<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter ended September 30, 1996 Commission file number 0-8320
MID-PLAINS, INC.
(Exact Name of Registrant as Specified in Its Charter)
WISCONSIN 39-0274450
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1912 Parmenter Street, P.O. Box 70, Middleton, Wisconsin 53562
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (608) 831-1000
Indicate by checkmark 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
As of September 30, 1996, there were 1,987,554 shares of Common Stock
outstanding.
(Total number of pages - 13)<PAGE>
MID-PLAINS, INC.
3rd QUARTER REPORT ON FORM 10-Q
INDEX
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3 - 4
Consolidated Statements of Income -
Three and Nine Month Periods Ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9 - 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
<PAGE>
MID-PLAINS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30, December 31,
1996 1995
In Thousands
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,185 $ 560
Accounts receivable -
Due from subscribers 960 818
Customer sales and services 737 704
Other, principally connecting companies 1,813 2,073
Inventories
Plant materials and supplies 421 376
Communications systems and parts 783 903
Other 284 486
6,183 5,920
PROPERTY, PLANT AND EQUIPMENT
Telephone, in service and under
construction, at original cost 49,490 46,198
Less Accumulated depreciation (21,689) (16,663)
27,801 29,535
INVESTMENT AND OTHER ASSETS
Cellular limited partnership interest 4,374 4,374
Other 854 885
5,228 5,259
$ 39,212 $ 40,714
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 973 $ 973
Notes payable to banks 5,682 4,440
Accounts payable 2,151 2,949
Accrued taxes 596 48
Other 501 588
9,903 8,998
LONG-TERM DEBT 6,876 7,597
DEFERRED CREDITS
Income taxes 2,121 3,230
Investment tax credits 192 236
Other 840 931
3,153 4,397
SHAREHOLDERS' EQUITY
Common stock 11,837 6,610
Additional paid-in capital 0 5,059
Retained earnings 7,443 8,053
19,280 19,722
$ 39,212 $ 40,714
The accompanying notes to consolidated financial statements are an integral
part of these statements. (UNAUDITED)
</TABLE>
<PAGE>
MID-PLAINS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
In Thousands Except For Per Share Data
<S> <C> <C> <C> <C>
OPERATING REVENUES
Telephone operations
Local network services $1,324 $1,110 $3,622 $3,144
Network access and long
distance network service 3,100 2,806 9,203 8,512
Other 629 610 1,936 1,801
System sales and services 2,256 2,184 5,536 5,018
7,309 6,710 20,297 18,475
OPERATING EXPENSES
Telephone operations
Plant operations 703 602 2,372 1,975
Depreciation 846 783 2,507 2,269
Customer operations 801 606 2,087 1,905
Corporate operations 705 630 2,159 1,771
General taxes 326 250 878 742
System sales and services
Cost of sales and services 1,405 1,459 3,331 3,206
Operating expenses 683 524 1,754 1,510
5,469 4,854 15,088 13,378
OPERATING INCOME 1,840 1,856 5,209 5,097
Other income (5) 6 23 13
Interest expense (279) (288) (817) (693)
INCOME BEFORE INCOME
TAX EXPENSE AND
EXTRAORDINARY ITEM 1,556 1,574 4,415 4,417
Income tax expense 602 598 1,675 1,670
Income Before
Extraordinary Item 954 976 2,740 2,747
Extraordinary Item -0- -0- (1,782) -0-
NET INCOME $ 954 $ 976 $ 958 $2,747
Average shares considered
outstanding 1,985 1,981 1,987 1,978
Earnings per share
Income before
Extraordinary Item $ .48 $ .49 $ 1.38 $ 1.39
Extraordinary Item - - (.90) -
Net Income $ .48 $ .49 $ .48 $ 1.39
Cash dividends per share $ .27 $ .25 $ .79 $ .73
The accompanying notes to consolidated financial statements are an integral
part of these statements. (UNAUDITED)
</TABLE>
<PAGE>
MID-PLAINS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months Ended
September 30, September 30,
1996 1995
In Thousands
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 958 $2,747
Add (Deduct) adjustments to reconcile
net income to net cash provided by
operating activities:
Extraordinary item 1,782 0
Depreciation and amortization 2,579 2,337
Deferred income taxes (1) (28)
Change in accounts and other receivables 85 (602)
Change in inventories 75 (116)
Change in accounts payable (798) 122
Change in other assets and liabilities 708 917
Net cash from operating activities 5,388 5,377
FINANCING ACTIVITIES
Long-term borrowings 0 5,000
Repay long-term debt (721) (3,155)
Change in notes payable to banks 1,242 1,630
Dividends paid (1,568) (1,443)
Stock purchase plan 168 240
Net cash from (used in)
financing activities (879) 2,272
INVESTING ACTIVITIES
Additions to property, plant and equipment (3,984) (5,453)
Investment in cellular partnership 0 (1,995)
Other, net 100 (52)
Net cash used in investing activities (3,884) (7,500)
CASH AND CASH EQUIVALENTS
Net increase during period 625 149
Beginning of period 560 186
End of period $1,185 $ 335
Cash paid during the period:
Interest $ 811 $ 670
Income taxes $1,087 $1,302
The accompanying notes to consolidated financial statements are an integral
part of these statements. (UNAUDITED)
</TABLE>
<PAGE>
MID-PLAINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information in footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes the
disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included
in the Company's Form 10-K for the year ended December 31, 1995.
In the opinion of the Company, the accompanying financial statements
contain all adjustments (consisting of normal recurring accruals and the
items discussed in Note 3) necessary to present fairly the financial
position as of September 30, 1996 and December 31, 1995, and the results
of operations and cash flows for the nine months ended September 30,
1996 and 1995. The results for the nine months ended September 30, 1996
are not necessarily indicative of the results of operations which may be
expected for the entire year ending December 31, 1996.
2. On April 29, 1996, the shareholders approved amendments to the company's
Articles of Incorporation including: changing its name from Mid-Plains
Telephone, Inc. to Mid-Plains, Inc.; changing the Company's common stock
from $3.33 1/3 par value to no par value; and increasing the number of
authorized shares of common stock from 3,000,000 to 25,000,000. As a
result, the common stock and additional paid-in capital accounts of the
company have been modified.
The number of shares issued and outstanding was 1,987,554 and 1,974,400
at September 30, 1996 and December 31, 1995 respectively.
3. On a regular basis management has evaluated the continued applicability
of accounting for its telecommunications operations under Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulations" (SFAS 71).
In the second quarter of 1994, Mid-Plains eliminated certain regulatory
assets of $360,000 and regulatory liabilities of $574,000 related to
employee and retiree benefits which management concluded would not be
realized as a result of the 1994 enactment of the Wisconsin
Telecommunications Act of 1993.
These changes in estimates increased 1994 net income by $130,000.
In the second quarter of 1996, Mid-Plains concluded that generally
accepted accounting principles (GAAP) prescribed by SFAS 71 were no
longer appropriate due to a number of factors including: the Federal
Telecommunications Act of 1996; Mid-Plains' application pending before
the Public Service Commission of Wisconsin (PSCW) for authority to
implement an alternative plan to traditional rate-of-return regulation;
and recognizing potential increased competition.
<PAGE>
As a result of the discontinuation of applying SFAS 71, Mid-Plains
recorded a second quarter extraordinary non-cash after-tax charge of
$1,782,000. The following table is a summary of the extraordinary
charge.
In Thousands
Pretax After tax
Increase in the accumulated
depreciation balance $ 3,036 $ 1,845
Non-plant assets and liabilities (121) (63)
$ 2,915 $ 1,782
The adjustment of $3,036,000 to net telecommunications plant was
necessary as the estimated useful lives historically acceptable to the
PSCW did not keep up with the rapid pace of technological changes in the
industry and differed significantly from those used by unregulated
enterprises. Plant balances were adjusted by increasing the accumulated
depreciation balance.
The increase to the accumulated depreciation balance was supported by a
depreciation analysis that identified inadequate accumulated
depreciation levels which Mid-Plains believes developed over the years
primarily as a result of the systematic under-depreciation of assets
resulting from the regulatory process. An impairment analysis was
performed that did not identify any additional amounts not recoverable
from future operations.
When adjusting its net telecommunications plant, Mid-Plains gave effect
to shorter, more economic realistic lives. The following is a summary
of average lives of the affected telephone plant before and after the
discontinuance of SFAS 71.
Asset Category Before After
Digital Switching Equipment 13 10
Underground Metallic Cable 28 20
Buried Metallic Cable 23 19
<PAGE>
MID-PLAINS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 1996 decreased $22,000 as
compared to the same period in 1995. Net income for the first nine months of
1996 decreased $1,789,000 as compared to the same period in 1995 due primarily
to an extraordinary charge against income of $1,782,000 relating to the
discontinuance of regulatory accounting principles as discussed below. Income
before extraordinary item for the nine months ended September 30, 1996
decreased $7,000 as compared to the same period in 1995. Other factors
influencing the results of operations are also discussed below.
OPERATING REVENUES
Telephone Operations
Local network services revenues increased $214,000 and $478,000 for the three
and nine months ended September 30, 1996 as compared to the same periods in
1995. These revenues increased principally as a result of higher demand for
services, as evidenced by an 8.3 percent growth in access lines during the
last 12 months. Additionally, effective September 1, 1996, the Company
implemented its Alternative Regulation Plan which had the effect of increasing
local network services revenues $114,000 for the month of September 1996 (see
Regulatory Matters below).
Interstate network access and long distance network services revenues
increased $238,000 and $410,000 for the three and nine months ended September
30, 1996 as compared to the same periods in 1995. These revenues increased
largely due to higher demand for access services as evidenced by an increase
in minutes of use of 10.4 percent and 11.1 percent for the three and nine
months ended September 30, 1996 as compared to the same periods in 1995.
Intrastate network access and long distance network services revenues
increased $56,000 and $281,000 for the three and nine months ended September
30, 1996 as compared to the same periods in 1995. The increase in these
revenues was primarily due to higher demand for access services as evidenced
by an increase in minutes of use of 8.7 percent and 8.3 percent for the three
and nine months ended September 30, 1996 as compared to the same periods in
1995. This increase was offset by $77,000 due to the effects of rate
reductions resulting from the Company's implementation of their Alternative
Regulation Plan on September 1, 1996 (See Regulatory Matters below).
System Sales and Services
System sales and services revenues increased $72,000 and $518,000 for the
three and nine months ended September 30, 1996 as compared to the same
periods in 1995. These increases were due primarily from the growth in new
system sales and higher equipment pricing. Additionally, the nine months'
revenues were increased due to a one-time commission settlement of $179,000
recorded in the second quarter of 1996.
<PAGE>
OPERATING EXPENSES
Telephone Operations
Telephone operating expenses, which include plant, depreciation, customer
operations, corporate operations and general taxes, increased $510,000 and
$1,341,000 for the three and nine months ended September 30, 1996,
respectively, as compared to the same periods in 1995.
The increases in plant, customer and corporate operations were due primarily
to growth in internal operations. Additionally, plant operations increased
$76,000 and $194,000 for the three and nine months ended September 30, 1996,
respectively, as compared to the same periods in 1995, due to costs associated
with providing Internet access.
The increase in depreciation expense of $63,000 and $238,000 for the three and
nine months ended September 30, 1996, respectively, as compared to the same
periods in 1995, was due to additional plant investment.
System Sales and Services
As a percent of system sales and services revenues, Cost of Sales and Services
was 62.3 percent for the three months ended September 30, 1996 as compared to
66.8 percent for the same period in 1995. For the nine months ended September
30, 1996 this percentage was 60.2 percent as compared to 63.9 percent for the
same period in 1995. These changes were primarily the result of the Company's
higher equipment pricing. Additionally, the Cost of Sales and Service
percentage for the nine months ended September 30, 1996, was affected by a one
time settlement of commission revenues of $179,000 recorded in the second
quarter of 1996.
System sales and services operating expenses increased $159,000 and $244,000
for the three and nine months ended September 30, 1996, respectively, as
compared to the same periods in 1995. These changes were primarily due to
growth in internal operations and an increase in incentives.
EXTRAORDINARY ITEM - DISCONTINUANCE OF REGULATORY ACCOUNTING PRINCIPLES
As described in Note 3 to the consolidated financial statements, Mid-Plains
discontinued applying Statement of Financial Accounting Standards No. 71 (SFAS
71), "Accounting for the Effects of Certain Types of Regulation" in the second
quarter of 1996. Mid-Plains determined that it no longer met the criteria for
following SFAS 71 due to changes in the legislative, regulatory and
competitive environments. Future business transactions will be recorded
following their economic substance, and regulatory assets and liabilities
pursuant to SFAS 71 will no longer be recognized.
As a result of discontinuation of SFAS 71, Mid-Plains expects 1996 and 1997
depreciation expense to approximate 1995 levels. Depreciation expense in 1998
and beyond will likely be decreased as the effect of central office equipment
upgrading is completed.
Although Mid-Plains' recorded assets and net equity were reduced as a result
of this discontinuance of application of SFAS 71, no material impact on
current and future cash flows is anticipated.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operations of the Company and its subsidiary for the
nine months ended September 30, 1996 was $5,388,000. The net increase in
external financing during the same time period was $689,000. Total
construction expenditure for the nine months ended September 30, 1996 was
$3,984,000.
The Company plans to meet its 1996 cash requirements with cash flows from
operations and debt financing. The Company is currently negotiating to borrow
long-term financing to reduce their current short-term debt. At November 7,
1996, the Company has available unused lines-of-credit of $3,300,000. The
Company has experienced no difficulty in obtaining funds for its construction
program or other purposes, however, management is unable to predict the
potential impact of competition on the Company's future cash flow.
The Company is currently bidding in the Federal Communication Commission's PCS
auction for a license to provide PCS service (a wireless personal phone
service). If the company is successful in acquiring the license, management
anticipates that significant additional equity and debt may be required.
REGULATORY MATTERS
On August 27, 1996, the Public Service Commission of Wisconsin approved the
Company's application for an Alternative Regulation Plan. Under this
five-year plan, the Company is required to maintain certain basic residential
and business rates under a rate ceiling as well as reduce access charges
received from intrastate long distance providers. In return, the plan
eliminated the tie between local rates and rate-of-return regulation. As
part of the Plan, effective September 1, 1996 local rates on residential and
standard business lines were increased, while access rates paid by long
distance carriers to the Company for intrastate access were lowered. While
the changes noted above were designed to be revenue neutral to the Company,
they greatly assisted positioning the Company to better meet the competition
of the future.
<PAGE>
MID-PLAINS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits I - None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the nine months
ended September 30, 1996.
SIGNATURES
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 thereunto duly authorized.
MID-PLAINS, INC.
(Registrant)
Date November 13, 1996 /s/ Howard G. Hopeman
Howard G. Hopeman, Vice-President and
Chief Financial Officer
Date November 13, 1996 /s/ Fredrick E. Urben
Fredrick E. Urben, Vice-President,
Administration & Human Relations, Secretary
& Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,185
<SECURITIES> 0
<RECEIVABLES> 3,510
<ALLOWANCES> 0
<INVENTORY> 1,204
<CURRENT-ASSETS> 6,183
<PP&E> 49,490
<DEPRECIATION> 21,689
<TOTAL-ASSETS> 39,212
<CURRENT-LIABILITIES> 9,903
<BONDS> 0
0
0
<COMMON> 11,837
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,212
<SALES> 0
<TOTAL-REVENUES> 20,297
<CGS> 0
<TOTAL-COSTS> 15,088
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 817
<INCOME-PRETAX> 4,415
<INCOME-TAX> 1,675
<INCOME-CONTINUING> 2,740
<DISCONTINUED> 0
<EXTRAORDINARY> (1,782)
<CHANGES> 0
<NET-INCOME> 958
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
<PAGE>
</TABLE>
