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 September 30, 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 November 1, 1995
Common Stock, no par value 1,378,663
<PAGE>
INDEX
LYNCH CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations:
- Three months ended September 30, 1995 and 1994
- Nine months ended September 30, 1995 and 1994
Condensed Consolidated Balance Sheets:
- September 30, 1995
- December 31, 1994
Condensed Consolidated Statements of Cash Flows:
- Nine months ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES AND REVENUES:
Multimedia $ 5,902 $ 4,910 $ 17,503 $ 14,630
Services 33,250 27,328 91,608 76,061
Manufacturing 42,394 12,449 119,097 29,742
--------- --------- --------- ---------
81,546 44,687 228,208 120,433
--------- --------- --------- ---------
COSTS AND EXPENSES:
Multimedia 4,455 3,358 13,066 9,985
Services 29,977 24,412 82,598 68,649
Manufacturing 32,353 8,560 93,687 20,449
Selling and Administrative 9,998 5,346 25,782 14,248
--------- --------- --------- ---------
OPERATING PROFIT 4,763 3,011 13,075 7,102
OTHER INCOME(EXPENSE):
Investment Income 578 747 2,197 1,865
Interest Expense (2,287) (1,517) (6,726) (4,319)
Share of Operations of
Affiliated Companies (66) 1 (60) (319)
Gain on Sale of
Subsidiary Stock 0 0 59 190
--------- --------- --------- ---------
(1,775) (769) (4,530) (2,583)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS AND
EXTRAORDINARY ITEM 2,988 2,242 8,545 4,519
Provision For Income Taxes (1,127) (911) (3,383) (1,876)
Minority Interests (568) (496) (1,588) (961)
--------- --------- --------- ---------
INCOME BEFORE
EXTRAORDINARY ITEM 1,293 835 3,574 1,682
Loss on Early Extinguishment
of Debt (Net of Income Tax
Benefit of $135) 0 (264) 0 (264)
--------- --------- --------- ---------
NET INCOME $ 1,293 $ 571 $ 3,574 $ 1,418
========= ========= ========= =========
WEIGHTED AVERAGE
SHARES OUTSTANDING 1,413,000 1,330,000 1,409,000 1,316,000
PRIMARY EARNINGS PER SHARE:
Income Before Extra
ordinary Loss $ 0.92 $ 0.63 $ 2.54 $ 1.27
Extraordinary Loss -- (0.20) -- (0.20)
--------- ---------- --------- ---------
NET INCOME $ 0.92 $ 0.43 $ 2.54 $ 1.07
========= ========== ========= =========
FULLY DILUTED EARNINGS PER SHARE:
Income Before Extra
ordinary Loss $ 0.92 $ 0.52 $ 2.54 $ 1.14
Extraordinary Loss -- (0.14) -- (0.14)
--------- --------- --------- ---------
NET INCOME $ 0.92 $ 0.38 $ 2.54 $ (0.14)
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
Sept. 30 Dec. 31
1995 1994
(Unaudited) (A)
<S> <C> <C>
ASSETS --------- ---------
CURRENT ASSETS:
Cash and Cash Equivalents $ 16,019 $ 18,010
Marketable Securities and Short-Term Investments 11,327 13,511
Receivables, Less Allowances of $564 and $737 45,582 36,454
Inventories 22,110 18,955
Deferred Income Tax Benefits 2,872 2,872
Other Current Assets 7,616 4,083
--------- ---------
Total Current Assets 105,526 93,885
PROPERTY, PLANT AND EQUIPMENT:
Land 1,910 1,893
Buildings & Improvements 13,260 11,713
Machinery & Equipment 89,482 79,290
--------- ---------
104,652 92,896
Less Accumulated Depreciation 37,211 31,451
--------- ---------
Net Property, Plant & Equipment 67,441 61,445
INVESTMENT IN & ADVANCES TO AFFILIATED COMPANIES 3,498 3,503
ACQUISITION INTANGIBLES 25,049 23,518
OTHER ASSETS 5,057 3,559
--------- ---------
Total Assets $206,571 $185,910
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable to Banks $ 7,223 $ 5,904
Trade Accounts Payable 17,725 11,999
Accrued Liabilities 25,755 23,724
Current Maturities of Long-Term Debt 25,528 29,545
--------- ---------
Total Current Liabilities 76,231 71,172
LONG-TERM DEBT 73,639 62,745
DEFERRED INCOME TAXES 10,397 10,397
MINORITY INTERESTS 12,130 11,065
SHAREHOLDERS' EQUITY:
Common Stock, No Par Value-10,000,000 Shares
Authorized; 1,471,191 Issued (At Stated Value) 5,139 5,139
Additional Paid-in Capital 8,106 8,037
Retained Earnings 22,205 18,631
Treasury Stock of 92,528 and
92,533 Shares, at Cost (1,276) (1,276)
--------- ---------
Total Shareholders' Equity 34,174 30,531
--------- ---------
Total Liabilities & Shareholders' Equity $206,571 $185,910
========= =========
</TABLE>
(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. <PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------
1995 1994
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 3,574 $ 1,418
Adjustments to Reconcile Net Income to Net
Cash From Operating Activities:
Depreciation and Amortization 7,753 5,582
Share of Operations of Affiliated Companies 60 319
Minority Interests 1,588 961
Net Effect of Purchases and Sales of
Trading in Marketable Securities 2,184 3,678
Deferred Taxes 0 118
Changes in Operating Assets and Liabilities:
Receivables (9,128) (7,941)
Inventories (3,155) (1,674)
Accounts Payable and Accrued Liabilities 7,184 8,091
Other (5,194) (1,153)
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 4,866 9,399
--------- ---------
INVESTING ACTIVITIES
Capital Expenditures (12,584) (6,624)
Investment in Capital Communications, Inc. 0 (2,560)
Acquisition of Brown-Bridge Industries, Inc. 0 (30,071)
Acquisition of Haviland Telephone Company 0 (2,802)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (12,584) (42,057)
--------- ---------
FINANCING ACTIVITIES
Issuance of Debt, Net 6,181 29,111
Sale of Treasury Stock 0 2,288
Sale of Minority Interest 0 906
Other (454) 18
--------- ---------
NET CASH FROM FINANCING ACTIVITIES 5,727 32,323
--------- ---------
Net Decrease in Cash and Cash Equivalents (1,991) (335)
Cash and Cash Equivalents at Beginning of Period 18,010 24,548
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,019 $ 24,213
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Subsidiaries of the Registrant
The present operating subsidiaries of the Registrant are as follows:
Lynch Multimedia Corporation
CLR Video LLC (60% owned)
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. (83% owned)
Brown-Bridge Industries, Inc. (80.6% 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 nine month
period ended September 30, 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 though the purchases of Haviland,
Brown-Bridge and Station WOI-TV had been made at the beginning of 1994.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(In thousands, except
per share data)
<S> <C> <C> <C> <C>
Sales and Revenues $ 81,546 $64,655 $228,208 $187,292
Operating Profit 4,763 4,238 13,075 10,868
Net Income 1,293 1,058 3,574 2,207
Net Income per Share 0.92 0.79 2.54 1.67
</TABLE>
D. Inventories
Inventories are stated at the lower of cost or market value. At September 30,
1995, inventories were valued by three methods: specific identification - 67%,
last-in, first-out (LIFO) - 27%, and first-in, first-out (FIFO) - 6%. At
December 31, 1994, the respective percentages were 68%, 23%, and 9%.
<TABLE>
<CAPTION>
In Thousands
9-30-95 12-31-94
<S> <C> <C>
Raw materials and supplies $ 6,997 $ 5,560
Work in process 9,488 7,745
Finished goods 5,625 5,650
TOTAL INVENTORIES $22,110 $18,955
</TABLE>
E. Indebtedness
Long-term debt consists of (all stated interest rates are weighted averages at
September 30, 1995):
<TABLE>
<CAPTION>
In Thousands
9-30-95 12-31-94
<C> <S> <C> <C> <C>
Rural Utilities Service and
Rural Telephone Bank notes payable
in equal quarterly installments through
2023 at fixed interest rates (3.4%) $27,775 $24,283
Bank credit facilities utilized by
certain telephone and telephone
holding companies at both fixed (9.5%)
and variable (9.0%) interest rates 23,871 24,158
Unsecured notes at fixed interest rates
(10.0%) issued in connection with
telephone company acquisitions 16,178 16,266
Bank debt associated with Brown-Bridge
at variable rates 10.0%:
Revolving line of credit 15,463 13,180
Term loan 8,120 9,000
Other at variable and fixed interest rates 7,760 5,402
99,167 92,290
Current Maturities (25,528) (29,545)
$73,639 $62,745
</TABLE>
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.
The Registrant, other than Spinnaker (see below) also maintains short-term
lines of credit with banks which aggregate $36.1 million, of which $22.5 was
available at September 30, 1995. These lines are secured by operating assets
of the related subsidiaries and the common stock of The Morgan Group, Inc. The
line of credit agreements expire in 1995 and 1996, are renewable annually, and
are at interest rates of prime minus 1/4% to prime plus 1%. The weighted
average interest rate at September 30, 1995 of outstanding borrowings under
the lines was 8.9%. The Company had outstanding under these lines of credit
standby letters of credit totaling approximately $6.6 million, securing various
insurance obligations and customer advances. Several of the credit agreements
contain covenants restricting distributions.
The subsidiaries of Spinnaker maintain revolving credit and/or letter of credit
arrangements with combined maximum availability of $21.5 million. Credit
availability under their revolving credit arrangements is subject to certain
variables, such as the amount of inventory and receivables eligible to be
included in the borrowing base. These arrangements are at interest rates of
prime plus 1.25% to prime plus 2.5%. At September 30, 1995, the weighted
average interest rate of outstanding borrowing under these arrangements was
10.0% and there was $3.2 million of available capacity.
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 of all 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 September 30, 1995 and 1994
represent effective tax rates of 37.7% and 40.6%, 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 300,000 shares of Common Stock of the Registrant. These shares will
be retained as treasury stock for future use as required. Through September
30, 1995, the Registrant had purchased 230,861 shares of Common Stock 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
any outstanding convertible debentures and the exercise of all outstanding
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.
I. Subsequent Events
On October 4, 1995, Central Products Acquisition Corp., a wholly-owned
subsidiary of Spinnaker Industries, Inc. acquired from Alco Standard
Corporation, the assets and stock of Central Products Company. Central
Products manufactures and markets a wide variety of carton sealing tapes and
related equipment. The cost of the acquisition was $80.0 million. The
transaction will be accounted for as a purchase, and, accordingly, the assets
and liabilities will be recorded at their estimated fair market value. Central
Products does not presently have audited financial statements. Unaudited
revenues for the twelve months ended September 30, 1995 were approximately
$120,000,000, and profitability is in line with industry standards. An
Amendment to a Form 8-K, which was filed by the Registrant on October 19, 1995,
will include certain historical and proforma financial information relative to
the Registrant's acquisition of Central Products. The Amendment is currently
being prepared and is expected to be filed by December 18, 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales and Revenues
Revenues for the third quarter of 1995 increased by $36.9 million, or 82%, from
the third quarter of the prior year predominantly due to: $20.1 million in
incremental revenues from the Brown-Bridge operation, which was acquired on
September 19, 1994; $6.9 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
percentage-of- completion method of accounting for its long term contracts,
which it had previously accounted for on a completed contract basis; 1994's
results have been restated to reflect this change); and $5.9 million in
incremental revenues from Morgan due to increased industry shipments of
manufactured housing units and an increased market share at Morgan coupled with
the acquisition of Transfer Drivers Inc. ("TDI") on May 22, 1995, which
contributed $2.3 million in revenues to the third quarter.
For the nine months ended September 30, 1995, revenues increased by $107.8
million, or 89%, over the first three quarters of 1994. The same factors that
contributed to the third quarter increase also resulted in the first nine
months increase. Specifically, Brown-Bridge reported incremental revenues of
$68.8 million, Lynch Machinery's revenues increased by $14.7 million and
Morgan's revenues increased by $15.5 million.
On a prospective basis, the inclusion of the Central Products operation (see
Note I to the Interim Financial Statements) is expected to result in increased
reported revenues by the Registrant in the fourth quarter of 1995 versus the
respective prior year period.
Operating Profit
Operating profit for the third quarter of 1995 increased by $1.8 million, or
58% from the third quarter in the prior year. The contribution of the
manufacturing segment increased by $2.4 million between the two periods, of
which $1.3 million of this increase was due to manufacturing activity
associated with the production of a series of extra-large glass presses at
Lynch Machinery. During 1995, Lynch Machinery is expected to ship 10 extra-
large presses of which 5 have been shipped through September 30,1995.
Operating profit at M-tron increased by $0.6 million on a $2.7 million volume
increase as a result of increased shipments to the customers in the wireless
communications industries. Operating profit contribution from Spinnaker was
$0.3 million, versus a $0.2 million loss in 1994. This increase was somewhat
dampened by start-up costs associated with new product introductions at Brown-
Bridge.
Operating profit from Lynch's multimedia segment for the quarter were down
slightly ($0.1 million) from the previous year, as increased EBITDA ("earnings
before interest, taxes, depreciation and amortization") of $0.3 million,
predominately due to the acquisition of Haviland Telephone Company on September
26, 1994, was offset by higher depreciation at several telephone companies due
to capital upgrade programs. Operating profit contribution of The Morgan Group
was also down by $0.2 million in the third quarter due to higher claims cost
for accidents and workers' compensation and a decline in certain higher margin
recreational vehicle shipments. During the third quarter, the Registrant
recorded a $0.6 million charge associated with the departing of an executive
officer at the Corporate Office.
Operating profit grew by $6.0 million, or 81% in the first nine months of 1995
as compared to the same period in 1994. The manufacturing group's contribution
increased by $6.1 million, $2.6 million of which resulted from the inclusion
of Brown-Bridge and $2.5 million from an increase at Lynch Machinery. Morgan's
operating profit grew by $0.4 million between the two periods due to the higher
revenues. Multimedia's operating profit fell by $0.3 million from the first
nine months of 1994 to the first nine months of 1995, as the inclusion of
Haviland Telephone Company, acquired on September 26, 1994, was offset by
higher depreciation expense at the other telephone operations.
On a prospective basis, the inclusion of the Central Products operation (see
Footnote I to the Interim Financial Statements) is expected to result in
increased reported operating profit by the Registrant in the fourth quarter of
1995 versus the respective prior year period.
Other Income (Expense), Net
Investment income in the third quarter of 1995 was $169,000 lower than the
third quarter of the previous year due to lower net marketable securities gains
and lower investments in securities generating current investment income.
On a year-to-date basis, investment income was higher than the prior year by
$332,000 reflecting higher marketable securities gains in the first two
quarters of the year, offset by a decrease in the mix of investments in higher
yield securities and lower overall gross investment.
Interest expense in the third quarter of 1995 was $770,000 higher than the
third quarter of the previous year predominantly due to $776,000 of interest
expense associated with the acquisitions of Brown-Bridge and Haviland.
Offsetting this increase was a $247,000 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. These factors also
contributed to the nine months increase of $2.4 million.
On a prospective basis, the inclusion of the Central Products operation (see
Footnote I to the Interim Financial Statements) is expected to result in
increased reported interest expense by the Registrant in the fourth quarter of
1995 versus the respective prior year period.
Tax Provision
The income tax provision includes federal, as well as state and local taxes.
The tax provisions for the three months ending September 30, 1995 and 1994,
represent effective tax rates of 37.7% and 40.6%, 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 in Capital Communications Corporation (Station WOI-TV).
Net Income (Loss)
Net income for the three months ended September 30, 1995 was $1.3 million, or
$0.92 per share, in comparison to net income for the three months ended
September 30, 1994 of $571,000, or $0.43 per share. In the third quarter of
1994, the Registrant recorded an extraordinary (after-tax) loss of $264,000,
or $0.20 per share, associated with the redemption of the Registrant's 8%
Convertible Subordinated Debentures. The predominant factors that accounted
for the improvement in both the third quarter and first nine months results
were: the acquisition of Brown-Bridge; increased production activity at Lynch
Machinery; higher interest expense in 1995, reduced amortization expense at
Station WOI-TV and higher corporate expenses in 1995.
Backlog/New Orders
Total backlog of manufactured products at September 30, 1995 was $31.6 million
($14.6 million relates to Lynch Machinery), which represents a decrease from
the backlog of $38.8 million at December 31, 1994. Since December 31, 1994,
M-tron Industries backlog increased by $6.8 million to $10.4 million due to
increased market demand by the industries that M-tron serves, primarily
wireless communications. This increase was offset by production activity that
reduced Lynch Machinery's backlog by $14.2 million.
Liquidity/Capital Resources
At September 30, 1995, the Registrant had $27.3 million in cash and short-term
investments, which was $3.8 million lower than the $31.5 million reported at
December 31, 1994. This was predominantly due to the acquisition of TDI, and
capital spending and working capital requirements. Working capital at
September 30, 1995 was $29.3 million as compared to $22.7 million at December
31, 1994. Factors that contributed to the increase in working capital were (1)
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, (2) increased percentage-of-completion receivables and inventory at
Lynch Machinery due to increased production activity, and (3) seasonally higher
receivables at The Morgan Group. The Registrant and consolidated subsidiaries
had $25.7 million of unused credit facilities at September 30, 1995, $7.3
million of which relates to the Registrant. Total debt of the Registrant
increased from $98.2 million at December 31, 1994 to $106.4 million at
September 30, 1995.
Lynch Corporation and its subsidiaries maintain active acquisition programs and
generally finance each acquisition with a significant component of debt. This
acquisition debt traditionally contains restrictions on cash distributions to
the parent company. Reference is made to the Form 8-K dated October 4, 1995
(See Item 6(b)), which is incorporated herein by reference, for a description
of the financing of the Central Products Company acquisition and Registrant's
commitments. Accordingly, alternative short-term and long-term financing
arrangements are being pursued or considered at both the parent company and
subsidiaries with respect to the Central Products acquisition and for future
acquisitions.
Spinnaker Industries, Inc. has engaged an investment banking firm to assist it
in exploring various financing alternatives in order to provide additional
capital to repay $25 million in Subordinated Notes issued by Spinnaker to the
Seller in the Central Products Company acquisition as described in the Form 8-K
and for acquisitions, working capital and other corporate purposes. Spinnaker
is actively pursuing financing alternatives and any such financing may involve
the issuance of debt and substantial equity securities of Spinnaker. As of the
date of this filing, Spinnaker has not entered into any definitive agreements
or arrangement regarding the terms of any financing, and there can be no
assurance that such financing will be available on terms satisfactory to
Spinnaker.
See also Item 5 below with respect to the participation by subsidiaries of the
Registrant in the Federal Communication Commission Auction of spectrum for
personal communications services. Participation in the Auction and subsequent
development of the spectrum could require a significant financial commitment
and financing and materially impact future earnings of the Registrant.
PART II OTHER INFORMATION
Item 5. Other Information
On November 6, 1995, the Registrant announced that a subsidiary had
entered into a contract for the acquisition of Dunkirk & Fredonia
Telephone Company and its subsidiaries, including Cassadaga
Telephone Corporation, and Comantel, Inc. Closing of the
transaction is subject to certain conditions including regulatory
approvals. Dunkirk & Fredonia Telephone Co. serves approximately
10,700 access lines in western New York including the community of
Fredonia, the Village of Cassadaga and the Hamlet of Stockton.
Dunkirk & Fredonia also owns and operates other telecommunications
businesses, including long distance resale and sales and servicing
of telecommunications equipment and security operations.
Subsidiaries of Registrant are limited partners with a 49.9% equity
interest in five partnerships (the "Partnerships") which filed
applications by November 6, 1995, with the Federal Communications
Commission ("FCC") to bid in the FCC's C-Block ("Entrepreneurs')
Auction on Basic Trading Area licenses for 30 MHZ of spectrum to
be used for broadband personal communications services ("PCS").
Bidders are required to make up-front cash deposits with the FCC
by November 27, 1995 for bidding purposes, the amount of which will
(a) determine the maximum number of license POPs which the
Partnerships can bid on and (b) be applied to down payments on any
licenses won with the excess if any refunded. The Auction is
scheduled to begin on December 11, 1995. FCC Rules provide for an
installment payment plan for winning bidders in the Auction,
pursuant to which winning bidders put up a down-payment equal to
10% of the cost of the licenses won, with interest only payments
for six years and payments of principal and interest amortized over
the remaining four years. Registrant's subsidiaries are also
expected to enter into agreements to loan funds to the Partnerships
for up-front deposits, down payments and installment interest
payments on any licenses won, and certain other Partnership
expenses. There can be no assurances that the Partnerships will
win any PCS licenses or that if they do such licenses can be
successfully developed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K
(I) A Form 8-K dated October 4, 1995, which under Item 2 -
Acquisition or Disposition of Assets reported the acquisition
by a subsidiary of Registrant of the assets and stock of
Central Products Company from Alco Standard was filed on
October 19, 1995. The monthly guarantee fee to be paid by
Spinnaker with respect to the Conversion Notes as described
in the third sentence of the next to last paragraph in Item
2 should be 0.5% rather than the .05% set forth. An
amendment containing financial statements is expected to be
filed by December 18, 1995.
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
November 11, 1995
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This schedule contains summary financial information extracted from Condensed
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and is qualified in its entirety by reference to such Form 10-Q.
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