SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A(1)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
MARCH 18, 1997
LYNCH CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 1-106 38-1799862
(State of jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identifications No.)
8 SOUND SHORE DRIVE, SUITE 290, GREENWICH, CONNECTICUT 06830
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 203/629-3333 <PAGE>
Item 5. Other Events
See Subsequent Event under Item 7(b) - Pro Forma Unaudited Financial
Information below for information on the acquisition of the minority stock
interest in Upper Peninsula Telephone Company.
Item 7. Financial Statements and Exhibits
This amends Form 8-K previously filed by the Registrant on April 1,
1997, and filed by Registrant with respect to an event occurring on March 18,
1997. The following financial statement and pro forma financial information
are contained herein:
(a) Financial Statements of Businesses Acquired
Upper Peninsula Telephone Company and Subsidiaries
1. Independent Auditors' Report
2. Consolidated Balance Sheets as of December 31, 1996 and 1995
3. Consolidated Statements of Operations and Business Unit Equity
for years ended December 31, 1996 and 1995
4. Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995
5. Notes to Consolidated Financial Statements
(b) Pro Forma Unaudited Financial Information
1. Pro Forma Combined Condensed Balance Sheet as of December
31, 1996
2. Notes to Pro Forma Combined Condensed Balance Sheet
3. Pro Forma Combined Condensed Statements of Operations for
the Year Ended December 31, 1996
4. Notes to Pro Forma Combined Condensed Statements of Income<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LYNCH CORPORATION
/S/ROBERT E. DOLAN
ROBERT E. DOLAN
Chief Financial Officer
Date: May 29, 1997
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Financial Statements
Together With Independent
Auditor's Report
As of December 31, 1996 and 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Carney, Michigan
We have audited the accompanying consolidated balance sheets of Upper
Peninsula Telephone Company and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller
General of the United States. 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 Upper Peninsula Telephone
Company and Subsidiaries as of December 31, 1996 and 1995, and the results of
its consolidated operations and its consolidated cash flows for the years
then ended in conformity with generally accepted accounting principles.
<PAGE>
Board of Directors
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
As explained in Note M to the financial statements, Upper Peninsula Telephone
Company and Subsidiaries retroactively changed its method of recording their
investments in cellular partnerships to the equity method as of January 1,
1995.
In accordance with Government Auditing Standards, we have also issued a
report on our consideration of the Company's Internal Control Structure and a
report on its Compliance with Laws and Regulations, both dated March 12,
1997.
Siepert & Co. LLP
Certified Public Accountants
Beloit, Wisconsin
March 12, 1997
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 712,529 $ 358,834
Temporary cash investments - at cost 314,336 420,457
Telecommunications accounts receivable 176,647 179,475
Other accounts receivable (Note D) 1,110,272 1,355,657
Interest receivable 1,324 3,239
Materials and supplies - at average cost 297,988 411,313
Prepayments 61,470 67,179
Total current assets 2,674,566 2,796,154
Investments:
Investment in cellular partnerships -
at equity (Note J) 1,759,020 1,309,691
Rural Telephone Bank Stock -
at cost (Note C) 355,023 354,559
Other investments 2,692 20,000
Nonregulated assets 88,941 78,928
Total investments 2,205,676 1,763,178
Other Debits:
Organization expense (Note I) 70,968 70,968
Deferred income taxes (Note K) 102,553 164,649
Deferred debt expense 15,950 17,306
Other deferred charges 10,000
Total other debits 199,471 252,923
Telecommunications Plant: (Note B)
Telecommunications plant in service 28,378,762 27,134,736
Less: Accumulated depreciation 6,948,635 5,929,985
Net telecommunications plant in service 21,430,127 21,204,751
Telecommunications plant under construction 387,137 117,143
Total net telecommunications plant 21,817,264 21,321,894
Total Assets $26,896,977 $26,134,149
</TABLE>
The following notes are an integral part of this statement.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 1996 and 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Current Liabilities:
Current maturity of long-term debt $ 285,200 $ 247,100
Notes payable (Note E) 100,000 680,000
Accounts payable-
Construction 6,876 88,596
Trade 442,643 584,113
Customer deposits and advance billings 34,110 27,637
Accrued liabilities-
Wages 53,085 37,494
Income taxes 48,568 20,799
Interest 9,000 9,602
Total current liabilities 979,482 1,695,341
Other Credits:
Deferred investment tax
credit (Notes B & K) 89,405 101,319
Long-Term Debt: (Net of Current Maturity)
(Note F)
Mortgage notes payable 11,865,110 12,169,602
Stockholders' Equity:
Common stock - $10 stated value; 10,000
shares authorized; 8,464 shares issued
and outstanding for 1996 and 1995 84,640 84,640
Paid-in capital 393,382 393,382
Retained earnings (Note L) 13,484,958 11,689,865
Total stockholders' equity 13,962,980 12,167,887
Total Liabilities And Stockholders' Equity $26,896,977 $26,134,149
</TABLE>
The following notes are an integral part of this statement.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance, Beginning of Year $11,689,865 $10,480,246
Cumulative effect on prior years
of retroactive restatement for
accounting change (Note M) (99,440)
Balance, Beginning of Year, As Restated 11,689,865 10,380,806
Add: Net income for year 2,049,013 1,943,859
Deduct: Dividends paid 253,920 634,800
Balance, End of Year $13,484,958 $11,689,865
</TABLE>
The following notes are an integral part of this statement.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Regulated Operations:
Operating Revenues:
Local service revenue $ 762,149 $ 728,780
Carrier access revenue 7,328,785 6,759,369
Toll service revenue 10,021 5,858
Other operating revenue 398,078 357,211
Uncollectible operating revenue (31,850) (44,450)
Total operating revenue 8,467,183 7,806,768
Operating Expenses:
Plant specific 858,907 726,389
Plant nonspecific 357,506 319,855
Depreciation 1,400,174 1,299,410
Customer operations 455,899 427,947
Corporate operations 1,266,889 1,190,854
Taxes other than income 574,561 522,628
Income taxes 1,005,960 905,603
Total operating expenses 5,919,896 5,392,686
Net Operating Income - Regulated 2,547,287 2,414,082
Nonregulated Operations:
Equity in undistributed earnings of
cellular partnerships (Note J) 567,559 413,462
Operating revenues 65,026 62,718
Operating expenses (167,100) (152,302)
Income taxes (157,742) (42,585)
Net operating income - nonregulated 307,743 281,293
Total Net Operating Income 2,855,030 2,695,375
Other Income:
Interest income 48,932 62,259
Other expense (81,307) (29,112)
Income taxes (36,810) (17,657)
Total other income (expense) (69,185) 15,490
Interest and Fixed Charges:
Interest on long-term debt 717,318 721,148
Other interest charges 18,156 44,500
Amortization of debt expense 1,358 1,358
Total interest and fixed charges 736,832 767,006
Net Income $2,049,013 $1,943,859
</TABLE>
The following notes are an integral part of this statement.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $2,049,013 $1,943,859
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation 1,400,174 1,299,410
Amortization expense 1,358 1,358
Deferred income taxes 62,096 16,641
Amortization of investment tax credits (11,914) (12,157)
Equity in undistributed earnings of
cellular partnerships (567,559) (413,462)
(Increase) decrease in current assets -
Telecommunications and other receivables 250,126 (753,246)
Materials and supplies 113,325 (115,561)
Prepayments 5,710 (10,269)
Increase (decrease) in current liabilities -
Accounts payable (223,190) 275,883
Customer deposits and advance payments 6,473 2,386
Accrued liabilities 42,758 1,247
Net cash provided by operating
activities 3,128,370 2,236,089
Cash Flows From Investing Activities:
Gross additions to telecommunications plant
in service and under construction (1,862,499) (2,279,861)
Net salvage on plant retirements (43,691) 27,945
Increase in other deferred charges (10,000)
Cash distribution from cellular partnerships 118,230 208,871
Decrease in other investments 16,844 (23,200)
Decrease in nonregulated assets 632 (45,445)
Decrease in cash investments 106,121 45,883
Net cash used by investing activities (1,674,363) (2,065,807)
Cash Flows From Financing Activities:
Net change in short-term borrowing (580,000) 480,000
Proceeds from long-term financing 9,740 487,200
Payment on long-term debt (276,132) (463,304)
Cash dividends (253,920) (634,800)
Net cash used by financing activities (1,100,312) (130,904)
Net Increase in Cash and Cash Equivalents 353,695 39,378
Cash and Cash Equivalents, Beginning of Year 358,834 319,456
Cash and Cash Equivalents, End of Year $ 712,529 $ 358,834
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note A: Nature of Operations
The accompanying financial statements include the
accounts of Upper Peninsula Telephone Company (Company),
its wholly owned subsidiary, Alpha Enterprises Limited,
Inc. (Alpha) and Alpha's wholly owned subsidiaries, Upper
Peninsula Cellular North, Inc. (UPCN) and Upper Peninsula
Cellular South, Inc. (UPCS). All intercompany items have
been eliminated.
The Company's principal business is to provide local
telephone service and telephone access for all customers
within specific boundaries in a noncompetitive market.
However, recent government legislation will subject the
Company to a possible future competitive market in which
to operate. Alpha is a holding company, holding the
interests in UPCN and UPCS. UPCN's and UPCS's principal
business is holding interests in cellular partnerships
serving areas within the State of Michigan.
Note B: Summary of Significant Accounting Policies
The accounting policies of the Company conform to
generally accepted accounting principles and reflect
practices appropriate to the telecommunications industry.
The Company grants credit to customers, substantially all
of whom are its local subscribers or connecting
companies.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the
date of the financial statements and affect the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
1. Telecommunications plant in service is recorded at
original cost. The provision for depreciation is
computed on a straight-line basis by applying a
rate to group account assets for statement and
income tax purposes. Retirements are recorded on
average unit costs.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note B: Summary of Significant Accounting Policies (Continued)
2. Payroll taxes and employees' insurance costs are
capitalized on all plant additions. Interest during
construction (IDC) is being recorded on major projects.
The IDC rate used was 6.9% and 7.5% for 1996 and 1995,
respectively, which took into consideration the current
cost of debt funds. There was $15,902 and $30,154 of IDC
capitalized in 1996 and 1995, respectively. These
capitalizations are being treated as additions to
telecommunications plant for both statement and tax
purposes.
3. The Company has elected to defer income tax
savings earned by investment tax credit and is
amortizing these savings over the service life of
the assets on which the investment tax credit was
taken.
4. In general, revenues are recognized when earned
regardless of the period in which they are billed or
received. Revenue for interstate access service is
received through tariffed access charges filed by the
National Exchange Carrier Association (NECA) with the
Federal Communications Commission (FCC) on behalf of the
member companies. These access charges are billed by the
Company to the interstate long distance carrier, and
pooled with like revenues from all NECA member companies.
The portion of the pooled access charge revenue received
by the Company is based upon its actual cost of providing
interstate long distance service.
Revenue for intrastate access service is received
through tariffed access charges filed by the
Michigan Exchange Carrier Association (MECA) with
the Michigan Public Service Commission (PSC) on
behalf of the member companies. These charges are
billed by the Company to the intrastate long
distance carrier, and pooled with like revenues from
all MECA member companies. The portion of the
pooled access charge revenue received by the Company
is based upon its actual cost of providing the
service.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note B: Summary of Significant Accounting Policies (Continued)
Revenue estimates recorded are subject to final
acceptance by NECA and MECA. Revenues for 1996 include
the following prior period adjustments, additional
interstate revenues of approximately $175,400 resulting
from true-ups of prior year cost studies and additional
intrastate revenues of approximately $65,600 resulting
from true-ups of prior year cost studies and true-ups of
prior year MECA pool revenues.
5. For purposes of the statement of cash flows, cash
equivalents include checking, savings, money
market deposits and certificates of deposit with
original maturities of less than three months.
All other temporary cash investments, if any,
with original maturities of over three months and
less than one year are included in temporary cash
investments.
Note C: Rural Telephone Bank Stock
The Rural Telephone Bank stock consists of 1,615,438
shares of Class B stock. The Company purchased 355,023
shares from the Rural Telephone Bank as a condition of
obtaining long-term financing. Holders of Class B stock
are entitled to patronage dividends in the form of
additional Class B stock, however, such stock must be
held until the related Rural Telephone Bank loan is
repaid and may be redeemed only after all shares of Class
A stock have been retired, at the discretion of the Board
of Directors of the Rural Telephone Bank. As of December
31, 1996, the Company has received 1,260,415 shares of
the Class B patronage dividends.
Note D: Other Accounts Receivable
As discussed in Note B the Company receives
settlements from various interexchange toll carriers
which are subject to adjustments in subsequent years.
In connection with this the Company has recorded
estimated receivables of $421,097 and $562,518 as of
December 31, 1996 and 1995, respectively.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note E: Note Payable
During 1993, the Company received a line of credit for
$1,000,000 at the prime rate of interest plus one and one
half percent. The line of credit is available until
August 8, 1998. The Company must pay off the line of
credit for a minimum of five consecutive days each year.
At December 31, 1996, the Company had $900,000 available
on this line of credit.
Note F: Long-Term Debt
The long-term debt of the Company is secured by a
mortgage on the assets of the corporation under the terms
of a consolidated loan agreement between the Company, the
United States of America Department of Agriculture Rural
Utilities Service (RUS) and the Rural Telephone Bank
(RTB). All assets of the Company are pledged as security
for these mortgage notes. Amounts outstanding at
December 31, 1996 and 1995 and other terms of the notes
are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
2% Mortgage notes payable
serially to 2016 to the
United States Government $ 2,324,402 $ 2,443,185
5% Mortgage notes payable
serially to 2016 to the
United States Government 2,808,585 2,869,669
7% Mortgage notes payable
serially to 2009 to the
United States Government 504,781 528,961
7.5% Mortgage notes payable
serially to 2027 to the
United States Government 6,512,542 6,574,887
Subtotal 12,150,310 12,416,702
Less: Current maturity 285,200 247,100
Total Long-Term Debt $11,865,110 $12,169,602
</TABLE>
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note F: Long-Term Debt - (Continued)
The Company has $38,402 of unadvanced RTB loan fund
available for plant additions. If these funds are
advanced, they will have a 7.5% interest rate and will be
repayable over a period of 35 years.
Required principal payments based on the outstanding
debt on December 31, 1996 for the next five (5) years
are estimated to be as follows:
<TABLE>
<CAPTION>
Year Amount
<C> <C>
1997 $285,200
1998 298,300
1999 312,200
2000 326,800
2001 342,300
</TABLE>
Note G: Related Party Transactions
The Company provides construction, maintenance, general
office and management services to a nonaffiliated company
at cost. This company is related through common ownership
by a majority stockholder of Upper Peninsula Telephone
Company. Charges to this company amounted to $2,019 and
$1,768 for the years 1996 and 1995, respectively.
Note H: Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash paid during the year for
interest $ 773,576 $ 766,163
Cash paid during the year for
income taxes $1,125,234 $ 979,203
</TABLE>
Note I: Organization Costs
During 1990, Alpha, UPCN, and UPCS were all formed. The
organization costs associated with each of these companies
have been capitalized. These costs will not be amortized.
A breakdown of these costs at December 31, 1996, is as
follows: UPCN - $37,827 and UPCS - $33,141. These costs
include legal fees, filing fees and other costs associated
with setting up the corporations.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note J: Investment in Cellular Partnership
During 1991, UPCN and UPCS invested in separate RSA
Cellular Partnerships covering areas in the State of
Michigan. UPCN is a 7.882% general partner with an
investment of $659,952 at December 31, 1996. UPCS is a
14.2857% general partner with an investment of $1,099,068
at December 31, 1996. These investments are recorded at
equity. These investments consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
UPCN
Capital contributions paid $ 648,053 $ 648,053
Equity in undistributed earnings
of the partnership 224,713 6,535
Capital distributions received (212,814) (94,584)
Total 659,952 560,004
UPCS
Capital contributions paid 635,305 635,305
Equity in undistributed earnings
of the partnership 578,050 228,669
Capital distributions received (114,287) (114,287)
Total 1,099,068 749,687
Total $1,759,020 $1,309,691
</TABLE>
Following is an unaudited summary of financial position and
operations of Cellular North Michigan Network General
Partnership of which UPCN is a general partner.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current assets $ 2,790,000 $2,416,000
Property and equipment, net 7,589,000 6,171,000
Total Assets $10,379,000 $8,587,000
Current Liabilities $ 2,005,000 $1,482,000
Partner's Equity $ 8,374,000 $7,105,000
Operating Revenues $11,058,000 $7,874,000
Net Income $ 2,769,000 $1,673,000
</TABLE>
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note J: Investment in Cellular Partnership (Continued)
Following is an unaudited summary of financial position and
operations of Cellular Mobile Systems of Michigan RSA No. 7
Limited Partnership of which UPCS is a general partner.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current assets $3,396,000 $3,079,000
Property and equipment, net 5,542,000 3,216,000
Total Assets $8,938,000 $6,295,000
Current Liabilities $1,245,000 $1,047,000
Partners' Equity $7,693,000 $5,248,000
Operating Revenues $7,332,000 $5,373,000
Net Income $2,445,000 $1,970,000
</TABLE>
Note K: Income Taxes
The Company implemented FASB Statement No. 109, Accounting
for Income Taxes, in 1993. The Company has recognized the
following deferred tax liabilities and deferred tax assets:
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/96 12/31/95
<S> <C> <C>
Federal Deferred Income Taxes
Investment tax credit $ 30,398 $ 34,448
Cellular partnerships 67 45,173
Net operating loss 72,088 96,862
Valuation allowance - 0 - (11,834)
Total federal deferred
income taxes 102,553 164,649
State Deferred Income Taxes - 0 - - 0 -
Total Deferred Income Taxes $ 102,533 $ 164,649
</TABLE>
The Company has recorded deferred income taxes on the
following temporary timing differences: Use of
investment tax credit deferral method, partnership
differences and net operating loss carryforwards.
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note K: Income Taxes - (Continued)
The Company has elected to defer income tax savings
earned by investment tax credit and is amortizing these
savings over the service life of the assets on which the
investment tax credit was taken. Amortization of
investment tax credits amount to $11,941 for the year
1996 and $12,157 for the year 1995. The Company has no
investment tax credits to carryforward to future years.
UPCN and UPCS have recorded deferred income taxes on the
differences between net undistributed income from their
investments in cellular partnerships and their K-1's from
the partnerships.
The subsidiaries have net operating loss carryforwards
since the companies have elected to file separate income
tax returns instead of filing a consolidated income tax
return. At December 31, 1996 the following subsidiaries
have net operating loss carryforwards: Alpha - $106,927
and UPCN - $105,097. These losses can be used to offset
future taxable income subject to limitations. These
carryforwards will begin to expire in 2006.
Alpha had recorded a valuation allowance for the deferred
tax asset resulting from the net operating losses. This
valuation allowance was eliminated during 1996.
The following is a breakdown of the components of income
tax expense:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal:
Taxes currently payable $1,053,865 $ 892,699
Deferred income taxes 110,388 127,646
Valuation allowance (11,834) (111,005)
ITC amortization (11,941) (12,157)
Prior year accrual difference (9,628) 3,586
Total federal income
tax expense 1,130,850 900,769
State:
Taxes currently payable 69,629 65,076
Prior year accrual difference 33
Total state income tax expense 69,662 65,076
Total Income Tax Expense $1,200,512 $ 965,845
</TABLE>
<PAGE>
UPPER PENINSULA TELEPHONE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1996 and 1995
Note L: Dividend Restriction
Under the most restrictive provisions of the Company's
RUS loan agreement, there is approximately $5,799,500 of
the Companies retained earnings available for dividend
distribution.
Note M: Accounting Change
During 1996, UPCN and UPCS changed their method of
carrying their investment in cellular partnerships from
cost to equity. UPCN and UPCS made this change due to
the appearance of significant influence over the
operations of the partnerships since they are each
general partners in the respective partnerships. Under
the cost method, income is recorded only when
distributions are received. Under the equity method, the
companies record their proportionate share of the
earnings of the respective cellular partnerships. The
effect of this change was to decrease net income for 1996
by $44,753. The financial statements for 1995 have been
restated for the change which resulted in an increase in
net income for 1995 of $144,193. Retained earnings as of
the beginning of 1995, has been decreased by $99,440 for
the effect of retroactive application of the new method.
<PAGE>
LYNCH CORPORATION
Pro Forma Combined Condensed Balance Sheet and Statements of Operations
The following unaudited pro forma combined condensed balance sheet and
statement of operations have been prepared from the historical results of
operations of both Lynch Corporation and Upper Peninsula Telephone Company.
The pro forma balance sheet is presented as if the acquisition of approximately
60% of Upper Peninsula Telephone Company had occurred at December 31, 1996.
The allocations of purchase price to assets acquired and liabilities assumed,
including related amortization, are based on preliminary estimates and may be
adjusted when the final fair value allocations are determined. The pro forma
statement of operations reflect the combined revenues and expenses of Lynch
Corporation and Upper Peninsula Telephone Company as if the acquisition had
been consummated at the beginning of the period presented.
These statements should be read in conjunction with the historical
financial statements of Upper Peninsula Telephone Company included elsewhere
in this Form 8-K/A(1) and the historical financial statements of Lynch,
included in Lynch's most recently filed Forms 10-K and 10-Q including the
notes thereto . The pro forma combined results are not necessarily
indicative of the combined results of future operations.
Subsequent Event
It should be noted that subsequent to the reportable event of March 18,
1997, on which these pro forma financials have been based, the Registrant
acquired on May 23, 1997, pursuant to a plan of share exchange, the remaining
39.47% of the stock of Upper Peninsula Telephone Company. The acquisition
price is approximately $10.0 million, to be paid for in cash (or at the
option of minority shareholders in notes) as soon as reasonably practicable
after June 30, 1997. As a result of this transaction, the minority interests
reflected in the pro forma balance sheet and income statement would have bee
eliminated and such items as goodwill, debt, and interest would increase.<PAGE>
LYNCH CORPORATION
Notes to Pro Forma Combined Condensed Balance Sheet
(1) Cash used to purchase 60.53% of Upper Peninsula Telephone Company. The
total purchase price was $16.0 million including approximately $0.7
million in closing costs. Of the $16.0 million, $10.0 million was
borrowed from lending institutions.
(2) Reflects the write-up of Upper Peninsula Telephone Company's
cellular interests to fair market value before taxes.
(3) Excess purchase price, including estimated acquisition costs of $0.7
million, over the estimated fair value of net assets acquired.
(4) Additional long-term debt incurred to finance the acquisition of Upper
Peninsula Telephone Company.
(5) Deferred tax liability related to the write-up of Upper Peninsula's
cellular interests.
(6) Adjustment of minority interest represents 39.47% of Upper Peninsula's
equity retained by minority shareholders.
(7) Elimination of Upper Peninsula Telephone's equity.
<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1996
LYNCH Upper Lynch
10-K Peninsula Adjustments Pro Forma
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 33,946 $ 1,027 $ (6,000)(1) $ 28,973
Marketable securities 2,156 0 $ 2,156
Receivables, net 52,963 1,288 $ 54,251
Inventories 36,859 298 $ 37,157
Deferred income taxes 5,571 14 $ 5,585
Other current assets 8,598 61 $ 8,659
Total Current Assets 140,093 2,688 (6,000) 136,781
Property, Plant and Equipment-net 131,364 21,817 $153,181
Investments in & advances
to PCS entities 34,116 0 $ 34,116
Investments in & advances
to affiliated companies 2,529 0 $ 2,529
Investments in cellular
partnerships 1,759 6,531(2) $ 8,290
Excess of costs over fair value
of assets acquired 69,206 3,238(3) $ 72,444
Other Assets 15,312 544 $ 15,856
Total Assets $392,620 $ 26,808 $ 3,769 $423,197
Current Liabilities:
Notes payable to banks $ 17,419 $ 100 $ 17,519
Trade accounts payable 20,998 450 $ 21,448
Accrued liabilities 29,893 111 $ 30,004
Customer advances 6,382 34 $ 6,416
Current portion of
long-term debt 23,769 285 833(4) $ 24,887
Total current liabilities 98,461 980 833 100,274
Long-term debt 219,579 11,865 9,167(4) $240,611
Deferred income taxes 22,389 0 2,221(5) $ 24,610
Minority interests 13,268 0 5,511(6) $ 18,779
Shareholders' Equity
Common stock 5,139 85 (85)(7) $ 5,139
Additional paid-in capital 8,417 393 (393)(7) $ 8,417
Retained Earnings 26,472 13,485 (13,485)(7) $ 26,472
Treasury stock (1,105) $ (1,105)
Total shareholders' equity 38,923 13,963 (13,963) 38,923
Total liabilities and
shareholders' equity $392,620 $ 26,808 $ 3,769 $423,197
</TABLE>
<PAGE>
LYNCH CORPORATION
Notes to Pro Forma Combined Condensed Statement of Income
(1) Reflects an adjustment to provide for the pro forma effect of goodwill
amortization for the year ended December 31, 1996. The pro forma
estimate of goodwill was $3.2 million and the amortization period is
twenty-five years.
(2) Represents interest expense on additional debt of $10.0 million related
to the acquisition of Upper Peninsula Telephone Company at an interest
rate of 9%.
(3) Reflects the adjustment to provide income tax benefits at the effective
tax rate on the pro forma adjustments for the respective period.
(4) Reflects 39.47% of the net income of Upper Peninsula Telephone Company
controlled by minority shareholders.
<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1996
Lynch Upper Lynch
10-K Peninsula Adjustments Pro Forma
<S> <C> <C> <C> <C>
SALES AND REVENUES:
Multimedia $28,608 8,532 37,140
Services 132,208 132,208
Manufacturing 291,064 291,064
451,880 8,532 0 460,412
COSTS AND EXPENSES:
Multimedia 21,435 3,207 24,642
Services 127,236 127,236
Manufacturing 241,683 241,683
Selling and Administrative 4,586 1,723 130(1) 46,439
OPERATING PROFIT 16,940 3,602 (130) 20,412
Other Income (expense):
Investment Income 2,203 49 2,252
Interest Expense (17,011) (736) (900)(2) (18,647)
Other Income (Expense) 0 335 335
Share of operations of
affiliated companies 119 0 119
Gain on sales of subsidiary
and affiliate stock 5,146 5,146
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, MINORITY
INTERESTS, DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM 7,397 3,250 (1,030) 9,617
Provision for income taxes (3,021) (1,201) 306(3) (3,916)
Minority Interests 418 (809)(4) (391)
INCOME FROM CONTINUING OPERATIONS
BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM 4,794 2,049 (1,532) 5,311
Discontinued Operations (750) 0 0 (750)
INCOME BEFORE EXTRAORDINARY ITEM 4,044 2,049 (1,532) 4,561
Loss on early extinguishment of
debt, net of income tax benefit (1,348) (1,348)
$ 2,696 $ 2,049 $(1,532) $ 3,213
Weighted Average
Shares Outstanding 1,405,000 1,405,000
Earnings Per Share 1.92 2.29
</TABLE>
