SECURITIES AND 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 March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-106
LYNCH CORPORATION
(Exact name of Registrant as specified in its charter)
Indiana 38-1799862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Sound Shore Drive, Suite 290, Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip code)
(203) 629-3333
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 May 1, 1995
Common Stock, no par value 1,378,658
INDEX
LYNCH CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statement of Operations:
- Three months ended March 31, 1995 and 1994
Condensed Consolidated Balance Sheet:
- March 31, 1995
- December 31, 1994 (Audited)
Condensed Consolidated Statement of Cash Flows:
- Three months ended March 31, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Managements's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
(In thousands)
March 31 December 31
1995 1994
(Unaudited) (A)
ASSETS: ------- -------
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents $19,199 $18,010
Marketable Securities and Short-Term
Investments 10,785 13,511
Accounts Receivable, Less Allowances
of $749 and $737 30,578 36,454
Inventories 31,148 18,955
Deferred Income Tax Benefits 2,872 2,872
Other Current Assets 4,081 4,083
------- -------
Total Current Assets 98,663 93,885
PROPERTY, PLANT AND EQUIPMENT:
Land 1,893 1,893
Buildings and Improvements 12,683 11,713
Machinery and Equipment 81,628 79,290
------- -------
96,204 92,896
Less Accumulated Depreciation 33,863 31,451
------- -------
Net Property, Plant and Equipment 62,341 61,445
INVESTMENT IN AND ADVANCES TO
AFFILIATED COMPANIES 3,461 3,503
ACQUISITION INTANGIBLES 23,245 23,518
OTHER ASSETS 3,623 3,559
------- -------
Total Assets $191,333 $185,910
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Notes Payable to Banks $5,378 $5,904
Trade Accounts Payable 16,635 11,999
Accrued Liabilities 23,490 23,724
Current Maturities of Long-Term Debt 16,489 29,545
Total Current Liabilities 61,992 71,172
LONG-TERM DEBT 75,917 62,745
DEFERRED INCOME TAXES 10,397 10,397
MINORITY INTERESTS 11,371 11,065
SHAREHOLDERS' EQUITY
COMMON STOCK, NO PAR VALUE-10,000,000
SHARES AUTHORIZED; 1,418,310 shares
issued (at stated value) 5,139 5,139
ADDITIONAL PAID - IN CAPITAL 8,037 8,037
RETAINED EARNINGS 19,756 18,631
TREASURY STOCK OF 92,533 SHARES,
AT COST (1,276) (1,276)
------- -------
Total Shareholders' Equity 31,656 30,531
------- -------
Total Liabilities and
Shareholders' Equity $191,333 $185,910
(A) The Balance Sheet at December 31,1994 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 Notes to Condensed Consolidated Financial Statements.
<CAPTION>
LYNCH CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------
(UNAUDITED)
(In thousands)
Three Months Ended
March 31
1995 1994
OPERATING ACTIVITIES
<S> <C> <C>
Net Income 1,125 641
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,550 1,748
Deferred taxes 0 (53)
Share of operations of affiliated companies 70 (6)
Minority interests 423 80
Provisions for unrealized losses
on marketable securities (190) (52)
Realized gains on sale of marketable securities 38 (17)
Changes in operating assets and liabilities:
Receivables 5,876 (2,610)
Inventories (12,193) (173)
Accounts payable and accrued liabilities 4,402 945
Other (90) 420
------ ------
NET CASH FROM OPERATING ACTIVITIES 2,011 923
------ ------
INVESTING ACTIVITIES
Capital Expenditures (3,101) (807)
Sales (purchases) of marketable
securities - net 2,878 (1,442)
Investment in Capital Communications, Inc 0 (13,670)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (223) (15,919)
------ ------
FINANCING ACTIVITIES
Repayments of debt, net (482) (977)
Sale of treasury stock 0 2,288
Other (117) 0
------ ------
NET CASH FROM (USED IN)FINANCING ACTIVITIES (599) 1,311
------ ------
Net increase (decrease) in cash
and cash equivalents 1,189 (13,685)
Cash and cash equivalents at beginning of period 18,010 24,548
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 19,199 10,863
====== ======
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<CAPTION>
Part 1- FINANCIAL INFORMATION
- - ------------------------------------------------
Item 1- Financial Statements
- - ------------------------------------------------
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except share amounts)
Three Months
Ended March 31
1995 1994
------ ------
<S> <C> <C>
SALES AND REVENUES
Multimedia $5,685 $4,881
Services 26,803 22,956
Manufacturing 37,300 8,231
------ ------
69,788 36,068
------ ------
Costs and expenses:
Multimedia 4,225 3,298
Services 24,233 20,978
Manufacturing 30,236 5,841
Selling and administrative 7,060 4,211
------ ------
OPERATING PROFIT 4,034 1,740
Other income (expense):
Investment Income 884 577
Interest expense (2,204) (1,366)
Share of operations of
affiliated companies (70) 6
Gain on Sale of Subsidiary Stock 0 150
------ ------
(1,390) (633)
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 2,644 1,107
Provision for income taxes (1,096) (386)
Minority interests (423) (80)
------ -------
NET INCOME $1,125 $641
------ ------
Weighted average shares
outstanding 1,401,000 1,301,000
INCOME PER COMMON SHARE:
NET INCOME PER SHARE $0.80 $0.49
INCOME PER COMMON SHARE ASSUMING
FULL DILUTION $0.80 $0.47
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Subsidiaries of the Registrant
The present operating subsidiaries of the Registrant are as
follows:
Lynch Multimedia Corporation
Lynch Telecommunications Corporation
Lynch Telephone Corporation (80.1% owned)
Western New Mexico Telephone Company, Inc.
WNM Communications Corporation
Lynch Telephone Corporation II (83.0% owned)
Inter-Community Telephone Company
Lynch Telephone Corporation III (81% owned)
Cuba City Telephone Exchange Company
Belmont Telephone Company
Lafayette County Satellite TV, Inc.
Brighton Communications Corporation
Lynch Telephone Corporation IV
Bretton Woods Telephone Company
Lynch Telephone Corporation VI (98% owned)
J.B.N. Telephone Company, Inc.
J.B.N. Finance Corporation
Lynch Telephone Corporation VII
USTC Kansas Inc.
Haviland Telephone Company
Haviland Finance Corporation
Global Television Inc.
Lynch Entertainment Corporation
Coronet Communications Company (20% owned)
Lynch Entertainment Corporation II
Capital Communications Corporation (49% owned)
The Morgan Group, Inc. (equity ownership 47%
- voting ownership 64%)
Morgan Drive Away, Inc.
Transport Services Unlimited, Inc.
Interstate Indemnity Inc.
Morgan Finance, Inc.
Lynch Capital Corporation
Lynch Manufacturing Corporation
Lynch Machinery, Inc. (90% owned)
Tri-Can International, Ltd.
M-tron Industries, Inc. (94% owned)
M-tron Industries, Ltd.
Spinnaker Industries, Inc. (previously named Safety Railway
Service Corporation) (83% owned)
Brown-Bridge Industries, Inc. (80.1% owned)
Entoleter, Inc.
Lynch International Exports, Inc.
B. Basis of Presentation
The accompanying unaudited condensed consolidated 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 Article 10 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 management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto
included in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
C. Acquisitions
On September 26, 1994, Lynch Telephone Corporation VII, a wholly
owned subsidiary of Lynch, acquired all of the outstanding shares
of Haviland Telephone Company, Inc. from InterDigital
Communications Corporation. The total cost of this transaction was
$13.4 million. The transaction was accounted for as a purchase,
and, accordingly, the assets acquired and liabilities assumed were
recorded at their estimated fair market value. As a result of this
transaction, the Company recorded $8.2 million in goodwill which is
being amortized over 25 years.
On September 19, 1994, Brown-Bridge Industries, Inc. an 80.1% owned
subsidiary of Spinnaker Industries, Inc., (an 83% owned subsidiary
of Lynch) acquired from Kimberly-Clark Corporation the net assets
associated with its Brown-Bridge operation, a manufacturer of
adhesive coated stock for labels and related applications. The
cost of the transaction was $29.1 million, plus $6.9 million in
current liabilities were assumed. The transaction was accounted for
as a purchase, and, accordingly, the assets and liabilities were
recorded at their estimated fair market value.
On March 1, 1994, Capital Communications Corporation, 49% owned by
the Registrant, acquired certain assets associated with the
operations of Station WOI-TV from Iowa State University. Station
WOI is an ABC affiliate serving the Des Moines, Iowa market. The
total cost of the transaction was $13.0 million. The transaction
was accounted for as a purchase, and, accordingly, the assets
acquired and liabilities assumed were recorded at their estimated
fair market value. Lynch is recording the results of Capital
operations on an equity basis.
The operating results of the acquired companies are included in the
consolidated statements of operations from their respective
acquisition dates. The following combined proforma information
shows the results of the Registrant's operations presented as
through the purchases of Haviland, Brown-Bridge and Station WOI-TV
had been made at the beginning of 1994.
First Quarter Ended
March 31
1995 1994
(In thousands, except
per share data)
Sales and Revenues $69,788 $59,781
Earnings Before, Interest
Depreciation, Taxes and
Amortization 6,493 5,072
Net Income 1,125 612
Net Income per Share 0.80 0.47
D. Inventories
Inventories are stated at the lower of cost or market value. At
March 31, 1995, inventories were valued by three methods: specific
identification - 46%, last-in, first-out (LIFO) - 49%, and first-in,
first-out (FIFO) - 5%. At December 31, 1994, the respective
percentages were 68%, 23%, and 9%.
In Thousands
3-31-95 12-31-94
Raw materials and supplies $ 6,142 $ 5,560
Work in process 9,006 7,745
Finished goods 16,000 5,650
TOTAL INVENTORIES $31,148 $18,955
E. Indebtedness
Long-term debt consists of (all interest rates are weighted
averages, where applicable at March 31, 1995):
In Thousands
3-31-95 12-31-94
Rural Electrification Administration and
Rural Telephone Bank notes payable
in equal quarterly installments through
2023 at fixed interest rates (3.3%) 24,131 24,283
Bank credit facilities utilized by
certain telephone and telephone
holding companies at both 10.4 fixed
and 8.9% variable interest rates 24,053 24,158
Unsecured notes issued in connection
with telephone company acquisitions 16,236 16,266
Bank debt associated with Brown-Bridge
at variable rates 10.25%:
Revolving line of credit 11,129 13,180
Term loan 9,000 9,000
Other 7,857 5,402
92,406 92,290
Current Maturities (16,489) (29,545)
$75,917 $62,745
These credit facilities are secured by property, plant and
equipment, inventory, receivables and common stock of certain
subsidiaries and contain certain covenants restricting
distributions to the Registrant.
On April 14, 1995, the Registrant renegotiated and extended an
$11.5 million bank credit facility which was utilized in 1989 to
acquire a telephone company. The original facility expired on
April 15, 1995. As a result of the extension, the facility is due
in due in annual amounts of $800,000 beginning in 1996 with the
remainder due on December 31, 2000. The Registrant has fixed the
interest rate at 9.91%, the original facility was at a fixed rate
of 11.67%. Accordingly, at March 31, 1995, this debt has been
classified as long-term in the accompanying Consolidated Balance
Sheet.
The Company also maintains short-term lines of credit with banks
which aggregate $32.6 million, of which $21.4 was available at
March 31, 1995. These lines are secured by operating assets of the
related subsidiaries. The line of credit agreements expire in
1995 and 1996, are renewable annually, and are at interest rates of
prime to prime plus 1%. The weighted average interest rate at
March 31,1995 of outstanding borrowings under the lines was 9.1%.
The Company had outstanding under these lines of credit standby
letters of credit totaling approximately $6.0 million, securing
various insurance obligations and customer advances. Several of
the credit agreements contain covenants restricting distributions.
In July 1986, the Registrant issued $23 million principal amount of
8% Convertible Subordinated Debentures. The Debentures were
redeemable at the option of the Registrant, subject to certain
restrictions, in whole or in part, at 108.0% of principal amount
initially, declining annually to 100% on or after July 15, 1996.
Through September 21, 1994, the Registrant had either purchased on
the open market or redeemed $11,165,000 of the original issuance.
At that date, in accordance with the terms of the debenture
indenture, the Registrant called for redemption all of the
remaining debentures outstanding, at 101.6% of their face amount
plus accrued interest. The redemption was completed on October 24,
1994, and $10,195,000 of the debentures were redeemed and
$1,640,000 were converted into 52,881 shares of the Registrant's
Common Stock at $31 per share.
F. Income Taxes
The income tax provision includes federal, as well as state and
local taxes. The tax provisions for the three months ending March
31, 1995 and 1994 represent effective tax rates of 41.5% and 34.9%,
respectively. The rates differ from the federal statutory rate
principally due to the effect of state income taxes, amortization
of goodwill, no provision required on the Registrant's gain in 1994
from the sale of certain securities and a valuation reserve
provided on the benefit associated with the Registrant's equity in
losses of Capital Communications Corporation.
G. Capital Stock
In 1987 and 1992, the Board of Directors authorized the purchase of
up to a total of 300 thousand shares of Common Stock of the
Registrant. These shares will be retained as treasury stock for
future use as required. Through March 31, 1995, the Registrant had
purchased 230,861 shares of Common Stock to date at an average
price of $13.15.
H. Earnings Per Share
Earnings per common and common equivalent share amounts are based
on the average number of common shares outstanding during each
period, assuming the exercise of all stock options having an
exercise price less than the average market price of the common
stock using the treasury stock method. Fully diluted earnings per
share reflect the effect, where dilutive, of converting the
outstanding convertible debentures and the exercise of all stock
options having an exercise price less than the closing market price
at the end of the period of the Common Stock of the Registrant
using the treasury stock method.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales and Revenues
Revenues for the first quarter of 1995 increased by $33.7 million,
or 94%, from the first quarter in the prior year predominantly due
to: $23.9 million in revenues from the Brown-Bridge operation,
which was acquired on September 19, 1994; $4.3 million in
incremental revenues from Lynch Machinery due to production
activity associated with the manufacture of several extra-large
glass press machines (Note: In December 1994, Lynch Machinery
adopted the percentage of completion for its long term contracts
which it had previously accounted for on a completed contract basis
1994's first quarter has been restated to reflect this change); and
$3.8 million in incremental revenues from Morgan due to
increased industry shipments of manufactured housing and
recreational vehicle and increased markets share by Morgan.
On a prospective basis, the inclusion of the Brown-Bridge operation
and the backlog at Lynch Machinery (see below) is expected to result in
increased reported revenues by the Registrant in the second and
third quarters of 1995 versus the respective prior year periods.
Operating Profit
Operating profit for the first quarter of 1995 increased by $2.3
million, 132% from the first quarter in the prior year
predominantly due to: $1.2 million contribution from Brown-Bridge; and
$1.4 million in incremental operating profit from Lynch Machinery.
On a prospective basis, the inclusion of Brown-Bridge and the
backlog at Lynch Machinery (see below) is expected to result in
increased reported operating profit by the Registrant in the second and
third quarters of 1995 versus the respective prior year periods.
Other Income (Expense), Net
Investment income in the first quarter of 1995 was $307,000 higher
than the first quarter of the previous year due to increased net market
securities gains which more than offset lower investments in securities
generating current investment income.
Interest expense in the first quarter of 1995 was $838,000 higher
than the first quarter of the previous year due to $850,000 of interest
expense associated with the acquisitions of Brown-Bridge and Haviland
Telephone Company. Offsetting this increase was a $275,000 decrease
in interest expense associated with the redemption and conversion on
October 24, 1994 of $11.8 million of the Company's 8% Convertible
Subordinated Debentures. The remaining change was due to higher borrowing
levels at slightly higher rates.
Tax Provision
The income tax provision includes federal, as well as state and
local taxes. The tax provisions for the three months ending March
31, 1995 and 1994, represent effective tax rates of 41.5% and
34.9%, respectively. The rates differ from the federal statutory
rate principally due to the affect of state income taxes,
amortization of goodwill, no provision required on the Registrant's
gain in 1994 from the sale of certain securities, and a valuation
reserve provided on the benefit associated on the Registrant's
equity in losses in Capital Communications Corporation.
Net Income (Loss)
Net income for the three months ended March 31, 1995 was $1.1
million, or $0.80 per share, in comparison to net income for the
three months ended March 31, 1994 of $641,000, or $0.49 per share.
The predominant factors that affected the comparability were:
the acquisition of Brown-Bridge; increased production activity
at Lynch Machinery; and higher investment income in 1995. A
$150,000 after-tax gain was recorded in 1994 on the sale of
affiliated stock.
Backlog/New Orders
Total backlog of manufactured products at March 31, 1995 was $38.2
million (25.1% relates to Lynch Machinery), which represents a slight
decrease from the backlog of $38.8 million at December 31, 1994. During
the quarter, M-tron Industries backlog increased by $3.0 million due to
increased market demand and new product introductions which offset the
production activity that reduced Lynch Machinery's backlog.
Liquidity/Capital Resources
At March 31, 1995, the Registrant had $30.0 million in cash and
short-term investments, which was $1.5 million lower than the $31.5
million reported at December 31, 1994. Working capital at March
31, 1995 was $36.7 million as compared to $22.7 million at December
31, 1994. The predominant reason for the increase in working
capital was the reclassification from short-term to long-term of an
$11.5 million bank credit facility, previously due on April 15, 1995,
which was extended on April 14, 1995. The Registrant and consolidated
subsidiaries had $21.4 million of unused short-term and long-term credit
facilities at March 31, 1995, $8.5 million of which relates to the
Registrant. Total debt of the Registrant decreased from $98.2 million
at December 31, 1994 to $97.8 million at March 31, 1995.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27-Financial Data Schedule
(b) Reports on Form 8-K
On January 21, 1995, a second amendment to Form 8-K with
respect to the acquisition of Haviland Telephone Company,
Inc. (originally filed on September 29, 1994 and amended on
December 10, 1994) was filed which contained amended
financial statements.
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 thereunto duly authorized.
LYNCH CORPORATION
(Registrant)
BY: s/Robert E. Dolan
Robert E. Dolan
Chief Financial Officer
May 12, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statements of Operations and Condensed Consolidated
Balance Sheets and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 19199
<SECURITIES> 10785
<RECEIVABLES> 30578
<ALLOWANCES> 749
<INVENTORY> 31148
<CURRENT-ASSETS> 98663
<PP&E> 96204
<DEPRECIATION> 33863
<TOTAL-ASSETS> 191333
<CURRENT-LIABILITIES> 61992
<BONDS> 75917
<COMMON> 5139
0
0
<OTHER-SE> 26517
<TOTAL-LIABILITY-AND-EQUITY> 191333
<SALES> 69788
<TOTAL-REVENUES> 69788
<CGS> 58694
<TOTAL-COSTS> 65754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 2204
<INCOME-PRETAX> 2644
<INCOME-TAX> 1096
<INCOME-CONTINUING> 1125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1125
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
