferred credits 84,281 86,065 ------- ------- Long-term debt (notes 2 and 6) 44,000 44,000 ------- ------- Preferred stock, 5% redeemable (note 4) 4,499 4,499 ------- ------- Stockholder's equity 139,060 131,116 ------- ------- $ 327,752 328,476 ======= ======= See accompanying notes to financial statements.
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Statements of Earnings Years ended December 31, 1994, 1993 and 1992
1994 1993 1992 (Dollars in thousands) Operating revenues: Local network services $ 77,617 70,833 66,022 Access services (note 12) 50,570 47,531 44,458 Long distance services 14,679 15,244 16,033 Directory advertising, billing and other services (note 12) 16,972 16,355 16,229 Other operating revenues 14,856 13,951 14,018 ------- ------- ------- Total operating revenues 174,694 163,914 156,760 ------- ------- ------- Operating expenses: Depreciation 31,513 28,208 29,345 Additional non-recurring depreciation on cellular equipment (note 2) 3,761 - - Other operating expenses 82,819 80,155 74,545 Taxes, other than payroll and income (note 13) 3,125 2,937 4,313 ------- ------- ------- Total operating expenses 121,218 111,300 108,203 ------- ------- ------- Operating income 53,476 52,614 48,557 ------- ------- ------- Non-operating income and expense: Income from interest and other investments 1,833 1,411 1,225 Interest expense and other deductions 6,204 8,084 8,674 ------- ------- ------- Net non-operating expense 4,371 6,673 7,449 ------- ------- ------- Income before income taxes and cumulative effect of change in accounting principle 49,105 45,941 41,108 Income taxes (notes 7 and 13) 18,936 17,239 14,389 ------- ------- ------- Income before cumulative effect of change in accounting principle 30,169 28,702 26,719 Cumulative effect of change in accounting principle (note 9) - 22,999 - ------- ------- ------- Net income 30,169 5,703 26,719 Preferred dividends 225 225 338 ------- ------- ------- Earnings available for common shares $ 29,944 5,478 26,381 ======= ======= ======= See accompanying notes to financial statements.
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Statements of Stockholder's Equity Years ended December 31, 1994, 1993 and 1992
1994 1993 1992 (Dollars in thousands) Stockholder's equity (note 10): 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 (note 6): Beginning of year 98,621 112,143 101,837 Net income 30,169 5,703 26,719 Premium on redemption of preferred stock - - (75) Dividends declared: 5% cumulative preferred - $5.00 per share (225) (225) (225) 7.64% cumulative preferred - $7.64 per share - - (113) Common - $22,000 per share in 1994, $19,000 per share in 1993 and $16,000 per share in 1992 (22,000) (19,000) (16,000) ------- ------- ------- End of year 106,565 98,621 112,143 ------- ------- ------- Total stockholder's equity $ 139,060 131,116 144,638 ======= ======= ======= See accompanying notes to financial statements.
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Statements of Cash Flows Years ended December 31, 1994, 1993 and 1992
1994 1993 1992 (Dollars in thousands) Cash flows from operating activities: Net income $ 30,169 5,703 26,719 ------ ------ ------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,305 28,306 29,413 Cumulative effect of change in accounting - 22,999 - principle Deferred income taxes (1,986) (14,312) 2,277 Changes in assets and liabilities: Receivables (2,178) (1,035) (1,893) Materials, supplies and other assets 1,033 (11,018) (1,952) Accounts payable and accrued expenses 6,222 (1,706) 6,378 Other liabilities (404) 28,745 (528) ------ ------ ------ Total adjustments 37,992 51,979 33,695 ------ ------ ------ Net cash provided by operating activities 68,161 57,682 60,414 ------ ------ ------ Cash flows used for investing activities: Expenditures for property and equipment (31,393) (24,491) (27,034) Net salvage on retirements 972 (57) 1,564 ------ ------ ------ Net capital additions (30,421) (24,548) (25,470) Purchases and sales of investments and other assets, net (1,545) (687) (945) Purchases of temporary investments (16,510) (33,242) (47,065) Maturities and sales of temporary investments 20,664 27,735 43,850 ------ ------ ------ Net cash used for investing activities (27,812) (30,742) (29,630) ------ ------ ------ Cash flows used for financing activities: Dividends to stockholders (21,725) (18,225) (16,395) Proceeds from issuance of note payable to bank 1,000 35,000 - Payments on note payable to bank (14,000) (5,000) - Principal payments on long-term debt and redemption of preferred stock - (34,875) (9,810) ------ ------ ------ Net cash used in financing activities (34,725) (23,100) (26,205) ------ ------ ------ Net increase in cash and cash equivalents 5,624 3,840 4,579 Cash and cash equivalents, beginning of year 11,646 7,806 3,227 ------ ------ ------ Cash and cash equivalents, end of year $ 17,270 11,646 7,806 ====== ====== ====== (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Statement of Cash Flows (Continued) Years ended December 31, 1994, 1993 and 1992 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 5,459 7,043 8,064 ====== ====== ====== Income taxes $ 22,704 18,225 15,372 ====== ====== ====== See accompanying notes to financial statements.
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements December 31, 1994, 1993 and 1992 (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 the rules and regulations of the Nebraska Public Service Commission (NPSC) which substantially adheres to rules and regulations of the Federal Communications Commission (FCC). Lincoln Telephone follows accounting for regulated enterprises prescribed by Statement of Financial Accounting Standard (FAS) No. 71, Accounting for the Effects of Certain Types of Regulation. The effect of FAS No. 71 results in regulatory assets of approximately $13,268,000 and $15,182,000 at December 31, 1994 and 1993 and regulatory liabilities of approximately $10,846,000 and $12,737,000 at December 31, 1994 and 1993, respectively. 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, during periods of construction of more than one year, of debt and equity funds used for construction purposes. No significant cost was capitalized during the years ended December 31, 1994, 1993 and 1992. Depreciation on property and equipment is determined by using the straight-line method based on estimated service 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. Deferred income taxes arise primarily from reporting differences for book and tax purposes related to depreciation and postretirement benefits. Investment tax credits on regulated property and equipment were deferred and taken into income over the estimated useful lives of such property and equipment. (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Retirement Benefits Lincoln Telephone has a qualified defined benefit pension plan which covers substantially all employees. Lincoln Telephone also has a qualified defined contribution profit-sharing plan which covers non- union-eligible employees. Costs of the pension and profit-sharing plans are funded as accrued. Local Network Services Local service rates are filed with and, in certain circumstances, are subject to review and approval by the NPSC. Billings for local network service are rendered monthly in advance on a cyclical basis. Advance billings are recorded as a liability and subsequently taken into income in the appropriate periods. Long Distance and Access Services Long distance and access services revenues are derived from long distance calls within Lincoln Telephone's service territory, carrier charges for access to its local exchange network, subscriber line charges and contractual arrangements with carriers for other services. Certain of these revenues are realized under pooling arrangements with other telephone companies and are divided among the companies based on respective costs and investments to provide the services. Revenues realized through the various pooling processes are initially based on estimates. Adjustments are recorded in subsequent years as participating companies finalize their respective costs and investments. Lincoln Telephone elected to be subject to price cap regulation by the FCC effective July 2, 1993, pursuant to which limits are imposed on Lincoln Telephone's interstate service rates. Prior to July 2, 1993, Lincoln Telephone operated under rate-of-return regulation, which offered less pricing and earnings flexibility than under price cap regulation. 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 $16,012,000 and $9,104,000 at December 31, 1994 and 1993, respectively, consist of short-term fixed income securities. (2) Property and Equipment The table on the following page summarizes the property and equipment used in the operations. (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (2) PROPERTY AND EQUIPMENT, CONTINUED 1994 1993 Accumulated Accumulated depreciation depreciation and and Classification Cost amortization Cost amortization (Dollars in thousands) Land $ 2,772 - 2,772 - Buildings 26,159 10,899 25,716 10,334 Equipment 410,665 200,706 407,477 187,953 Motor vehicles and other work equipment 10,679 4,153 10,116 4,012 ------- ------- ------- ------- Total in service 450,275 215,758 446,081 202,299 Under construction 6,020 - 1,608 - ------- ------- ------- ------- $ 456,295 215,758 447,689 202,299 ======= ======= ======= ======= Included in property and equipment are investments of $12,106,000 and $10,986,000 in 1994 and 1993, respectively, that are directly assigned to non-regulated operations. The corresponding accumulated depreciation and amortization was $6,995,000 in 1994 and $6,247,000 in 1993. In addition, other investments that are common to both regulated and non-regulated operations are allocated in a manner consistent with the FCC's rules and regulations. The composite depreciation rate for property was 7.1% in 1994, 6.5% in 1993 and 6.9% in 1992. The rate does not include the additional non- recurring depreciation recognized in 1994. Construction expenditures for 1995 are expected to approximate $42,185,000. Lincoln Telephone anticipates funding construction through operations. Due to changes in technology, customer growth, and usage demand for cellular services in their respective markets, Lincoln Telephone has entered into an agreement to purchase digital cellular telephone systems to replace certain existing analog systems serving these markets. These digital systems are expected to increase capacity and performance in these markets. The new system is expected to be operational in mid-1995. The implementation of these system upgrades will cause 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 1994, Lincoln Telephone recognized an additional charge of approximately $363,000 after evaluating updated information related to this analog equipment. The aggregate after-tax impact of these nonrecurring non-cash charges to earnings was $2,267,000. Substantially all property and equipment, with the exception of motor (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (2) PROPERTY AND EQUIPMENT, CONTINUED 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. (3) TEMPORARY INVESTMENTS Effective December 31, 1994, Lincoln Telephone adopted FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Lincoln Telephone will apply the provisions of this accounting standard prospectively. FAS No. 115 requires fair value reporting for certain investments in debt and equity securities. Pursuant to FAS No. 115, Lincoln Telephone has classified all of its investments as "available for sale" at December 31, 1994. This information is summarized below: Estimated Amortized Gross unrealized market cost Gains Losses value (Dollars in thousands) 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 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, 1994. The amortized cost and estimated market value of debt securities at December 31, 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. Estimated Amortized market cost value (Dollars in thousands) Due after three months through five years $ 16,094 15,810 Due after five years through ten years 2,519 2,198 ------ ------ $ 18,613 18,008 ====== ====== (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (3) TEMPORARY INVESTMENTS, CONTINUED The gross realized gains and losses on the sale of securities were insignificant to the financial statements for the year ended December 31, 1994. Lincoln Telephone does not invest in securities classified as held to maturity or trading securities. (4) 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, 1994, 1993 and 1992. In addition, Lincoln Telephone had 7.64% preferred stock. The preferred stock required an annual sinking fund payment to redeem 2,400 shares annually with an additional 2,400 shares subject to redemption at par value. In June 1992, the Board of Directors authorized the redemption of all outstanding shares of the 7.64% preferred stock. This consisted of 4,800 shares at par value and 24,800 shares at $103 per share. The redemption was completed on July 10, 1992 with a total payment of $3,034,400. (5) DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN 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. Any contributions received by approximately eight days before the end of each calendar quarter will be used to purchase shares of stock as of the next dividend date. Expenses incurred related to the Plan were approximately $30,700, $24,000 and $22,000 in 1994, 1993 and 1992, respectively. (6) LONG-TERM DEBT AND NOTE PAYABLE Long-term debt at December 31, 1994 and 1993 consists of 9.91% First Mortgage Bonds of $44,000,000. The First Mortgage Bonds are due June 1, 2000 with interest payable semi-annually. (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (6) LONG-TERM DEBT AND NOTE PAYABLE, CONTINUED The long-term debt agreements contain various restrictions including those relating to payment of dividends by Lincoln Telephone to its stockholder (LTEC). The note payable to a bank also contains various restrictions. At December 31, 1994, approximately $34,861,000 of retained earnings were available for the payment of cash dividends under the most restrictive provisions of such agreements. Lincoln Telephone has a note payable to a bank with an interest rate of 6.425% at December 31, 1994 that is due in February 1995. The weighted- average interest rate on the note payable was 4.6% and 3.5% for the years ended December 31, 1994 and 1993, respectively. (7) INCOME TAXES In February 1992, the Financial Accounting Standards Board issued FAS No. 109, Accounting for Income Taxes. FAS No. 109 required a change in the method of accounting for deferred income taxes. Under the asset and liability method of FAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the accounting period in which the enactment date occurs. Generally accepted accounting principles for regulated enterprises adopting FAS No. 109 required the recognition of deferred tax assets and liabilities. Lincoln Telephone recognized deferred regulatory assets and liabilities of approximately $17,096,000 and $14,743,000, respectively, as a result of adopting FAS No. 109. The net effect of these deferred regulatory assets and liabilities of approximately $2,353,000 was recorded on the financial statements as of January 1, 1993 as an increase to deferred income tax liabilities and is being amortized into income tax expense on the financial statements over a ten-year period. Shown below are the components of income taxes from operations before the cumulative effect of change in accounting principle. 1994 1993 1992 (Dollars in thousands) Current: Federal $ 17,953 14,546 11,628 State 4,006 3,217 2,037 ------ ------ ------ 21,959 17,763 13,665 ------ ------ ------ Investment tax credits (1,060) (1,360) (1,553) ------ ------ ------ (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (7) INCOME TAXES, CONTINUED Deferred: Federal (1,908) 392 1,843 State (55) 444 434 ------ ------ ------ (1,963) 836 2,277 ------ ------ ------ Total income tax expense $ 18,936 17,239 14,389 ====== ====== ====== Total income tax expense attributable to income from operations in each year was greater than that computed by applying U.S. Federal income tax rates to income before income taxes. The reasons for the differences are shown on the following page.
1994 1993 1992 % of % of % of pretax pretax pretax Amount income Amount income Amount Income (Dollars in thousands) Computed "expected" tax expense $ 17,187 35.0% $ 16,079 35.0% $ 13,977 34.0% State income tax expense, net of Federal income tax benefit 2,568 5.2 2,380 5.2 1,630 4.0 Tax effect of items capitalized for financial statement pur- poses, but expensed for tax purposes on which deferred income taxes were not provided - - - - 390 1.0 Nontaxable interest income (104) (.2) (58) (.1) (21) (.1) Amortization of regulatory deferred charge 1,914 3.9 1,914 4.2 - - Amortization of regulatory deferred liabilities (1,891) (3.9) (2,006) (4.4) - - Amortization of investment tax credits (1,060) (2.1) (1,360) (3.0) (1,553) (3.8) Other 322 .6 290 .6 (34) (.1) ------ ---- ------ ---- ------ ---- Actual income tax expense $ 18,936 38.5% $ 17,239 37.5% $ 14,389 35.0% ====== ==== ====== ==== ====== ====
THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (7) INCOME TAXES, CONTINUED The significant components of deferred income tax expense attributable to income from operations for the year ended December 31, 1994 and 1993 were as follows: 1994 1993 (Dollars in thousands) Deferred tax expense (exclusive of the effects of amortization below) $ (1,986) 928 Amortization of regulatory deferred charges 1,914 1,914 Amortization of regulatory deferred liabilities (1,891) (2,006) ----- ----- $ (1,963) 836 ===== ===== For the year ended December 31, 1992, deferred tax expense was provided on certain timing differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of these differences and the tax effect of each are shown below (dollars in thousands): Tax over financial statement depreciation $ 855 Other taxes 1,200 Other 222 ----- $ 2,277 ===== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are presented below: 1994 1993 (Dollars in thousands) Deferred tax assets: Accumulated postretirement benefit cost $ 16,739 15,946 Regulatory deferred liabilities 4,857 5,884 Other 2,214 2,276 ------ ------ Total gross deferred tax assets 23,810 24,106 Less valuation allowance - - ------ ------ Net deferred tax assets 23,810 24,106 ------ ------ Deferred tax liabilities: Plant and equipment, principally due to depreciation differences 38,577 40,748 Regulatory deferred charges 3,527 4,036 Other 1,274 876 ------ ------ (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (7) INCOME TAXES, CONTINUED Total gross deferred tax liabilities 43,378 45,660 ------ ------ Net deferred tax liability $ 19,568 21,554 ====== ====== 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, 1994 and 1993 was necessary. (8) BENEFIT PLANS Lincoln Telephone has a 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. There is no prior service liability associated with the basic benefits provided by the plan. The net periodic pension credit for all affiliated companies amounted to $1,570,000, $690,000 and $971,000 in 1994, 1993 and 1992, respectively. The net periodic pension credit is comprised as shown below. The components of pension costs for individual affiliates are not available. 1994 1993 1992 (Dollars in thousands) Service cost - benefits earned during the period $ 3,479 3,408 3,160 Interest cost on projected benefit obligations 8,797 8,441 7,744 Actual return on plan assets 1,529 (25,849) (9,309) Amortization and deferrals, net (15,375) 13,310 (2,566) ------ ------ ----- Net periodic pension credit $ (1,570) (690) (971) ====== ====== ===== The table below summarizes the funded status of the pension plan at December 31, 1994 and 1993. 1994 1993 (Dollars in thousands) Actuarial present value of benefit pension obligation: Vested $ 100,817 97,040 Nonvested 15,097 14,108 ------- ------- Accumulated benefit pension obligation $ 115,914 111,148 ======= ======= Projected benefit pension obligation $ 133,108 127,884 Less, plan assets at market value 177,196 185,197 ------- ------- (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (8) BENEFIT PLANS, CONTINUED Excess of plan assets over projected benefit pension obligation 44,088 57,313 Unrecognized prior service cost 4,888 5,924 Unrecognized net gain (34,689) (49,088) Unrecognized net asset being recognized over 15.74 years (11,088) (12,520) ------- ------- Prepaid pension cost recognized in the balance sheets $ 3,199 1,629 ======= ======= 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 were as follows: 1994 and 1993 1992 Discount rate 7.10% 7.10% Rate of salary progression 6.00 6.25 Expected long-term rate of return on assets 8.00 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 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 $550,100, $521,700 and $491,300 for 1994, 1993 and 1992, respectively. (9) 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. The cost of retiree health care, dental and life insurance benefits was recognized as an expense as premiums were paid in 1992. For 1992, such expense totaled $2,290,000. (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (9) POSTRETIREMENT BENEFITS, CONTINUED Lincoln Telephone adopted FAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, as of January 1, 1993. The new standard requires accounting for these benefits during the active employment of the participants. 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 No. 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, 1994 and 1993: 1994 1993 (Dollars in thousands) Accumulated postretirement benefit obligation: Retirees $ 30,872 29,851 Fully eligible active plan participants 11,508 9,663 Other active plan participants 7,276 6,990 ------ ------ 49,656 46,504 Plan assets at fair value - - Unrecognized prior service cost (164) - Unrecognized net loss (7,969) (6,864) ------ ------ Accrued postretirement benefit cost recognized in balance sheets $ 41,523 39,640 ====== ====== Net periodic postretirement benefit costs for the years ended December 31, 1994 and 1993 include the following components: 1994 1993 (Dollars in thousands) Service cost $ 400 284 Interest cost 3,625 3,574 Net deferral and amortization 158 - Net periodic postretirement benefit costs $ 4,183 3,858 ===== ===== For purposes of measuring the benefit obligation, the following assumptions were used: 1994 and 1993 Discount rate 8.0% Health care cost trend rate 11.7 This health care cost rate of increase was assumed to decrease gradually to 5.5% by the year 2004. (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (9) POSTRETIREMENT BENEFITS, CONTINUED For purposes of measuring the benefit cost, the following assumptions were used: 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 $360,000 and increase the accumulated postretirement benefit obligation by approximately $4,400,000. (10) 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 and $12.75 for the 1992 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. Stock option activity under the plan is summarized as follows: 1994 1993 1992 Outstanding at January 1 110,650 176,000 88,000 Granted - - 88,000 Exercised (10,500) (65,350) - Canceled - - - ------- ------- ------- Outstanding at December 31 100,150 110,650 176,000 ======= ======= ======= Exercisable at December 31 32,150 42,650 - ======= ======= ======= LTEC paid a 100% stock dividend to stockholders of record on December 27, 1993. 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 (Continued) THE LINCOLN TELEPHONE AND TELEGRAPHY COMPANY Notes to Financial Statements (10) STOCK AND INCENTIVE PLAN, CONTINUED 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, 11,323 shares, 16,002 shares and 15,224 shares of restricted stock were awarded from stock purchased on the open market by LTEC during 1994, 1993 and 1992, 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 1994, 1993 and 1992 net earnings for cash and restricted stock awards were $297,000, $374,000 and $338,000, respectively. Pursuant to the plan, 2,000,000 shares of LTEC common stock are reserved for issuance under this plan. (11) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) First Second Third Fourth 1994 quarter quarter quarter quarter Total (Dollars in thousand) Operating revenues $ 42,772 43,195 44,295 44,432 174,694 ======= ======= ======= ======= ======= Net income $ 5,273 7,883 8,423 8,590 30,169 ======= ======= ======= ======= ======= 1993 Operating revenues $ 40,170 40,406 41,713 41,625 163,914 ======= ======= ======= ======= ======= Net income (loss) $ (16,383) 7,038 7,540 7,508 5,703 ======= ======= ======= ======= ======= (12) RELATED PARTY TRANSACTIONS Lincoln Telephone had sales to LinTel for access and billing services of approximately $5,165,000 in 1994, $5,463,000 in 1993 and $5,482,000 in 1992. (13) PROPERTY AND STATE INCOME TAXES Lincoln Telephone's property and state income tax obligations during 1992 and 1993 were modified by actions of the Nebraska Legislature and the Nebraska Supreme Court. In 1991, the Nebraska Supreme Court determined in separate actions that Nebraska's personal property tax system as applied to businesses in 1989 and 1990 was unconstitutional. The Court determined that approximately 18.8% of taxes paid for 1990 should be refunded. The NPSC approved a settlement whereby similar refunds were (Continued) THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY Notes to Financial Statements (13) PROPERTY AND STATE INCOME TAXES, CONTINUED made applicable to 1989 taxes. As a result of these actions, Lincoln Telephone recorded refunds or credits of approximately $1,328,000 and $1,446,000 in 1993 and 1992, respectively. In view of a constitutional amendment approved by the voters in 1992, the constitutional issues concerning Nebraska property taxes appear to have been resolved. (14) 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 3 for the estimated fair value of temporary investments. Long-Term Debt The fair values of each of Lincoln Telephone's long-term debt instruments are based on the amount of future cash flows associated with each 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 $44,000,000 at December 31, 1994 and 1993 and an estimated fair value of $46,729,000 and $54,021,000 at December 31, 1994 and 1993, 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. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY By /s/ Michael J. Tavlin Date March 25, 1996 Michael J. Tavlin, Vice President-Treasurer Exhibit Index Exhibit Title Page No. 3. (a) 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, incorporated by reference. (b) By-Laws as amended through December 14, 1994, are attached hereto. EX-3 2 THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY BY - LAWS (As Amended Through December 14, 1994, Effective December 14, 1994) - - - OFFICES 1. The principal office of the Corporation shall be at 1440 M Street, in the City of Lincoln, Lancaster County, State of Nebraska. The Corporation shall also have an office in Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is THE CORPORATION TRUST COMPANY. The Corporation may also have an office in such other cities and states as the Board of Directors may from time to time appoint or the business of the Corporation may require. SEAL 2. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "CORPORATE SEAL, DELAWARE." STOCKHOLDERS' MEETINGS 3. The annual meeting of the stockholders shall be held in the Corporation's offices at 1440 M Street, in the City of Lincoln, Nebraska, or other location fixed by the Board of Directors and stated in the notice of the meeting. Special meetings of the stockholders may be held at such places as may be designated in the call therefor. 4. The annual meeting of stockholders shall be held on a date, time and place determined by the Board of Directors at its last regular meeting during the previous year, when the stockholders shall elect, by ballot, successors to the class of directors whose term expires at that annual meeting and any additional director of any class nominated to fill a vacancy resulting from an increase in such class determined by the Board of Directors in an aggregate number fixed by the board pursuant to By-Law 12(b), and transact such other business as may properly be brought before the annual meeting. 5. The holders of a majority of the stock issued and outstanding, and entitled to vote thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at any or all meetings of the stockholders for the transaction of business except as otherwise provided by law, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person, or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until (Continued) the requisite amount of stock shall be present. At such adjourned meeting at which the requisite amount of stock shall be represented any business may be transacted which might have been transacted at the meeting as originally notified. 6. At any meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing executed by such stockholder or by his duly authorized attorney-in-fact. Each stockholder shall have one vote for each share of stock having voting power registered in his name on the books of the corporation. In all elections for directors every stockholder having the right to vote at such elections shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected, or (unless no longer prescribed by the Nebraska Business Corporation Act) to cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number his shares shall equal, or to distribute them upon the same principle among as many candidates as he shall think fit. Directors shall be elected in no other manner. If the transfer books are not closed and no record date is fixed by the Board of Directors, the date on which notice of the meeting is mailed shall be deemed to be the record date for the determination of stockholders entitled to vote at such meeting. Transferees of shares transferred after the record date shall not be entitled to notice of or to vote at such meeting. 7. Written notice of the annual meeting shall be mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation, at least ten days prior to the meeting. 8. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be prepared by the secretary and filed in the Corporation's principal office at least ten days before the election, and shall at all times, during the usual hours for business during such ten (10) day period at the principal office, and during the whole time of said election at the place of election be open to the examination of any stockholder. 9. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president, and shall be called by the president or secretary at the request in writing of stockholders owning a majority in amount of the common stock of the Corporation issued and outstanding, and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 10. Business transacted at all special meetings shall be confined to the objects stated in the call. 11. Written notice of a special meeting of stockholders, stating the time and place and object thereof, shall be mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation, at least ten days prior to such meeting. (Continued) DIRECTORS 12.(a) The property and business of the Corporation shall be managed by its Board of Directors which shall have and shall exercise all the powers of the Corporation. Directors of the Corporation need not be stockholders. The number of directors which shall constitute the whole Board of Directors shall be such as from time to time shall be fixed in the manner provided in 12(b) of these By-Laws; provided, however, the number of directors which shall constitute the whole Board shall be not less than twelve (12) or more than eighteen (18). The directors shall be divided into three classes. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the whole board of directors. At each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting shall be elected for a three year term. A director shall hold office until the annual meeting in the year in which the director's term expires and until the director's successor shall be elected and qualified, subject however, to prior death, resignation, retirement, disqualification or removal from office. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any director then in office. The termination of employment other than by retirement of any director who is an employee of the Corporation shall be cause for disqualification from further board membership unless waived by the board. Any vacancy on the Board of Directors may be filled by the affirmative vote of the majority of the directors then in office, although less than a quorum, and the person filling such vacancy shall have the same remaining term as that of his predecessor. (b) The number of directors to serve during any year shall be fixed by resolution of the Board of Directors at its last regular meeting during the previous calendar year, but may also be fixed by resolution of the Board of Directors or the executive committee at a regular or special meeting of the board or executive committee held prior to the annual meeting of stockholders in the year of such annual meeting. In the event of failure of the board or executive committee to fix the number of directors at such meetings, the number shall be the same as last fixed by the Board of Directors. 13. The directors may hold their meetings and have one or more offices, and keep the books and records of the Corporation outside of Delaware, or at such other places as the Board may from time to time determine. 14. In addition to the powers and authority by these By-Laws expressly conferred upon them, the board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. (Continued) COMMITTEES OF DIRECTORS 15. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of three (3) or more of the directors and shall have such functions and responsibilities as the board shall prescribe in said resolution of appointment. Such committee or committees shall have such name or names as may be determined from time to time by resolution of the board. The committees shall keep regular minutes of their proceedings and report the same to the board as required. EXECUTIVE COMMITTEE 16. There shall be an executive committee appointed annually by the board at its first meeting following the annual meeting of the stockholders in each year, consisting of not less than three (3) nor more than seven (7) of the directors as fixed by the board's resolution of appointment and shall include the president. The executive committee shall have and may exercise all powers of the Board of Directors when the board is not in session. Meetings of the executive committee may be called by the president or a member of the committee upon at least two days' prior oral notice or written notice delivered personally or by facsimile transmission. At all meetings of the executive committee a majority of the number of directors as appointed to the committee by the Board of Directors shall constitute a quorum for the transaction of business. COMPENSATION OF DIRECTORS 17. Directors shall receive such compensation for their services as may be determined by resolution of the board from time to time and, in addition, expenses of attendance, if any, at each regular or special meeting of the board; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 18. Members of special or standing committees may be allowed compensation for attending committee meetings as determined by the board. MEETINGS OF THE BOARD 19. The first meeting of each Board with newly elected members shall be held at such place and time as shall be fixed by the vote of the stockholders at the annual meeting, for the purpose of organization or otherwise, and no notice of such meeting shall be necessary to the members of the Board in order to legally constitute the meeting; PROVIDED, a majority of the whole board shall be present; or they may meet at such place and time as shall be fixed by the consent in writing of all the directors. 20. Regular meetings of the board may be held without notice at such time and place as shall from time to time be determined by the board. (Continued) 21. Special meetings of the Board of Directors may be called by the president on three (3) days' notice to each director by mail or forty-eight (48) hours' notice by personal delivery of written notice, by telegram or by facsimile transmission; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. In all cases, notice shall be addressed or other wise delivered to the director at the director's last known address. 22. At all meetings of the board a majority of the directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these By-Laws. OFFICERS 23. The officers of the corporation shall be elected by the directors and shall be a president, one or more vice presidents, a secretary, a treasurer and a controller. The Board of Directors may also elect a chairman of the board, an executive vice president, a chief financial officer, assistant secretaries, assistant treasurers and such other officers as it shall determine. Any two of the aforesaid offices, except those of president and executive vice president or vice president, may be held by the same person. 24. The Board of Directors, at its first meeting after each annual meeting of stockholders, shall elect a president, one or more vice presidents, a secretary, a treasurer, and a controller, any may also elect a chairman of the board and such other officers that it shall determine as are provided for in By-Laws 24 of whom need to be a member of the board except for the president and the chairman and all of whom shall hold their offices for such terms and shall exercise such powers and perform such duties as are prescribed in these By-Laws and as shall be determined from time to time by the Board of Directors. 25. The board may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as are prescribed in these By-Laws and as shall be determined from time to time by the board. 26. The compensation, if any, of all officers and agents of the corporation shall be fixed by the Board of Directors. 27. The officers of the corporation shall hold office until their successors are elected and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed and his employment terminated at any time by the affirmative vote of a majority of the whole Board of Directors, and any officer may be removed and his employment terminated at any time by the president. If the office of any officer becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. PRESIDENT 28. The President shall be the chief executive officer of the Corporation; he shall be a member of the executive committee and ex (Continued) officio a member of all other committees of the board; he shall have responsibility for the general and active management of the business and affairs of the Corporation, and shall see that all orders and resolutions of the board are carried into effect. He shall execute conveyances of land, bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors to some other officer or agent of the Corporation. CHAIRMAN OF THE BOARD 29. The Board of Directors may elect a chairman of the board. He shall preside at all meetings of the Board of Directors and stockholders and shall have such other duties and responsibilities in respect to the operations of the Corporation as the board and the president may from time to time prescribe. EXECUTIVE VICE PRESIDENT 30. An executive vice president, when elected, shall in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform such other duties as the Board of Directors and president may from time to time prescribe. VICE PRESIDENTS 31. The vice presidents in the order of their length of service shall in the absence or disability of the president or an executive vice president, perform the duties and exercise the powers of the president and shall perform such other duties as the Board of Directors and president may from time to time prescribe. THE SECRETARY 32. The secretary shall attend all meetings of the board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the committees of the board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed from time to time by the Board of Directors or the president under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and, when authorized by the board, affix the same to any instrument requiring it, and, when so affixed, it shall be attested by his signature or by the signature of an assistant secretary. THE TREASURER 33.(a) The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name of and to the credit of the Corporation, in such depositories as may be designated by the board of directors. (Continued) (b) He shall disburse the funds of the Corporation as may be ordered by the board, taking proper vouchers for such disbursements, and shall render to the president and directors, at the regular meetings of the board, or whenever they may require it, an account of all his transactions as treasurer. (c) He shall give the Corporation a bond if required by the Board of Directors in a sum, and with one or more sureties satisfactory to the board, for the faithful performance of the duties of his office, and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. THE CONTROLLER 34. The controller shall be the chief accounting officer of the Corporation and have full responsibility and control of the accounting department, which department shall include all accounting functions carried on in all of the Corporation's offices, plants, branches and subsidiaries. As such he shall, subject to the approval of the Board of Directors, establish accounting policies. He shall standardize and coordinate accounting practices, supervise all accounting records and the preparation of all financial statements and tax returns. The controller shall also direct the internal auditing of the Corporation and keep the Audit Committee of the Board of Directors and the president informed as to occurrences and procedures that may need their attention. He shall have such other powers and duties as, from time to time, may be prescribed by the Board of Directors and the president. ASSISTANT SECRETARY AND ASSISTANT TREASURER 35. In the absence of the secretary or treasurer their duties shall be performed respectively by the assistant secretary and assistant treasurer if previously elected and serving in conformity with the duties of the secretary and the treasurer as hereinabove set forth. 36. If the office of any director, or of any officer or agent, becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, the directors by a majority vote of the entire board, may choose a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred. DUTIES OF OFFICERS MAY BE DELEGATED 37. In case of the absence of any officer of the Corporation, or for any other reason that the board may deem sufficient, the board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director, PROVIDED a majority of the entire board concur therein. CERTIFICATES OF STOCK 38. The certificates of stock of the Corporation shall be differentiated between common and preferred stock and numbered and shall be entered in the books of the Corporation or the transfer agent or registrar of the Corporation as they are issued. They shall exhibit the (Continued) holder's name and number of shares and shall be signed by the president, the chairman of the board, an executive vice president, or a vice president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary, and the seal of the Corporation shall be affixed thereto. The signatures of any of the aforesaid officers and the seal of the Corporation may be facsimiles engraved, lithographed, stamped or printed. The certificates shall be countersigned by the transfer agent and registrar of the Corporation. If any officer who has signed or whose facsimile signature has been used on any such certificate shall cease to be such officer of the Corporation, whether because of death, resignation or otherwise, before such certificate has been delivered by or on behalf of the Corporation, such certificate when countersigned by the transfer agent and registrar of the Corporation, shall nevertheless be as effective in all respects as though the person who signed such certificate or whose facsimile signature shall have been used thereon had not ceased to be an officer of the Corporation. The procedures set forth in this By-Law 38 shall apply to all certificates of stock of the Corporation issued on or after May 1, 1993. TRANSFER OF STOCK 39. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. CLOSING OF TRANSFER BOOKS 40. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding forty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date when any change or conversion or exchange of capital stock shall go into effect; PROVIDED, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, falling within any forty day period described above, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to act upon any such change or conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be so entitled, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS 41. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. LOST CERTIFICATE 42. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and (Continued) advertise the same in such manner as the Board of Directors may require, and shall if the directors so require give the Corporation a bond of indemnity, in form and with one or more sureties satisfactory to the board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed. INSPECTION OF BOOKS 43. The Board of Directors shall determine from time to time, whether, and, if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may be statute be specifically open to inspection) or any of them shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be restricted and limited accordingly. CHECKS 44. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. FISCAL YEAR 45. The fiscal year shall begin the first day of January and end the thirty-first day of December in each year. DIVIDENDS 46. Dividends upon the capital stock of the Corporation, when earned, may be declared by the Board of Directors at any regular or special meeting. Before payment of any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits or the Corporation such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purposes as the directors shall think conducive to the interests of the Corporation. DIRECTORS' ANNUAL STATEMENT 47. The Board of Directors shall present at each annual meeting, and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. NOTICES 48. Whenever under the provisions of these By-Laws notice is required to be given to any directory or stockholder, it shall not be construed to require personal notice unless otherwise expressly required in these By-Laws, but such notice may be given in writing, by mail, by depositing the same in the post office or letter box, in a postpaid sealed wrapper, addressed to such directory or stockholder at such address as appears on the books of the corporation, or in default of other address, to such directory or stockholder at the General Post (Continued) Office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same be thus mailed. Whenever any notice whatever is required to be given under the provisions of the Delaware General Corporation Law or under the provisions of the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the date the notice is required, shall be deemed equivalent to the giving of such notice. AMENDMENTS 49. These By-Laws may be altered, amended or repealed by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereon, at any regular annual meeting of the stockholders without notice, and at any special meeting of the stockholders if notice of the proposed alteration, amendment or repeal be contained in the notice of such special meeting, or by the affirmative vote of a majority of the Board of Directors if the alteration, amendment or repeal be proposed at a regular meeting, or at any special meeting of the Board of Directors at which a quorum is present and a majority of those present vote in the affirmative, if notice of the proposed alteration, amendment or repeal be contained in the notice of such special meeting; provided, however, that no change of the time or place for the election of directors shall be made within sixty (60) days next before the day on which such election is to be held, and that in case of any change of such time or place, notice thereof shall be given to each stockholder in person or by letter mailed to his last known post office address, at least twenty (20) days before the election is held. INDEMNIFICATION OF DIRECTORS AND OFFICERS 50.(a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request (whether formal or informal) of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise against expenses, including attorney's fee, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction or upon a plea of nolo contenders or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (Continued) (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request (whether formal or informal) of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise against expenses, including attorney's fees, actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) To the extent that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b) of this By-Law 50 or in defense of any claim, issue or matter therein, he or she shall be indemnified by the Corporation, within ten (10) days of the Corporation's receipt of his or her written request therefor, against expenses, including attorney's fees, actually and reasonably incurred by him or her in connection therewith. (d) Any indemnification under paragraphs (a) and (b) of this By-Law 50, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this By-Law 50. Such determination shall be made, within thirty (30) days of the Corporation's receipt of the director's or officer's request for indemnification hereunder, by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or, if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel I a written opinion or by the stockholders. Payment of indemnification, if any, to a director or officer shall be made by the Corporation within ten (10) days after the determination set forth in the preceding sentence. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in paragraph (d) of this By-Law 50 within ten (10) days after the Corporation's receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this By-Law 50. (Continued) (f) For purposes of this By-Law 50, (I) the Corporation shall be deemed to have requested a director or officer to serve an employee benefit plan when the performance by him or her of his or her duties to the Corporation also imposes duties on, or otherwise involves services by, him or her to the plan or participants or beneficiaries of the plan; (ii) the excise taxes assessed on a director or officer with respect to an employee benefit plan pursuant to applicable law shall be deemed fines; and (iii) action taken or omitted by a director or officer with respect to an employee benefit plan in the performance of his or her duties for a purpose reasonably believed by him or her to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. (g) This By-Law 50 shall be deemed to be a contract between the Corporation and each of its directors and officers and any repeal or other limitation of this By-Law 50 shall not limit any rights to indemnification or the advance of expenses then existing or arising out of events, acts or omissions occurring prior to such repeal or limitation, including, without limitation, the right to indemnification or advance of expenses for proceedings commenced after such repeal or limitation to enforce this By-Law 50 with regard to acts, omissions or events arising prior to such repeal or limitation. The rights of a director or officer granted under this By-Law 50 shall not be deemed exclusive of any other rights to indemnification or advance of expense which the director or officer may be entitled to under any written agreement, board of directors' resolution, vote of stockholders or otherwise. (h) The terms and provisions of this By-Law 50 shall continue as to each director and officer of the Corporation subsequent to the date on which they are no longer such a director or officer and such terms and provisions shall inure to the benefit of the heirs, estate, personal representatives, executors and administrators of each director and officer and the successors and assigns of the Corporation, including, without limitation, any successor to the Corporation by way of merger, consolidation and/or sale or disposition of all or substantially all of the assets or capital stock of the Corporation. (i) In order for the Corporation to obtain and retain qualified directors and officers, the foregoing provisions of this By-Law 50 shall be liberally construed and administered n order to afford maximum indemnification of directors and officers and, accordingly, the indemnification rights provided for above shall be granted in all cases unless to do so would clearly contravene applicable law, controlling precedent or public policy. If any provision of this By-Law 50 shall be deemed invalid or inoperative, or if a court of competent jurisdiction determines that any of the provisions of this By-Law 50 contravene public policy, this By-Law 50 shall be construed so that the remaining provisions shall not be affected, but shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further action or deed by or on behalf of the Corporation, to be modified, amended or limited, but only to the extent necessary to render the same valid and enforceable. -----END PRIVACY-ENHANCED MESSAGE-----