SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
-------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-15097
-------
LYNCH INTERACTIVE CORPORATION
-----------------------------
(Exact name of Registrant as specified in its charter)
Delaware 06-1458056
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Theodore Fremd Avenue, Rye, New York 10580
---------------------------------------- -----
Address of principal executive offices) (Zip Code)
(914) 921-8821
--------------
Registrant's telephone number, including area code
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 the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practical date.
Class Outstanding at July 30, 2000
----- ----------------------------
Common Stock, $.0001 par value 1,411,983
<PAGE>
INDEX
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets
- June 30, 2000
- December 31, 1999
Condensed Statements of Operations:
- Three and six months ended June 30, 2000 and 1999
Condensed Statements of Cash Flows:
- Six months ended June 30, 2000 and 1999
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
<PAGE>
<TABLE>
<CAPTION>
LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
CONDENSED BALANCE SHEETS
(In thousands)
June 30, December 31,
2000 1999
------------ ------------
ASSETS (Unaudited) (Note)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .................................................. $ 34,202 $ 31,354
Marketable securities ...................................................... 1,602 1,587
Receivables, less allowances of $370 and $415 .............................. 18,155 16,875
Deferred income taxes ...................................................... 3,404 3,404
Other current assets ....................................................... 7,209 7,573
--------- ---------
TOTAL CURRENT ASSETS ........................................................... $ 64,572 $ 60,793
PROPERTY, PLANT AND EQUIPMENT:
Land ....................................................................... 1,348 1,347
Buildings and improvements ................................................. 10,576 10,522
Machinery and equipment .................................................... 148,044 142,558
--------- ---------
$ 159,968 $ 154,427
Accumulated Depreciation ................................................... (64,141) (58,497)
--------- ---------
95,827 95,930
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET ..................... 60,464 62,845
IVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES .............................. 6,263 9,479
INVESTMENT IN SPINNAKER INDUSTRIES INC ......................................... 9,250 11,875
OTHER ASSETS ................................................................... 13,463 13,047
--------- ---------
TOTAL ASSETS ................................................................... $ 249,839 $ 253,969
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks ..................................................... $ 4,202 $ 3,271
Trade accounts payable ..................................................... 4,450 4,465
Accrued interest payable ................................................... 833 805
Accrued liabilities ........................................................ 19,655 21,751
Customer advances .......................................................... 1,817 1,974
Current maturities of long-term debt ....................................... 15,979 16,445
--------- ---------
TOTAL CURRENT LIABILITIES ...................................................... 46,936 48,711
LONG-TERM DEBT ................................................................. 147,424 149,256
DEFERRED INCOME TAXES .......................................................... 12,351 13,220
OTHER LIABILITIES .............................................................. 5,101 5,817
MINORITY INTERESTS ............................................................. 10,217 10,054
SHAREHOLDERS' EQUITY
COMMON STOCK, $0.0001 PAR VALUE-10,000,000 SHARES AUTHORIZED;
2,824,766 issued (at stated value) ............................................. 0 0
ADDITIONAL PAID - IN CAPITAL ............................................... 21,404 21,404
RETAINED EARNINGS (ACCUMULATED DEFICIT) .................................... 1,972 (1,713)
ACCUMULATED OTHER COMPREHENSIVE INCOME ..................................... 4,474 7,240
TREASURY STOCK, 800 AND 400 SHARES AT COST ................................. (40) (20)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY .................................................. 27,810 $ 26,911
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................... $ 249,839 $ 253,969
<FN>
========= =========
Note: The Balance Sheet at December 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months
June 30, Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
--------------------------- ------------ ------------
SALES AND REVENUES
<S> <C> <C> <C> <C>
Multimedia .................................................. $ 16,019 $ 13,955 $ 31,590 $ 27,342
Services .................................................... 29,961 40,270 57,828 75,595
----------- ----------- ----------- -----------
45,980 54,225 89,418 102,937
Costs and expenses:
Multimedia .................................................. 11,482 9,584 22,674 19,169
Services .................................................... 27,575 37,184 53,981 69,496
Selling and administrative .................................. 3,160 3,200 6,162 6,448
----------- ----------- ----------- -----------
OPERATING PROFIT ............................................ 3,763 4,257 6,601 7,824
Other income (expense):
Investment income ......................................... 1,233 218 1,737 1,034
Interest expense .......................................... (3,229) (2,563) (6,459) (5,247)
Equity in earnings of affiliated companies ................ 970 44 1,269 103
Gain on redemption of East/West preferred stock ........... 0 0 4,125 0
Reserve for impairment of investment in PCS license holders 0 0 0 (15,406)
----------- ----------- ----------- -----------
(1,026) (2,301) 672 (19,516)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTERESTS AND EXTRAORDINARY ITEM ........................... 2,737 1,956 7,273 (11,692)
(Provision) benefit for income taxes ........................ (1,338) (776) (3,425) 3,766
Minority Interests .......................................... (266) (232) (163) (431)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 1,133 $ 948 $ 3,685 $ (8,357)
----------- ----------- ----------- -----------
LOSS FROM EARLY EXTINGUISHMENT OF DEBT,
NET OF TAX BENEFIT OF $105 .................................. 0 0 0 (160)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ........................................... $ 1,133 $ 948 $ 3,685 $ (8,517)
=========== =========== =========== ===========
Basic weighted average shares ............................... 2,824,000 2,832,000 2,824,000 2,834,000
Diluted weighted average shares ............................. 2,824,000 2,832,000 3,412,000 2,834,000
BASIC EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ..................... $ 0.40 $ 0.33 $ 1.30 $ (2.95)
EXTRAORDINARY ITEM .......................................... 0 0 0 (0.06)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ........................................... $ 0.40 $ 0.33 $ 1.30 $ (3.01)
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ..................... $ 0.40 $ 0.33 $ 1.23 $ (2.95)
EXTRAORDINARY ITEM .......................................... 0 0 0 (0.06)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ........................................... $ 0.40 $ 0.33 $ 1.23 ($ 3.01)
=========== =========== =========== ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<CAPTION>
Six Months Ended
June 30,
2000 1999
---------- -----------
<S> <C> <C>
Net Income (loss) .................................................. $ 3,685 $ (8,517)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ................................... 8,281 7,338
Unrealized (gain) loss on trading securities .................... (15) (316)
Deferred income taxes ........................................... 0 (5,573)
Share of operations of affiliated companies ..................... (1,269) (103)
Gain on redemption of East/West preferred stock ................. (4,125) 0
Gain on sale of available for sale securities ................... (703) --
Minority interests .............................................. 163 431
Reserve for impairment of PCS licenses .......................... 0 15,406
Changes in operating assets and liabilities:
Receivables ................................................ (1,280) (519)
Accounts payable and accrued liabilities ................... (2,665) (1,064)
Other ...................................................... (360) 863
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 1,712 7,946
-------- --------
INVESTING ACTIVITIES
Capital Expenditures ............................................... (6,628) (4,030)
Investment in and advances to wireless telecommunications affiliates (395) 0
Proceeds from redemption of East/West preferred stock .............. 8,712 0
Proceeds from sale of available-for-sale securities ................ 1,189 --
Other .............................................................. (363) (110)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................ 2,515 (4,140)
-------- --------
FINANCING ACTIVITIES
Repayments of long term debt ....................................... (2,298) (3,746)
Net borrowings (repayments), lines of credit ....................... 931 (6,846)
Treasury stock transactions ........................................ (20) 0
Advances to Lynch Corporation ...................................... 0 (1,260)
Other .............................................................. 8 (1,003)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES .............................. (1,379) (12,855)
-------- --------
Net increase (decrease) in cash and cash equivalents ............... 2,848 (9,049)
Cash and cash equivalents at beginning of period ................... 31,354 27,021
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 34,202 $ 17,972
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. Subsidiaries of the Registrant
-----------------------------------
As of June 30, 2000, the Subsidiaries of the Registrant are as follows:
<TABLE>
<CAPTION>
Subsidiary Owned by Lynch
------------ --------------
<S> <C>
Brighton Communications Corporation ............ 100.0%
Lynch Telephone Corporation IV ............... 100.0%
Bretton Woods Telephone Company ............ 100.0%
World Surfer, Inc. ......................... 100.0%
Lynch Kansas Telephone Corporation ........... 100.0%
Lynch Telephone Corporation VI ............... 98.0%
JBN Telephone Company, Inc. ................ 98.0%
JBN Finance Corporation .................. 98.0%
Giant Communications, Inc. ................. 100.0%
Lynch Telephone Corporation VII ............ 100.0%
USTC Kansas, Inc. ........................ 100.0%
Haviland Telephone Company, Inc. ........ 100.0%
Haviland Finance Corporation ........... 100.0%
DFT Communications Corporation ............... 100.0%
Dunkirk & Fredonia Telephone Company ....... 100.0%
Cassadaga Telephone Company .............. 100.0%
Macom, Inc. ............................ 100.0%
Comantel, Inc. ........................... 100.0%
Erie Shore Communications, Inc. ........ 100.0%
D&F Cellular Telephone, Inc. ........... 100.0%
DFT Long Distance Corporation .............. 100.0%
DFT Local Service Corporation .............. 100.0%
LMT Holding Corporation ...................... 100.0%
Lynch Michigan Telephone Holding Corporation 100.0%
Upper Peninsula Telephone Company ...... 100.0%
Alpha Enterprises Limited .............. 100.0%
Upper Peninsula Cellular North, Inc. . 100.0%
Upper Peninsula Cellular South, Inc. . 100.0%
Lynch Telephone Corporation IX ............... 100.0%
Central Scott Telephone Company ............ 100.0%
CST Communications Inc. ................ 100.0%
Global Television, Inc. ...................... 100.0%
Inter-Community Acquisition Corporation ...... 100.0%
Home Transport Service, Inc. ................. 100.0%
Lynch Capital Corporation .................... 100.0%
Lynch Entertainment, LLC ..................... 100.0%
Lynch Entertainment Corporation II ........... 100.0%
Lynch Multimedia Corporation ................. 100.0%
CLR Video, LLC ............................. 60.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Subsidiary Owned by Lynch
------------ ----------------
<S> <C>
The Morgan Group, Inc. ................................ 70.0%(V)/55.4%(O)
Morgan Drive Away, Inc. ............................... 70.0%(V)/55.4%(O)
Transport Services Unlimited, Inc. ................ 70.0%(V)/55.4%(O)
Interstate Indemnity Company ........................ 70.0%(V)/55.4%(O)
Morgan Finance, Inc. ................................ 70.0%(V)/55.4%(O)
TDI, Inc. ........................................... 70.0%(V)/55.4%(O)
Home Transport Corporation ........................ 70.0%(V)/55.4%(O)
MDA Corporation ................................... 70.0%(V)/55.4%(O)
Lynch PCS Communications Corporation .................. 100.0%
Lynch PCS Corporation A ............................. 100.0%
Lynch PCS Corporation F ............................. 100.0%
Lynch PCS Corporation G ............................. 100.0%
Lynch PCS Corporation H ............................. 100.0%
Lynch Paging Corporation ............................ 100.0%
Lynch Telecommunications Corporation .................. 100.0%
Lynch Telephone Corporation ......................... 83.1%
Western New Mexico Telephone Company, Inc. ........ 83.1%
Interactive Networks Corporation .................. 83.1%
WNM Communications Corporation .................... 83.1%
Wescel Cellular, Inc. ............................. 83.1%
Wescel Cellular of New Mexico, L.P. ............. 42.4%
Wescel Cellular, Inc. II .......................... 83.1%
Northwest New Mexico Cellular, Inc. ............. 40.6%
Northwest New Mexico Cellular of New Mexico, L.P. 20.7%
Enchantment Cable Corporation ................. 83.1%
Lynch Telephone II, LLC ............................... 100.0%
Inter-Community Telephone Company, LLC ............. 100.0%
Inter-Community Telephone Company II, LLC ........ 100.0%
Valley Communications, Inc. ........................ 100.0%
Lynch Telephone Corporation III ....................... 81.0%
Cuba City Telephone Exchange Company ............... 81.0%
Belmont Telephone Company .......................... 81.0%
<FN>
Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</FN>
</TABLE>
<PAGE>
B. Organization
-------------------
On August 12, 1999, the Board of Directors of Lynch Corporation ("Lynch")
approved in principle the spin-off to its shareholders of its multimedia and
services businesses as an independent publicly traded company (the "Spin-off").
The multimedia and services businesses and the independently publicly traded
company to which the assets and liabilities were contributed are hereinafter
referred to as Lynch Interactive Corporation (the "Company," "Lynch Interactive"
or "Interactive"). Prior to and contemporaneous with the Spin-Off, certain legal
and regulatory actions were taken to perfect the existence of the above
mentioned affiliated multimedia and service companies as subsidiaries of Lynch
Interactive. The Spin-Off occurred on September 1, 1999. At the Spin-Off, Lynch
distributed 100 percent of the outstanding shares of common stock of its
wholly-owned subsidiary, Interactive, to holders of record of Lynch's common
stock as of the close of business on August 23, 1999. As part of the Spin-Off,
Interactive received one million shares of common stock of Spinnaker Industries,
Inc. representing an approximate 13.6% equity ownership interest (and an
approximate 2.5% voting interest) and Lynch Interactive also assumed certain
short-term and long-term debt obligations of Lynch. Net assets contributed by
Lynch, were estimated to be approximately $23 million at the date of the
Spin-Off. Such amount was subsequently decreased in the fourth quarter by $1.6
million to reflect a revision in the allocation of certain liabilities. Prior to
the spin-off, Interactive succeeded to the credit facilities established by
Lynch.
In April 1999, Lynch received an Internal Revenue Service private letter ruling
that the distribution to its shareholders of the stock of Lynch Interactive
qualifies as tax-free for Lynch and its shareholders. In connection with
obtaining the rulings from the Internal Revenue Service ("IRS") as to the
tax-free nature of the Spin Off, Lynch made certain representations to the IRS,
which include, among other things, certain representations as to how Lynch and
Interactive intend to conduct their businesses in the future.
C. Basis of Presentation
---------------------------
As of June 30, 2000 and December 31, 1999, and for the three and six months
ended June 30, 2000, the accompanying financial statements represent the
consolidated accounts of Interactive. For the three and six months ended June
30, 1999, the financial statements have been prepared using the historical basis
of assets and liabilities and historical results of operations of the multimedia
and services businesses and other assets and liabilities, which were contributed
to Interactive. However, for the three and six months periods ended June 30,
1999, financial information reflects a period during which the Company did not
operate as an independent public company and, accordingly, certain assumptions
were made in preparing such financial information. Such information, therefore,
may not necessarily reflect the results of operations, financial condition or
cash flows of the Company in the future or what they would have been had the
Company been an independent public company during the reporting periods.
Investments in affiliates in which the Company does not have a majority voting
control are accounted for in accordance with the equity method. All material
intercompany transactions and balances have been eliminated. The Company
consolidates the operating results of its telephone and cable television
subsidiaries (60-100% owned December 31, 1999 and June 30, 2000) and The Morgan
Group, Inc. ("Morgan"), in which, at December 31, 1999 and June 30, 2000, the
Company owned 70.0% of the voting power and 55.4% of common equity. The Company
accounts for following affiliated companies on the equity basis of accounting:
Coronet Communications Company (20% owned at June 30, 2000), Capital
Communications Company, Inc. (49% owned at June 30, 2000), Fortunet
Communications, L.L.P. (49.9% owned at June 30, 2000), and the cellular
partnership operations in New Mexico (17% to 21% owned at June 30, 2000).
The shares of Spinnaker Industries, Inc., in which the company owns 2.5% of the
voting power and 13.6% of the common equity, are accounted for in accordance
with Statements of Financial Accounting Standards (SFAS) No. 115 "Investment in
Debt and Equity Securities."
Lynch had historically provided substantial support services such as finance,
cash management, legal and human resources to its various business units. Lynch
allocated the cost for these services among the business units supported based
principally on informal estimates of time spent by the corporate office on both
Interactive and Lynch matters. In the opinion of management, the method of
allocating these costs is reasonable; however, the costs of these services
allocated to the Company are not necessarily indicative of the costs that would
have been incurred by Interactive on a stand-alone basis.
At the Spin Off, the employees of the corporate office of Lynch Corporation
became employees of the Registrant and the Registrant began providing certain
corporate management services to Lynch Corporation, which is charged a
management fee for these services. This charge was $60,000 and $180,000 for the
three and six months ended June 30, 2000, respectively.
Lynch Interactive and Lynch have entered into certain agreements governing
various ongoing relationships, including the provision of support services and a
tax allocation agreement. The tax allocation agreement provides for the
allocation of tax attributes to each company as if it had actually filed with
the respective tax authority.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Articles 10 and 11 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month and
six-month period ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
D. Accounting and Reporting Policies
--------------------------------------
Securities and Exchange Commission's Staff Accounting Bulletin 101summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in the financial statements. The Registrant is
currently assessing the impact, if any, that SAB will have on its revenue
recognition policy when it is adopted in the fourth quarter of 2000.
E. Acquisitions
------------------
On July 16, 1999, Lynch Telephone Corporation IX, a subsidiary of the
Registrant, acquired by merger, all of the stock of Central Scott Telephone
Company for approximately $28.4 million in cash. As a result of this
transaction, the Registrant recorded approximately $17.0 million in goodwill,
which is being amortized over 25 years. During the three months ended June 30,
2000, the Registrant finalized the accounting for its acquisition of Central
Scott Telephone Company. This finalization increased other assets by $1.4
million, increased deferred income tax liability by $1.1 million, reduced
accumulated other comprehensive income by $0.6 million, net of taxes, and
decreased goodwill by $0.9 million.
The above acquisition was accounted for as a purchase, and accordingly, the
assets acquired and liabilities assumed were recorded at their estimated fair
market values.
The operating results of the acquired company are included in the Statements of
Operations from its acquisition date. The following unaudited pro forma
information shows the results of the Registrant's operations as though the
acquisition of Central Scott was made at the beginning of 1999. (In Thousands of
Dollars, except per share data.)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------------- ------------------------
<S> <C> <C> <C> <C>
Sales and Revenues ........................ $ 45,980 $ 54,876 $ 89,418 $ 104,719
Net Income (loss) before Extraordinary Item 1,133 741 3,685 (8,665)
Basic Earnings (loss) per share ........... 0.40 0.26 1.30 (3.06)
Diluted Earnings (loss) per share ......... 0.40 0.26 1.23 (3.06)
</TABLE>
F. Investment in and Advances to Affiliates Entities
------------------------------------------------------
During 2000, a subsidiary of the Registrant made investments in and advances to
two separate 49% owned entities of $15.1 million in total; these funds were used
as part of deposits that were made to Federal Communications Commission by these
entities to be eligible to bid in auctions for spectrum to be used in wireless
applications. The results of the auction were that the entities were high
bidders in licenses with a net cost of $1.5 million and the excess funds were
returned.
The Registrant has investments in two cellular telephone partnerships. During
the three months ended June 30, 2000, these partnerships sold the cellular
towers. As a result of this sale, Interactive recognized a gain of $0.7 million,
prior to tax and minority interest effects.
G. Indebtedness
-----------------
On a consolidated basis, at June 30, 2000, the Registrant maintained short-term
lines of credit facilities totaling $40.0 million, of which $22.3 million was
available. The parent company of the Registrant maintains two short-term lines
of credit facilities totaling $20.0 million, all of which was available at June
30, 2000. The parent company facilities will expire on August 31, 2000. The
Morgan Group maintains a line and letter of credit facility totaling $20.0
million, of which $2.3 million was available at June 30, 2000 due to borrowing
base considerations and outstanding letters of credit. The Morgan Group facility
expires on February 28, 2001. In general, the credit facilities are secured by
receivables and common stock of certain subsidiaries and affiliates, in
addition, certain covenants of the Morgan facility restricts distributions.
<TABLE>
<CAPTION>
Long-term debt consists of: June 30, December 31,
2000 1999
---------------------
(In thousands)
<S> <C> <C>
Rural Electrification Administration (REA) and Rural Telephone Bank (RTB) notes
payable through 2027 at fixed interest rates ranging from 2% to 7.5% (4.9%
weighted average at June 30, 2000 and 4.8% at December 31, 1999),
secured by assets of the telephone companies of $113.9 million ................. $ 49,695 $ 48,892
Bank Credit facilities utilized by certain telephone and telephone holding
companies through 2009, $44.6 million at a fixed interest rate averaging 8.2%
($46.9 million, averaging 8.2% ad December 31, 1999) and $13.4 million at
variable interest rates averaging 8.3% ($13.8 million averaging
8.1% at December 31, 1999) .................................................... 57,950 60,740
Unsecured notes issued in connection with acquisitions through 2006, at fixed
interest rate of 10.0% ......................................................... 27,456 27,654
Convertible subordinated note due in December 2004 at fixed interest rate
of 6%........................................................................... 25,000 25,000
Other .......................................................................... 3,302 3,415
--------- ---------
163,403 165,701
Current Maturities ............................................................. (15,979) (16,445)
--------- ---------
$ 147,424 $ 149,256
========= =========
</TABLE>
H. Comprehensive Income
-----------------------------
Balances of accumulated other comprehensive income-net of tax, which consists of
unrealized gains (losses) on available for sale of securities, at December 31,
1999 and June 30, 2000 is as follows (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1999 ................ $ 7,240
Adjustment relating to acquisition accounting (566)
Reclassification adjustment ................. (435)
Current year unrealized losses .............. (1, 765)
-------
Balance at June 30, 2000 ................ $ 4,474
=======
</TABLE>
The comprehensive income (loss), for the three and six months periods ending in
June 30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
-------------------
<S> <C> <C>
Net Income for the period .................................................. $ 1,133 $ 948
Unrealized gains (losses) on available for sale securities - net of income
tax benefit (provision) of $397 and ($18), respectively (555) 24
Reclassification adjustment - net of income tax benefit of $302 ............ (435) --
------- -------
Comprehensive income $ 143 $ 972
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------------
<S> <C> <C>
Net Income (loss) for the period ........................................... $ 3,685 $ (8,517)
Unrealized losses on available for sale securities - net of income tax
benefits of $1,274 and $1,727, respectively ................................ (1,765) (2,385)
Reclassification adjustment - net of income tax benefit of $301 ............ (433) --
-------- --------
Comprehensive income (loss) ............................................ $ 1,487 $(10,902)
======== ========
</TABLE>
I. Principal Executive Bonus Plan
---------------------------------------
At the Registrant's Annual Meeting on May 11, 2000, the shareholders approved a
Principal Executive Bonus Plan. $0.3 million of expense was recognized with this
plan for the three months ended June 30, 2000.
J. Stock Split
--------------------
On August 11, 2000, the Registrant announced a two-for-one stock split, to be
effected through a distribution to its shareholders of one share of Registrant's
Common Stock for each share of Common Stock owned. The record date will be
August 28, 2000, and the distribution of date will be September 11, 2000 (or as
soon as possible thereafter).
Share and per share data in the accompanying financial statements and notes have
been adjusted to reflect this change.
K. Earnings per share
---------------------------
For the three and six months ended June 30, 1999, the following table (in
thousands, except for per share data) sets forth the computation of pro forma
basic and diluted earnings (loss) per share. Pro forma earnings (loss) per share
for this period is calculated assuming that the shares outstanding for such
period was the same as the shares outstanding for Lynch Corporation. Subsequent
to the Spin-Off, basic and diluted earnings per share are based on the average
weighted number of shares and share equivalents outstanding. On December 13,
1999, the Registrant issued a $25 million 6% convertible promissory note,
convertible into the Registrant's common stock at $42.50 per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------- -------------------
Basic earnings per share Numerators:
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $ 1,133 $ 948 $ 3,685 $(8,357)
Extraordinary item .................... -- -- -- (160)
------- ----- -------- -------
Net Income (loss) ..................... $ 1,133 $ 948 $ 3,685 $(8,517)
======= ===== ======== =======
Denominator:
Weighted average shares outstanding ... 2,824 2,832 2,824 2,834
======= ===== ======== =======
Earnings (loss) per share:
Income (loss) before extraordinary item $ 0.40 $0.33 $ 1.30 $ (2.95)
Extraordinary item .................... -- -- -- (0.06)
------- ----- -------- -------
Net income (loss) ..................... $ 0.40 $0.33 $ 1.30 $ (3.01)
======= ===== ======== =======
Diluted earnings per share Numerators:
Income (loss) before extraordinary item $ 1,133 $ 948 $ 3,685 $(8,357)
Extraordinary item ..................... -- -- -- (160)
------- ----- -------- -------
Net Income (loss) ...................... $ 1,133 $ 948 $ 3,685 $(8,517)
======= ===== ======== =======
Interest saved on assumed conversion of
convertible notes - net of tax ..... -- -- 496 --
======= ===== ======== =======
Income (loss) before extraordinary item $ 1,133 $ 948 $ 4,181 $(8,357)
Extraordinary item ..................... -- -- -- (160)
------- ----- -------- -------
Net Income (loss) ...................... $ 1,133 $ 948 $ 4,181 $(8,517)
======= ===== ======== =======
Denominators:
Weighted average shares outstanding ... 2,824 2,832 2,824 2,834
Shares issued on conversion of
convertible note .................... -- -- 588 --
------- ----- -------- -------
Weighted average share and share
Equivalents ........................ 2,824 2,832 3,412 2,834
======= ===== ======== =======
Earnings (loss) per share:
Income (loss) before extraordinary item $ 0.40 $0.33 $ 1.23 $ (2.95)
Extraordinary item .................... -- -- -- (0.06)
------- ----- -------- -------
Net income (loss) ..................... $ 0.40 $0.33 $ 1.23 $ (3.01)
======= ===== ======== =======
</TABLE>
L. Segment Information
----------------------------
The Company is principally engaged in two business segments: multimedia and
services. All businesses are located domestically, and substantially all
revenues are domestic. The multimedia segment includes local telephone
companies, a cable TV company, an investment in PCS entities and investments in
two network-affiliated television stations. The services segment includes
transportation and related services.
EBITDA (before corporate allocation) for operating segments is equal to
operating profit before interest, taxes, depreciation, amortization and
allocated corporate expenses. EBITDA is presented because it is a widely
accepted financial indicator of value and ability to incur and service debt.
EBITDA is not a substitute for operating income or cash flows from operating
activities in accordance with generally accepted accounting principles.
Operating profit (loss) is equal to revenues less operating expenses, excluding
unallocated general corporate expenses, interest and income taxes. Prior to the
Spin Off, Lynch, and after the spin-off the Registrant allocated a portion of
its general corporate expenses to its operating segments. Such allocation was
$317,000 and $634,000 for the three and six months ended June 30, 2000
respectively, and $327,000 and $635,000 for the three and six months ended June
30, 1999. Subsequent to the Spin-Off, the Registrant is providing corporate
management services to Lynch Corporation for a management fee (see note B).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------------- ------------------------
Revenues: (In thousands)
<S> <C> <C> <C> <C>
Multimedia ............................................. $ 16,019 $ 13,955 $ 31,590 $ 27,342
Services ............................................... 29,961 40,270 57,828 75,595
--------- --------- --------- ---------
Combined Total ......................................... $ 45,980 $ 54,225 $ 89,418 $ 102,937
========= ========= ========= =========
EBITDA (before corporate allocation):
Multimedia ............................................. $ 8,385 $ 7,791 $ 16,545 $ 14,914
Services ............................................... 426 769 (154) 1,428
Corporate expenses, gross .............................. (875) (583) (1,509) (1,170)
--------- --------- --------- ---------
Combined total ......................................... $ 7,936 $ 7,977 $ 14,882 $ 15,172
========= ========= ========= =========
Operating profit:
Multimedia ............................................. $ 4,163 $ 4,070 $ 8,188 $ 7,568
Services ............................................... 113 436 (785) 761
Unallocated corporate expense .......................... (513) (249) (802) (505)
--------- --------- --------- ---------
Combined Total ......................................... $ 3,763 $ 4,257 $ 6,601 $ 7,824
========= ========= ========= =========
Operating profit ....................................... $ 3,763 $ 4,257 $ 6,601 $ 7,824
Investment income ...................................... 1,233 218 1,737 1,034
Interest expense ....................................... (3,229) (2,563) (6,459) (5,247)
Equity in earnings of affiliated companies ............. 970 44 1,269 103
Reserve for impairment of investment in PCS license
holders................................................. -- -- -- (15,406)
Gain on redemption of East/West Preferred Stock ........ -- -- 4,125 --
--------- --------- --------- ---------
Income (loss) before income taxes, minority interests
and extraordinary item ............................... $ 2,737 $ 1,956 $ 7,273 $ (11,692)
========= ========= ========= =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Effective with the spin-off of Interactive by Lynch Corporation on September 1,
1999, Interactive owns the multimedia and services businesses previously owned
by Lynch Corporation, as well as, 1 million shares of Spinnaker Industries Inc.
(ASE:SKK). Since the spin-off Interactive has operated as an independent,
publicly traded company. As such, the consolidated Interactive financial
statements for periods prior to the spin-off may not be indicative of
Interactive's future performance nor do they necessarily reflect what the
financial position and results of operations of Interactive would have been if
it had operated as a separate stand-alone entity during the periods covered.
SALES AND REVENUES
Revenues for the three months ended June 30, 2000 decreased by $8.2 million to
$46.0 million from the second quarter of 1999. Within the operating segments
multimedia revenues increased by $2.1 million or 15 %, which were offset by a
$10.3 million decrease at Morgan Group Inc. - Interactive's service subsidiary.
This decline in Morgan's revenues was attributed to lower shipments in both the
manufactured housing and specialized outsourcing operations. The manufactured
housing industry continues to be hampered by tighter credit standards and rising
interest rates at the retail level, and a resultant excess inventory of new and
repossessed homes, which directly impacts production and sales volume of
Morgan's customers. Morgan believes that the depressed level of shipments in
manufactured housing will continue through this year, possibly moderating the
following year. In addition, Morgan is currently evaluating the profit potential
of its niche businesses and their growth potential. Multimedia revenues grew
partially due to the acquisition of Central Scott Telephone Company, which was
acquired on July 16, 1999, and contributed $1.2 million to the revenue growth,
and partially to growth, in both regulated telecommunications services as well
as the provision of non-traditional telephone services such as Internet.
Revenues for the first six months of 2000 decreased by $13.5 million to $89.5
million from the first half of 1999. Within the operating segments, multimedia
revenues increased $4.2 million, or 16%, which were offset by a $17.8 million
decline in revenues at The Morgan Group, Inc. The factors noted above that
resulted in Morgan's second quarter revenue decline were also responsible for
the first half decline. Multimedia revenues increased due to the acquisition of
Central Scott Telephone Company ($2.4 million contribution) and growth in
regulated and non-traditional telephone services.
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. Morgan's operating
revenues, therefore, tend to be stronger in the second and third quarters.
Operating profit for the three months ended June 30, 2000 decreased by $0.5
million to $3.8 million from the second quarter of 1999. Within the operating
segments: the multimedia operating profit increase of $0.1 million was offset by
a decrease in Morgan's operating profit of $0.3 million. Operating profit in the
multimedia segment increased due to the acquisition of Central Scott, $0.3
million, net of goodwill amortization offset by additional start-up costs and
operating losses in developing new communications services, i.e., CLEC. Morgan's
operating profits fell by $0.3 million due to the lower volume in shipments
offset by its manufactured housing and specialized outsourcing businesses offset
by improved driver outsourcing, insurance and overhead savings. In March 2000,
Morgan instituted staff reduction and other cost savings initiatives. It is
currently estimated that the cost savings of these initiatives will approximate
$2.4 million annually. The impact of the cost savings for 2000 is expected to
approximate $1.8 million, net of severance costs. Morgan continues to review
incremental marketing initiatives and continuously is reviewing staffing levels
and expenditures to reduce its overhead structure. Net corporate expense
increased by $0.3 million due to an accrual under the Registrant's Principal
Executive Bonus Plan and the Registrant expects to record an additional $0.3
million in the second half of 2000.
Operating profit for the six months ended June 30, 2000 decreased by $1.2
million from the prior year. Within the operating segment: multimedia operating
profit increased by $0.6 million (net operating profit from Central Scott was
$0.7 million) and Morgan's operating profit fell by $1.5 million to a loss of
$0.8 million. Unallocated corporate expenses increased by $0.3 million. The
factors that affected the second quarter results were also the primary factors
that affected the second quarter results.
Investment income for the quarter ended June 30, 2000 increased by $1.0 million
primarily due to realized gains on sales of available-for-sale securities of
$0.7 million and unrealized gains on trading securities. For the six-month
period ended June 30, 2000, investment income increased by $0.7 million due to
the above noted realized gains.
Interest expense increased from the prior year period for both the second
quarter and first half of 2000 by $0.7 and $1.2 million, respectively, due
predominantly to the acquisition of Central Scott Telephone Company and the
issuance of the Convertible Note by the parent company on December 11, 1999.
Equity in earnings of affiliated companies was impacted by a net gain of $0.7
million on the sale of cellular towers at two of the Registrant's cellular
telephone company investments.
On February 25, 2000, Omnipoint acquired through a merger, all of the
outstanding shares of East/West Communications, Inc. At the time of the merger
the Registrant held a redeemable preferred stock of East/West Communications,
Inc. with a liquidation value of $8.7 million, including payment in kind of
dividends to date. In accordance with its terms, the preferred stock was
redeemed at its liquidation value and as a result the Registrant recorded a
pre-tax gain of $4.1 million in the first quarter of 2000.
A subsidiary of Lynch Interactive has investments in, loans to, and deferred
costs associated with a 49.9% equity ownership in Fortunet Communications, L.P.
("Fortunet"), a partnership formed to acquire, construct and operate licenses
for the provision of personal communications services ("PCS") acquired in the
FCC's C-Block PCS auction. Fortunet holds licenses to provide PCS service of
15MHz of spectrum in the BTA of Tallahassee, Panama City and Ocala, Florida. On
April 15, 1999, the FCC completed the reauction of all the C-Block licenses that
were returned to it since the original C-Block auction, including the three
15MHz licenses that Fortunet returned. In that reauction, the successful bidders
paid a total $2.7 million for the three licenses as compared to $18.8 million
carrying amount of Lynch's investment in Fortunet. The final net cost of these
licenses in the reauction was substantially below Fortunet's cost of the
licenses it retained in these markets. Accordingly, during the first quarter of
1999, Lynch Interactive recorded an additional write down of $15.4 million. The
Company is considering spinning off its 49.9% interest in Fortunet.
The income tax provision (benefit) includes federal, as well as state and local
taxes. The tax provision (benefit) for the six months ended June 30, 2000 and
1999, represent effective tax rates of 47.1% and (32.2%), respectively. The
causes of the difference from the federal statutory rate and between the two
periods are principally due to the effect of state income taxes, including the
effect of earnings and losses attributable to different state jurisdiction, and
the amortization of non-deductible goodwill. Of note, no state tax benefit has
been provided for the reserve for the impairment of $15.4 million in the
investment in PCS license holders in 1999.
Minority interest reduced earnings by $0.3 million and $0.2 million for the
three months ended June 30, 2000 and 1999, respectively, as lower earnings of
Morgan were more than offset by the minority interest effect on the gain of the
sale of the cellular towers. Minority interest effects for the six months
periods ended June 30, 1999 and June 30, 2000 was reduced by $0.2 million due to
the lower operating results of Morgan. Of note, the reserve for impairment of
PCS operations and the gain on the redemption of East/West preferred stock had
no effect on minority interest.
Net income for the three months ended June 30, 2000 was $1.1 million or $0.40
per share (basic) as compared to a net income of $0.9 million, or $0.33 per
share (basic), in the previous years three-month period. The most significant
items affecting the swing in earnings were the realized gain on the sale of
available-for-sale securities and a gain on the sale of towers by an affiliate
entity offset by lower net income contributed by Morgan.
Net income for the six months ended June 30, 2000 was $3.7 million or $1.30 per
share (basic) as compared to a net loss of $8.5 million or $3.01 per share
(basic) in the previous year six-month period. The most significant items
affecting the swing in earnings were the gain on the redemption of East/West
preferred stock ($2.5 million, net of income tax provision) in 2000 and the
reserve for the impairment of the investment in PCS license holders ($10.2
million, net of income tax benefit) in 1999.
FINANCIAL CONDITION
Liquidity/ Capital Resources
As of June 30, 2000, the Company had current assets of $64.6 million and current
liabilities of $46.9 million. Working capital was therefore $17.6 million as
compared to $12.1 million at December 31, 1999. Proceeds from the redemption of
the East/West Preferred stock offset by payments under the Company's SAR Program
were the primary reason to the increase.
The first six months capital expenditures were $6.6 million in 2000 and $4.0
million in 1999. Overall 2000 capital expenditures are expected to be
approximately $6.8 million above the 1999 level of $12.6 million due to
additional expenditures for the Company's Kansas telephone operations.
At June 30, 2000, total debt was $167.6 million, which was about the same as the
$169.0 million at the end of 1999. At June 30, 2000, there was $150.0 million of
fixed interest rate debt averaging 7.0% and $17.6 million of variable interest
rate debt averaging 8.5%. Debt at year-end 1999 included $151.9 million of fixed
interest rate debt, at an average interest rate of 7.0% and $17.1 million of
variable interest rate debt at an average interest rate of 8.1%. Additionally,
the Company had $22.3 million in unused lines of credit at June 30, 2000, of
which $2.3 million was attributable to Morgan. As of June 30, 2000, Interactive,
the parent company had $20.0 million available under two short-term line of
credit facilities, the maximum availability. These short-term lines of credit
expire on August 31, 2000. Management anticipates that these lines will be
renewed when they expire. At June 30, 2000, Morgan had a $20.0 million revolving
credit facility that expires on February 28, 2001. In general, the credit
facilities are secured by receivables and common stock of certain subsidiaries
and affiliates, in addition, certain covenants of Morgan facility restricts
distributions.
Lynch has not paid any cash dividends on its Common Stock since 1989.
Interactive does not expect to pay cash dividends on its Common Stock in the
foreseeable future. Interactive currently intends to retain its earnings, if
any, for use in its business. Future financings may limit or prohibit the
payment of dividends.
Interactive has a high degree of financial leverage. As of June 30, 2000, the
ratio of total debt to equity was 6.0 to 1. Certain subsidiaries also have high
debt to equity ratios. In addition, the debt at subsidiary companies contains
restrictions on the amount of readily available funds that can be transferred to
the respective parent of the subsidiaries.
The Company has a significant need for resources primarily to fund future
growth. Interactive considers various alternative long and short-term financing
sources: debt, equity, or sale of an investment asset. While management expects
to obtain adequate financing resources to enable the Company to meet its
obligations, there is no assurance that such can be readily obtained or at
reasonable costs.
Lynch Interactive actively pursues acquisitions of rural telephone companies.
Specifically, it has an agreement in principal to acquire a rural telephone
company, somewhat smaller in magnitude than its recent acquisition of Central
Scott Telephone Company. In addition, an associated entity, PTPMS II, L.L.C.,
has recently filed an application to participate in the 700MHz Guard Band
Auction being conducted by the FCC. The Registrant anticipated funding a
substantial portion of the deposit to be made to the FCC by PTPMS II to
participate in the auction.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk relating to changes in the general level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned on the Company's cash, cash equivalents and marketable securities ($35.8
million at June 30, 2000 and $32.9 million at December 31, 1999).
The Company generally finances the debt portion of the acquisition of long-term
assets with fixed rate, long-term debt. The Company generally maintains the
majority of its debt as fixed rate in nature either by borrowing on a fixed
long-term basis or, on a limited basis, entering into interest rate swap
agreements. The Company does not use derivative financial instruments for
trading or speculative purposes. Management does not foresee any significant
changes in the strategies used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions dictate.
At June 30, 2000, approximately $17.6 million, or 10.5% of the Company's
long-term debt and notes payable bears interest at variable rates. Accordingly,
the Company's earnings and cash flows are affected by changes in interest rates.
Assuming the current level of borrowings for variable rate debt and assuming a
one percentage point change in the 2000 average interest rate under these
borrowings, it is estimated that the Company's 2000 three month interest expense
would have changed by less than $0.1 million. In the event of an adverse change
in interest rates, management would likely take actions to further mitigate its
exposure. However, due to the uncertainty of the actions that would be taken and
their possible effects, the analysis assumes no such actions. Further, the
analysis does not consider the effects of the change in the level of overall
economic activity that could exist in such an environment.
<PAGE>
FORWARD LOOKING INFORMATION
Included in this Management Discussion and Analysis of Financial Condition and
Results of Operations are certain forward looking financial and other
information, including without limitation profit evaluations of Morgan's niche
businesses and their growth potential, the cost savings and marketing
initiatives at Morgan, possible financings, possible acquisitions, possible
spectrum auction participation, a possible spin off of Registrant's interest in
Fortunet and Market Risk. It should be recognized that such information are
projections, estimates or forecasts based on various assumptions, including
without limitation, meeting its assumptions regarding expected operating
performance and other matters specifically set forth, as well as the expected
performance of the economy as it impacts the Registrant's businesses, government
and regulatory actions and approvals, and tax consequences and cautionary
statements set forth in documents filed by Registrant and The Morgan Group with
the Securities and Exchange Commission. As a result, such information is subject
to uncertainties, risks and inaccuracies, which could be material.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
----------------------------------------------------------
See "Quantitative and Qualitative Disclosure about Market Risk" under
Item 2 above.
PART II OTHER INFORMATION
Item 4. Submission of Matters to A Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Stockholders of the Registrant held on May
11, 2000, the following persons were elected as Directors with the
following votes:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Paul J. Evanson ...... 1,248,254 15,911
John C. Ferrara ...... 1,247,054 17,111
Mario J. Gabelli...... 1,230,855 33,310
David C. Mitchell..... 1,248,254 15,911
Salvatore Muoio ...... 1,247,054 17,111
Ralph R. Papitto...... 1,247,054 17,111
</TABLE>
In addition, The Registrant's 2000 Stock Option Plan was approved as
follows:
<TABLE>
<S> <C>
For: ............ 858,951
Against: ........ 26,600
Abstain: ........ 4,489
Broker Non votes: 374,125
</TABLE>
And Registrant's Principal Executive Bonus Plan was approved as follows:
<TABLE>
<S> <C>
For: .......... 1,229,750
Against:....... 26,802
Abstain:....... 7,613
</TABLE>
Item 5. Other Information
------------------
On August 11, 2000, the Registrant announced a two-for-one stock split, to be
effected through a distribution to its shareholders of one share of Registrant's
Common Stock for each share of Common Stock owned. The record date will be
August 28, 2000, and the distribution of date will be September 11, 2000 (or as
soon as possible thereafter).
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
27 -Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LYNCH INTERACTIVE CORPORATION
(Registrant)
By: s/Robert E. Dolan
----------------------
Robert E. Dolan
Chief Financial Officer
August 14, 2000
