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, 1999
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. 1-106
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.)
401 Theodore Fremd Avenue, Rye, New York 10580
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 921-7601
- -------------------------------------------------- --------------
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 31, 199
Common Stock, no par value 1,412,383
<PAGE>
Page 2
INDEX
LYNCH CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet:
- June 30, 1999
- December 31, 1998
Condensed Consolidated Statements of Operations:
- Three and six months ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows:
- Six months ended June 30, 1999 and 1998
Notes to Condensed Consolidated 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 5. Other
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Page
Part 1 - FINANCIAL INFORMATION -
Item 1 - Financial Statements
LYNCH CORPORATION AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET
-------------------------------------
(In thousands)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
(Unaudited) (A)
----------- ---
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents ................................................. $ 145 $ 1,132
Receivables, less allowances of $353 and $395 ............................. 24,309 25,320
Inventories ............................................................... 31,477 28,396
Deferred income tax benefits .............................................. 8,717 9,315
Other current assets ...................................................... 809 1,787
Current assets of subsidiaries to be distributed to shareholders .......... 50,304 58,047
Current assets of discontinued operations ................................. 31,986 38,625
--------- ---------
TOTAL CURRENT ASSETS ..................................................... 147,747 162,622
PROPERTY,PLANT AND EQUIPMENT:
Land ..................................................................... 672 672
Buildings and Improvements ................................................ 10,833 12,585
Machinery and Equipment ................................................... 53,177 51,306
--------- ---------
64,682 64,563
Accumulated Depreciation .................................................. (19,690) (17,534)
--------- ---------
44,992 47,029
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED,NET .................... 22,472 21,075
OTHER ASSETS ................................................................. 6,415 7,328
NON - CURRENT ASSETS OF SUBSIDIARIES TO BE
DISTRIBUTED TO SHAREHOLDERS ............................................... 151,677 170,295
NON - CURRENT ASSETS OF DISCONTINUED OPERATIONS .............................. 69,491 71,651
--------- ---------
TOTAL ASSETS ............................................................ $ 442,794 $ 480,000
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks .................................................... $48,078 $59,686
Trade accounts payable .................................................... 19,392 18,178
Accrued interest payable .................................................. 2,590 2,575
Accrued liabilities ....................................................... 2,454 3,580
Customer advances ......................................................... 2,714 2,406
Current maturities of long - term debt .................................... 2,198 2,027
Current liabilites of subsidiaries to be distributed to shareholders ...... 36,272 37,240
Current liabilites of discontinued operations ............................. 15,338 18,162
--------- ---------
TOTAL CURRENT LIABILITIES ............................................... 129,036 143,854
LONG-TERM DEBT ............................................................... 126,380 126,976
DEFERRED INCOME TAXES ........................................................ 8,854 9,316
OTHER LONG TERM LIABILITIES .................................................. 1,901 2,182
MINORITY INTERESTS ........................................................... 2,010 3,999
NON - CURRENT LIABILITIES AND MINORITY INTEREST
OF SUBSIDIARIES TO BE DISTRIBUTED TO SHAREHOLDERS ......................... 139,682 147,600
NON - CURRENT LIABILITIES OF DISCONTINUED OPERATIONS ........................ 6,280 6,280
SHAREHOLDERS' EQUITY
COMMON STOCK,NO PAR VALUE-10,000,000 SHARES
AUTHORIZED; 1,471,191 shares issued (at stated value) ................... 5,139 5,139
ADDITIONAL PAID - IN CAPITAL .............................................. 8,298 8,554
RETAINED EARNINGS ......................................................... 16,207 26,771
ACCUMULATED OTHER COMPREHENSIVE INCOME .................................... 211 59
TREASURY STOCK OF 58,873 and 52,943 SHARES,AT COST ........................ (1,204) (730)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................. $442,794 $ 480,000
========= =========
<FN>
(A) The Balance Sheet at December 31,1998 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.
</FN>
</TABLE>
<PAGE>
Page 5
Part 1- FINANCIAL INFORMATION
- -----------------------------
Item 1- Financial Statements
- ----------------------------
LYNCH CORPORATION AND SUBSIDIARIES
----------------------------------
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
(UNAUDITED)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
-------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
SALES AND REVENUES ...............................................
<S> <C> <C> <C> <C>
Manufacturing ................................................ $47,363 $49,058 $93,774 $88,563
Costs and expenses:
Manufacturing ................................................ 41,014 42,186 82,785 76,103
Selling and administrative ................................... 5,648 5,297 10,594 9,643
----------- ----------- ----------- -----------
OPERATING PROFIT ................................................. 701 1,575 395 2,817
Other income (expense):
Investment Income ............................................ 0 0 7 90
Interest expense ............................................. (2,332) (2,358) (4,529) (3,829)
Loss on sales of subsidiary stock ............................ 0 0 0 (58)
----------- ----------- ----------- -----------
(2,332) (2,358) (4,522) (3,797)
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, MINORITY INTERESTS AND DISCONTINUED
OPERATIONS ...................................................... (1,631) (783) (4,127) (980)
Benefit for income taxes ........................................ 645 336 1,637 395
Minority interests ............................................... 486 89 1,015 129
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS .......................................... (500) (358) (1,475) (456)
Discontinued operations:
Loss from discontinued operations of industrial
tape segment of Spinnaker Industries (less
applicable income tax benefit of $106,$332,
$753 and $883 and minority interests of
$138, $365, $558 and $610) .................................. (21) (94) (572) (610)
Income (loss) from operations of Lynch Interactive
Corporation to be distributed to shareholders
(less income tax (provision) benefit of ($776),
($1,583), $3,871 and ($1,656) and minority
interests of $232, $393, $431, and $373 ..................... 948 1,776 (8,517) 1,954
----------- ----------- ----------- -----------
NET INCOME (LOSS) ................................................ $ 427 $ 1,324 ($ 10,564) $ 888
=========== =========== =========== ===========
Weighted average shares outstanding ........................... 1,416,000 1,418,000 1,417,000 1,418,000
=========== =========== =========== ===========
Basic and diluted earnings per share:
Loss from continuing operations before discontinued operations ($0.35) ($0.26) ($1.04) ($0.32)
Income (loss) from discontinued operations ................... 0.65 1.19 (6.41) 0.95
----------- ----------- ----------- -----------
NET INCOME (LOSS) ................................................ $ 0.30 $ 0.93 ($7.46) $0.63
=========== =========== =========== ===========
</TABLE>
<PAGE>
Page 6
LYNCH CORPORATION AND SUBSIDIARIES
-------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1999 1998
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) ................................................... ($10,564) $ 888
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization .................................... 2,754 2,238
Amortization of deferred financing charges ....................... 435 312
Minority interests ............................................... (1,015) (129)
Loss on sale of stock by subsidiaries ............................ 0 58
Net gain on sale of warehouse (854) --
Changes in operating assets and liabilities:
Receivables .................................................... 1,011 2,580
Inventories .................................................... (3,081) 421
Accounts payable and accrued liabilities ....................... 411 2,404
Other .......................................................... 414 (1,893)
Discontinued operations - non-cash charges and WC changes ......... 6,512 2,849
Subsidiaries to be distributed to shareholders - non-cash charges .. (1,075) (9,649)
-------- --------
NET CASH FROM OPERATING ACTIVITIES .................................. (5,052) 79
-------- --------
INVESTING ACTIVITIES
Capital Expenditures ................................................ (1,895) (2,166)
Investment in Spinnaker Coating - MAINE ............................. 0 (44,770)
Other ............................................................... 1,958 1,059
Investing activities of discontinued operations ..................... (1,022) (2,920)
Investing activities of subsidiaries to be distributed to shareholders 10,852 3,752
-------- --------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES ................. 9,893 (45,045)
-------- --------
FINANCING ACTIVITIES
Issuance of long - term debt ........................................ (4,183) 39,673
Deferred financing costs ............................................ (145) (793)
Treasury stock transactions ......................................... (474) 0
Other ............................................................... (697) 639
Financing activities of discontinued operations ..................... (73) 0
Financing activities of subsidiaries to be distributed to shareholders (256) 82
-------- --------
NET CASH FROM (USED IN) FINANCING ACTIVITIES ........................ (5,828) 39,601
-------- --------
Net decrease in cash and cash equivalents .......................... (987) (5,365)
Cash and cash equivalents at beginning of period .................... 1,132 6,497
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... 145 1,132
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
Page 7
A. Subsidiaries of the Registrant
As of June 30, 1999, prior to the effect of the distribution of Lynch
Interactive Corporation and the sale of the Industrial Tape Business of
Spinnaker Industries, Inc. (see Notes C and D), the Subsidiaries of the
Registrant are as follows:
<TABLE>
<CAPTION>
Owned by
Subsidiary 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%
Global Television, Inc. ......................................... 100.0%
Inter-Community Acquisition Corporation ......................... 100.0%
Home Transport Service, Inc. .................................... 100.0%
Lynch Capital Corporation ....................................... 100.0%
Lynch Entertainment Corporation ................................. 100.0%
Lynch Entertainment Corporation II .............................. 100.0%
Lynch International Exports, Inc. ............................... 100.0%
Lynch Manufacturing Corporation ................................. 100.0%
Lynch Display Technologies, Inc. .............................. 100.0%
Lynch Systems, Inc. ......................................... 91.0%
Lynch International Holding Corporation ................... 91.0%
Lynch-AMAV LLC ............................................ 68.2%
</TABLE>
<PAGE>
Page 8
<TABLE>
<CAPTION>
Owned by
Subsidiary Lynch
<S> <C>
M-tron Industries, Inc. 91.0%
M-tron Industries, Ltd. 91.0%
Spinnaker Industries, Inc. 61.2%
Entoleter, Inc. 61.2%
Spinnaker Coating, Inc. 61.2%
Spinnaker Coating-Maine, Inc. 61.2%
Central Products Company 61.2%
Spinnaker Electrical Tape Company 61.2%
Lynch Multimedia Corporation 100.0%
CLR Video, L.L.C. 60.0%
The Morgan Group, Inc. 70.0%(V)/55.4%(O)
Morgan Drive Away, Inc. 70.0%(V)/55.4%(O)
70.0%(V)/55.3%(O)
Transport Services Unlimited, Inc. 70.0%(V)/55.4%(O)
70.0%(V)/55.3%(O)
Interstate Indemnity Company 70.0%(V)/55.4%(O)
70.0%(V)/55.3%(O)
Morgan Finance, Inc. 70.0%(V)/55.4%(O)
70.0%(V)/55.3%(O)
TDI, Inc. 70.0%(V)/55.4%(O)
70.0%(V)/55.3%(O)
Home Transport Corporation 70.0%(V)/55.4%(O)
70.0%(V)/55.3%(O)
MDA Corporation 70.0%(V)/55.4%(O)
70.0%(V)/55.3%(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 Interactive 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, 20.7%
L.P.
Enchantment Cable Corporation 83.1%
Lynch Telephone Corporation II 100.0%
Inter-Community Telephone Company 100.0%
Inter-Community Telephone Company II 100.0%
Inter-Community Acquisition Corporation
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>
Page 9
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 the management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. 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, 1998.
C. Discontinued Operations
On April 12, 1999, the Company's 61% owned subsidiary, Spinnaker Industries,
Inc. reached a definitive agreement to sell its two industrial tape units,
Central Products Company and Spinnaker Electrical, which comprise its industrial
tape segment to Intertape Polymer Group, Inc. ("Intertape"). The consideration
for the sale was approximately $105 million and 300,000 five-year warrants to
purchase shares of Intertape common stock at $29.50 each. Spinnaker expects to
recognize a gain on the transactions. The agreement to sell Spinnaker Electrical
was completed on July 30, 1999 and the agreement to sell Central Products was
completed on August 10, 1999. As a result, the Company's industrial tape segment
is being reported as discontinued operations in the accompanying condensed
consolidated financial statements. Accordingly, operating results of the
industrial tape segment have been segregated from continuing operations and
reported as a separate line item on the statement of operations.
Lynch has restated its prior year financial statements to present the operating
results of the industrial tape segment as a discontinued operation. The
industrial tape segment's net sales were $29.3 million and $29.0 million for the
three month period ended June 30, 1999 and 1998 and $58.8 million and $57.8
million for the six month period ended June 30, 1999 and 1998, respectively, and
$121.8 million, $119.7 million and $124.1 million for the fiscal years ended
December 31, 1998, 1997, and 1996, respectively.
The assets and liabilities of the industrial tape businesses of Spinnaker
included in the accompanying condensed consolidated balance sheets as of June
30, 1999 and December 31, 1998 consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
Accounts receivable, net ................................. $ 13,329 $ 14,815
Inventories, net ......................................... 12,355 18,167
Prepaids and other ....................................... 6,302 5,643
----- -----
Current assets of discontinued operations ................ $ 31,986 $ 38,625
======== ========
Property, plant and equipment, net ....................... $ 46,382 $ 48,312
Goodwill and other assets ................................ 23,109 23,339
------ ------
Non-current assets of discontinued operations ............ 69,491 71,651
====== ======
Accounts payable.......................................... $ 12,063 $ 13,720
Accrued liabilities ...................................... 3,275 4,442
----- -----
Current liabilities of discontinued
operations ............................................... $15,338 $18,162
======= =======
Non-current liabilities of discontinued
operations ............................................... $ 6,280 $ 6,280
</TABLE>
<PAGE>
Page 10
D. Spin Off
On August 12, 1999, the Board of Directors approved a plan to distribute the
stock of Lynch Interactive Corporation on a one for one basis to the
shareholders of Lynch Corporation ("spin off"). Lynch expects to complete the
spin off of Lynch Interactive Corporation about September 1, 1999 (or as
promptly thereafter as practicable.) The record date is expected to be August
23, 1999. Pursuant to the spin off, each Lynch shareholder would receive one
share of Interactive stock for each share of Lynch owned. Lynch has received a
private letter ruling from the Internal Revenue Service that the spin off will
be tax free to Lynch shareholders. Interactive has filed an application to list
its stock on the American Stock Exchange.
Interactive would own all of Lynch's current multimedia and service businesses
while Lynch would retain the manufacturing businesses. Interactive would own the
telephone companies, television interests and PCS interests, as well as the 55%
equity interest of The Morgan Group, Inc. In addition, Interactive would own a
13.6% equity interest in Spinnaker Industries, Inc. Lynch would own 48% equity
in Spinnaker (60.4% of voting interest) after the spin off, as well as M-tron
Industries, Inc. and Lynch Systems, Inc.
As a result, the Company's multimedia and services segments are being reported
as operations to be distributed to shareholders in the accompanying condensed
consolidated financial statements. Accordingly, operating results of Lynch
Interactive Corporation have been segregated from continuing operations and
reported as a separate line item on the statement of operations.
Lynch has restated its prior year financial statements to present the operating
results of Lynch on a comparable basis. Interactive's net sales for the three
month period were $54.2 million and $54.9 million and $102.9 million and $101.8
million for the six month period ended June 30, 1999 and 1998, respectively, and
$205.1 million, $194.1 million and $106.8 million for the fiscal years ended
December 31, 1998, 1997, ad 1996 respectively.
The net assets of Interactive included in the accompanying condensed
consolidated balance sheets as of June 30, 1999 and December 31, 1998 consist of
the following:
<TABLE>
<CAPTION>
(In thousands) June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Cash, cash equivalents and marketable securities ....... $19,255 $27,988
Accounts receivable, net ............................... 19,372 18,853
Deferred income taxes .................................. 4,863 4,265
Prepaids and other ..................................... 6,814 6,941
----- -----
Current assets of discontinued operations .............. $ 50,304 $ 58,047
======== ========
Property, plant and equipment, net ..................... $88,882 $91,183
Goodwill ............................................... 46,488 47,740
Investment in and advances to PCS license
holders............................................... 7,960 23,360
Other Assets ........................................... 8,347 8,012
----- -----
</TABLE>
<PAGE>
Page 11
<TABLE>
<CAPTION>
(In thousands) June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Non-current assets of discontinued operations ........ $151,677 $170,295
======== ========
Notes payable ........................................ $ 3,041 $ 2,037
Accounts payable ..................................... 5,161 4,662
Accrued liabilities .................................. 20,222 21,902
Current portion of long term debt .................... 7,848 8,639
-------- --------
Current liabilities of discontinued operations ....... 36,272 37,240
======== ========
Long term debt ....................................... 116,069 119,024
Deferred income tax .................................. 8,087 13,062
Other long term debt ................................. 5,723 4,987
Minority interest .................................... 9,803 10,527
Non-current liabilities and minority interest
of discontinued operations ......................... $139,682 $147,600
======== ========
</TABLE>
A Lynch subsidiary has loans to and a 49.9% limited partnership interest in
Fortunet Communications, L.P. ("Fortunet"). Fortunet's only assets consist of
three 15MHz personal communications licenses that were acquired in the C-Block
auction held by the Federal Communications Commission ("FCC"). In that auction,
Fortunet acquired 30MHz licenses in these markets, but on June 8, 1998, under
FCC restructuring options, it returned 15MHz of the original 30MHz acquired. 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 of $2.7 million for the three licenses as compared to the $18.7
million carrying amount of Lynch's investment in Fortunet. Accordingly, for the
quarter ended March 31, 1999, Lynch has recorded a write-down of $15.4 million
in its investment in Fortunet to reflect the amount bid for similar licenses in
the reauction, plus an additional $0.7 million of capitalized expenses and
interest leaving a carrying value of $3.4 million.
E. Acquisitions
On July 30, 1998, the Company's subsidiary, Spinnaker Industries, Inc. acquired
tesa tape, inc.'s pressure sensitive electrical tape product line and its
Carbondale, Illinois manufacturing plant (the "tesa tape Acquisition"). The
purchase price totaled $10.7 million plus transaction costs, comprised of
200,000 shares of Spinnaker common stock (subject to adjustment) valued at $3.7
million, $4.5 million in term debt, $2.0 million in cash, and a $0.5 million
subordinated note. The acquired business produces electrical tape for insulating
motors coils and transformers for customers in Europe, Canada and the U.S. See
Note C concerning sale of industrial tape businesses.
On March 17, 1998, Spinnaker Coating-Maine, Inc. acquired the pressure sensitive
adhesive-backed label stock business of S.D. Warren. The purchase price was
approximately $51.8 million, plus the assumption of certain liabilities and was
funded by issuing the seller a convertible subordinated note of $7.0 million
with the remainder funded by Spinnaker's revolving credit facility. As a result
of this transaction, the Registrant recorded approximately $21.3 million in
goodwill which is being amortized over 30 years.
All of the above acquisitions were accounted for as purchases, and accordingly,
the assets acquired and liabilities assumed were recorded at their estimated
fair market values.
<PAGE>
Page 12
The operating results of the S.D. Warren's adhesive-backed label stock business
are included in the Consolidated Statement of Operations from its respective
acquisition date. The following unaudited proforma information shows the results
of the Registrant's operations as though the acquisition of S.D. Warren's
adhesive-backed label stock business had been made at the beginning of 1998.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(In thousands, except per share data) 1999 1998
-------- --------
<S> <C> <C>
Sales and Revenues ................................. $ 93,774 $ 100,707
Operating Profit ................................... 395 3,460
Income (Loss) from Continuing Operations Before
Income Taxes and Minority Interest ............... (4,127) (1,296)
Net Income (Loss) from Continuing Operations ....... (1,461) (322)
Net Income (Loss) from Continuing
Operations Per Share ............................. $ (1.03) $ (0.91)
</TABLE>
F. Inventories
Inventories are stated at the lower of cost or market value. At June 30, 1999,
inventories were valued by three methods: last-in, first-out (LIFO) - 17%,
specific identification - 80%, and first-in, first-out (FIFO) - 3%. At December
31, 1998, the respective percentages were 15%, 82%, and 3%, respectively.
<TABLE>
<CAPTION>
(In Thousands)
June 30, Dec. 30,
1999 1998
-------- ---------
<S> <C> <C>
Raw material and supplies .................... $10,009 $ 7,711
Work in process .............................. 2,456 1,273
Finished goods ............................... 19,012 19,412
------- -------
Total Inventories .......................... $31,477 $28,396
======= =======
</TABLE>
G. Indebtedness
Spinnaker Industries, Inc. maintains revolving lines of credit at its
subsidiaries which total $40 million, of which $4.6 million was available at as
of August 10, 1999. These facilities were established subsequent to the sale of
Central Products and Spinnaker Electrical. In addition, Lynch maintains other
lines of credit totaling $4.4 million. These facilities generally limit the
credit available under the lines of credit to certain variables, such as
inventories and receivables, and are secured by the operating assets of the
subsidiary, and include various financial covenants. Due to certain of these
restrictive covenants and working capital requirements of the subsidiaries, cash
distributions from the subsidiaries are limited. At June 30, 1999, $4,4 million
of these total facilities expire within one year.
In general, the long-term debt 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.
<PAGE>
Page 13
<TABLE>
<CAPTION>
Long term debt consists of: June 30, Dec.31,
1999 1998
-------- ---------
<S> <C> <C>
Spinnaker Industries, Inc. 10.75% Senior Secured
Note due 2006 ........................................ $ 115,000 $ 115,000
Unsecured notes issued in connection with
acquisitions at fixed interest rates averaging 9.6%
with maturities through 2000 ......................... 7,500 7,500
Other ................................................ 6,078 6,503
--------- ---------
128,578 129,003
Current Maturities ................................... (2,198) (2,027)
--------- ---------
$ 126,380 $ 126,976
========= =========
</TABLE>
Proceeds from the sale of Central Products Company are anticipated to satisfy
transactions costs and repay certain of the working capital revolver debt
included above under caption "Unsecured notes issued in connection with
acquisitions," the balance of the proceeds would be available to invest in any
business, capital expenditure or other tangible asset in the Permitted
Businesses, as defined in the Indenture. Any proceeds not so invested within 270
days after the closing of the sale or not used to permanently reduce
indebtedness (other than subordinated debt) shall be used to repurchase the
Senior Notes on a pro rata basis as required by the Indenture.
The proceeds from the sale of Spinnaker Electrical, an unrestricted subsidiary,
will repay certain term debt and working capital revolver debt collateralized by
the assets of Spinnaker Electrical. The remaining net proceeds will be used for
general purposes, which may include purchasing Senior Notes in the open market
where the Senior Notes trade at a substantial discount from the principal
amount.
H. Loss on sale of subsidiary stock
During the first six months of 1998, as a result of the exercise of a portion of
the stock warrants held by the management of Spinnaker, the Registrant recorded
a loss of $58,000 ($34,000 net of income tax, or $0.02 per share).
I. Earnings per share
Basic earnings per common share amounts are based on the average number of
common shares outstanding during each period, excluding the dilutive effects of
options, warrants, and convertible securities.
J. Comprehensive income
Effective January 1, 1998, the Registrant adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components; however, the adoption of
SFAS No. 130 had no impact on the Company's net income (loss) or shareholders'
equity. SFAS No. 130 requires unrealized gains or losses on the Registrant's
available-for-sale securities, which prior to adoption were reported separately
in shareholders equity to be included in other comprehensive income.
<PAGE>
Page 14
The components of comprehensive income, net of tax, for the three and six months
ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) .................. 427 1,324 $(10,564) $ 888
Unrealized gain (loss) on securities 170 -- 153 423
--- ---- --- ---
Comprehensive income (loss) ....... 597 1,324 $(10,411) $ 1,311
=== ===== ======== ========
</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Unrealized gain (loss) on securities ....... 211 59
--- --
Accumulated comprehensive income ........... 211 59
=== ==
</TABLE>
K. Segment Information
After the pending dividend to shareholders of the stock of Lynch Interactive
Corporation, the Company is engaged in the manufacture of adhesive backed label
stock and other manufacturing. The Company measures performance of its segments
primarily by revenues, operating profit and EBITDA before corporate allocation
(operating profit before depreciation, amortization and allocated corporate
expenses). Identifiable assets of each segment have not changed materially since
December 31, 1998.
General corporate office expenses related to finance and administrative
functions including public company compliance reporting, bank and investor
relations, taxes and other than income taxes and holding company payroll,
historically allocated and charged to the industrial tape segment were reversed
and allocated back to continuing operations. These expenses were not considered
to be directly attributed to discontinued operations. Expenses allocated back to
continuing operations totaled $0.4 million and $0.8 million in the three and six
months periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Manufacturing:
<S> <C> <C> <C> <C>
Adhesive-backed label stock ....... $ 38,065 $ 40,500 $ 76,656 $ 69,373
Other manufacturing ............... 9,298 8,558 17,118 19,190
----- ----- ------ ------
Total manufacturing ............... $ 47,363 $ 49,058 $ 93,774 $ 88,566
======== ======== ======== ========
EBITDA (before corporate allocation):
Manufacturing:
Adhesive-backed label stock ....... 2,401 3,583 4,307 5,702
Other manufacturing ............... (304) 12 (250) 904
Corporate manufacturing expenses .. 196 (631) (477) (1,200)
--- ---- ---- ------
Total manufacturing ............... 2,293 2,964 3,500 5,406
Corporate expenses, gross ........... (194) (14) (390) (362)
---- --- ---- ----
Consolidated total .................. $ 2,099 $ 2,950 $ 3,190 $ 5,044
======== ======= ======= =======
</TABLE>
<PAGE>
Page 15
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
Operating profit:
Manufacturing:
<S> <C> <C> <C> <C>
Adhesive-backed label stock ................. 1,298 2,494 2,091 4,032
Other manufacturing ......................... (637) (306) (900) 284
Corporate manufacturing expenses ............ 154 (680) (566) (1,298)
------- ------- ------- -------
Total manufacturing ......................... 815 1,508 625 3,018
Unallocated corporate expense ................. (114) 67 (230) (201)
------- ------- ------- -------
Consolidated total ............................ $ 701 $ 1,575 395 2,817
======= ======= ======= =======
Total operating profit for reportable segments $ 701 $ 1,575 395 2,817
Other profit or loss:
Investment income ........................... 0 0 7 90
Interest expense ............................ (2,332) (2,358) (4,529) (3,829)
Gain on sale of subsidiary stock .............. 0 0 0 (58)
operating assets
------- ------- ------- -------
Income (loss) from continuing operations before
income taxes, minority interests and .......... $(1,631) $ (783) $(4,127) $ (980)
discontinued operations ======= ======= ======= =======
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Sales and Revenues
Revenues for the second quarter of 1999 decreased by $1.7 million or 3%, to
$47.4 million, from the second quarter of 1998. Revenues for the six months
ended June 30, 1999 increased by $5.2 million from the comparable 1998 period
reflecting the S.D. Warren acquisition noted below.
Revenues from Spinnaker Industries, Inc. continuing operations fell by $3.2
million between the two quarters due to product technology transition in
pressure sensitive label stock area partially offset by higher sales of pressure
sensitive postage stock. The market's rapid transition from EDP to thermal
transfer paper stock technologies has exceeded management's expectations and as
a result caused Spinnaker to experience lower volumes and average selling prices
at Coating-Maine, as the market balances quality and performance against lower
priced solutions. Unit sales of pressure sensitive postage paper stock continue
to be impacted by the uneven ordering pattern of the Bureau of Printing and
Engraving. Unit sales of pressure sensitive postage paper stock for the second
quarter of 1999 represent an increase approximately 50% from corresponding 1998
period, however on an annual basis is still anticipated to approximate prior
year volumes. For the six month period ended June 30, 1999, sales increased by
$6.2 million. Spinnaker completed the acquisition of S.D. Warren's pressure
sensitive adhesive-backed label stock business on March 18, 1998, revenues of
this operation in 1998 prior to Spinnaker's acquisition were $12.1 million.
Increased volume as a result of this acquisition offset the revenue decline as a
result of the product technology transition discussed above. Revenues at M-tron
increased by $1.9 million for the three month period due to increased demand
from the telecommunications industry and increased sales of new products.
Revenues for the six month period increased $1.0 million due to the same
factors. Lynch Systems' revenues for the second quarter was the same as the
prior year at $1.1 million, but for the six months fell by $2.0 million
reflecting lack of orders
<PAGE>
Page 16
for extra-large glass press machines which, during the first half, were not
offset by orders for other products.
Operating profit for the second quarter 1999 declined by $0.9 million from the
operating profit in the prior year. Spinnaker's operating profit declined by
$0.6 million due to lower volume, reduction in gross margins as a result of the
lower pricing noted above as well as the effect of increased Asian imports
offset by gains on sale of fixed assets ($0.9 million). These factors also
affected the six month period where operating profit fell by $1.5 million.
Including acquisitions adjustments, Spinnaker Coating-Maine recorded $0.6
million operating profit for the period prior to Spinnaker's ownership. M-tron's
operating profit increased by $0.3 million due to increased volume and Lynch
Systems' operating loss increased during the second quarter by $0.3 million due
to sale of lower margined products, and for the six month period also due to
sales of lower margined products but predominantly due to a short-fall in order
activity.
Other Income (Expense), Net
Interest expense was essentially the same at $2.3 million for the quarter.
During the six-month period ended June 30, 1999, interest expense increased by
$0.7 million. The increase was primarily due to the increased debt level
resulting from Spinnaker's acquisition of S.D. Warren's pressure sensitive
adhesive-backed label stock business on March 17, 1998.
Interest expense from continuing operations is subject to certain matters
associated with the use of the net proceeds from the sales of the industrial
tape units of Spinnaker, including retirement of senior debt or "permitted
investments" as defined under the Indenture. As a result, interest expense, as
presented on a historical basis, may not necessarily be indicative of interest
expense of continuing operations for the year ended December 31, 1999.
Tax Provision
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, 1999 and
1998, represents effective tax rates of (40%) for both periods. The differences
from the federal statutory rate are principally due to the effect of state
income taxes and amortization of non-deductible goodwill.
Minority Interest
Minority interests contribution to the net income (loss) increased by $0.4
million in 1999 and $0.9 million, respectively, from the respective prior year
periods of 1998 due to the increased net losses at Spinnaker and the January 1,
1999 repurchase of M-tron minority interest.
Discontinued Operations
On August 12, 1999, the Board of Directors approved a plan to distribute the
stock of Lynch Interactive Corporation on a one for one basis to the
shareholders of Lynch Corporation ("spin off"). Lynch expects to complete the
spin off of Lynch Interactive Corporation about September 1, 1999 (or as
promptly thereafter as practicable.) The record date is expected to be August
23, 1999. Pursuant to the
<PAGE>
Page 17
spin off, each Lynch shareholder would receive one share of Interactive stock
for each share of Lynch owned. Lynch has received a private letter ruling from
the Internal Revenue Service that the spin off will be tax free to Lynch
shareholders. Interactive has filed an application to list its stock on the
American Stock Exchange.
Interactive would own all of Lynch's current multimedia and service businesses
while Lynch wold retain the manufacturing businesses. Interactive would own the
telephone companies, television interests and PCS interests, as well as the 55%
equity interest of The Morgan Group, Inc. In addition, Interactive would own a
13.6% equity interest in Spinnaker Industries, Inc. Lynch would own 48% equity
in Spinnaker after the spin off, as well as M-tron Industries, Inc. and Lynch
Systems, Inc.
As a result, the Company's multimedia and services segments are being reported
as operations are to be distributed to shareholders in the accompanying
condensed consolidated financial statements. Accordingly, operating results of
Lynch Interactive Corporation have been segregated from continuing operations
and reported as a separate line item on the statement of operations.
A Lynch subsidiary has loans to and a 49.9% limited partnership interest in
Fortunet Communications, L.P. ("Fortunet"). Fortunet's only assets consist of
three 15MHz personal communications licenses covering an area with a population
of 785,000 that were acquired in the C-Block auction held by the Federal
Communications Commission ("FCC"). In that auction, Fortunet acquired 30MHz
licenses in these markets, but on June 8, 1998, under FCC restructuring options,
it returned 15MHz of the original 30MHz acquired. 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 of
$2.7 million for the three licenses as compared to the $18.7 million carrying
amount of Lynch's investment in Fortunet. Accordingly, during the quarter ended
March 31, 1999, Lynch recorded a write down of $15.4 million in its investment
in Fortunet to reflect the amount bid for similar licenses in the reauction,
plus an additional $0.7 million of capitalized expenses and interest, to leave a
carrying value of $3.4 million. This write-down offset by operating profits
caused the loss for the six months ended June 30, 1999.
Effective September 30, 1998, the Company amended its SAR (stock appreciation
rights) Program so that the SARs become exercisable only in the event the price
for the Company's shares double from the SAR grant price within five year from
the original issuance. The grant prices of the 42,700 SARs currently outstanding
range from $63.03 to $84.63. This amendment eliminated the recording of the
profit and loss effect from changes in the market price in the Company's common
stock until it is probable that the SARs will become exercisable. During the
second quarter of 1998, the Company recorded $0.7 million SAR income (per-tax)
as compared to no income or expense in 1999. SAR expense was $0.4 million in the
first six months of 1998.
Lynch has restated its prior year financial statements of present the operating
results of Lynch Interactive on a comparable basis. Interactive's net sales were
$102.9 million and $101.8 million for the six month period ended June 30, 1999
and 1998, respectively, and $205.1 million, $194.1 million and $106.8 million
for the fiscal years ended December 31, 1998, 1997, ad 1996 respectively.
<PAGE>
Page 18
On April 12, 1999, Spinnaker agreed to sell its two industrial tape units,
Central Products Company and Spinnaker Electrical, which comprise its industrial
tape segment. Accordingly, operating results of the industrial tape segment have
been segregated from continuing operations and reported separately in the
statement of operations. In addition, the Company has restated its prior
financial statements to present the operating results of the industrial tape
segment as a discontinued operation.
Net Income/Loss
Net loss for the six months ended June 30, 1999 was ($10.6) million, or $(7.46)
per share, as compared to a net income of $0.9 million, or $1.27 per share in
the previous year. The reserve for the impairment of the investment in PCS
license holders was the primary cause for the swing.
Net income for the three months ended June 30, 1999 was $0.4 million, or $0.30
per share, lower than net income of $1.3 million, or $0.93 per share, for the
same period of 1998 due to lower net operating results at The Morgan Group, Inc.
(included in Lynch Interactive), lower investment income at Lynch Interactive
and no income for the SAR program in 1999.
Backlog/New Orders
Total backlog of manufactured products from continuing operations at June 30,
1999 was $17.2 million, which represents an increase of $7.4 million from the
backlog of $9.8 million at December 31, 1998. All operating units contributed
significant increase to the backlog at June 30, 1999. Included in the backlog
for both periods is a $2.4 million cancellation provision, which the customer
paid, on an earlier glass press order at Lynch Systems which was subsequently
canceled. The customer can use this amount for future orders and if not
utilized, reverts to Lynch Systems.
FINANCIAL CONDITION
Liquidity/Capital Resources
As of June 30, 1999 excluding amounts attributed to Lynch Interactive and
Spinnaker Industries Industrial Tape Business, the Company had current assets of
$65.5 million and current liabilities of $77.4 million. Working capital was
therefore a negative $11.9 million as compared to $22.5 million at December 31,
1998. The decrease is primarily due to the pay down of debt. Of note, lines of
credit currently at Lynch Corporation with outstanding balance of $7.3 million
at June 30, 1999 and $15.2 million at December 31, 1998 are expected to be
transferred to Lynch Interactive at the time of the distribution. Proceeds from
the sale of Spinnaker Industrial Tape Business were used to satisfy transaction
costs and repay approximately $18.2 million of the working capital revolver
debt. The balance of proceeds from the Central Products Company, approximately
$60 million, are available to invest in any business, capital expenditure or
other tangible asset in the Permitted Businesses, as defined in the Indenture.
Any proceeds not so invested within 270 days after the closing of the Industrial
Tape Sale or not used to permanently reduce indebtedness (other than
subordinated debt) shall be sued to repurchase the Senior Notes on a pro rata
basis as required by the Indenture.
Net proceeds from the sale of Spinnaker Electrical, an unrestricted subsidiary,
of approximately $10 million, are unavailable for general purposes, which may
include
<PAGE>
Page 19
purchasing the Senior Notes in the open market. Other options include
acquisitions, capital expenditures to support remaining subsidiaries, and/or
repurchase of Spinnaker common stock.
First six months capital expenditures were $1.9 million in 1999 and $2.2 million
in 1998.
At June 30, 1999, total debt was $176.7 million, which was $4.1 million less
than the $188.7 million at the end of 1998 primarily due to principal
repayments. Debt at June 30, 1999 included $123.7 million of fixed interest rate
debt, at an average cash interest rate of 10.6% and $45.7 million of variable
interest rate debt at an average interest rate of 7.7%. Additionally, the
Company had unused lines of credit facilities of which the Spinnaker Credit
Facility is a major portion. The Spinnaker Credit Facility is available to fund
acquisitions and support periodic fluctuations in working capital. Credit
availability under the Spinnaker Credit Facility is subject to certain
variables, such as inventory and receivables eligible to be included in the
borrowing base. The Company is charged an unused credit fee every month of
0.375% per annum. Outstanding borrowings bear interest at variable rates related
to the prime interest rate or LIBOR. At June 30, 1999, the combined effective
interest rate in effect was 7.76%. In conjunction with the disposition of
Central Products Company, the Spinnaker Credit Facility was refinanced and the
aggregate facility was decreased from $60 million to $40 million. The Refinanced
Credit Facility will expire December 31, 2001. As of August 10, 1999, aggregate
availability under the Refinanced Credit Facility was approximately $30.9
million, of which approximately $17.2 million was outstanding.
Lynch Corporation may make additional acquisitions which will probably be
financed with a significant component of debt. This acquisition debt as well as
current debt outstanding contains restrictions on the amount of readily
available funds that can be transferred to Lynch Corporation from its
subsidiaries.
YEAR 2000
The Company has initiated a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing and conducting an implementation plan to resolve the issue. The Year
2000 problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Any of the Company's programs
or programs utilized by vendors to the Company that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculation. The Company's Year
2000 review is being performed primarily by internal staff, and in certain
operations is supplemented by outside consultants. The principal Information
Technology (IT) systems for the Company's manufacturing companies are sales
order entry, shop floor control, inventory control and accounting. The Year 2000
may also impact various non-IT systems, including among other things security
systems, HVAC, elevator systems, and communications systems. In addition, each
of the Company's businesses may be impacted by the Year 2000 readiness of third
party vendors/suppliers.
The assessment phase for the Company's manufacturing businesses is approximately
99% complete. Based upon its identification and assessment efforts to date, the
Company has determined that certain of its computer and software used in
manufacturing and accounting systems require replacement or modification. Such
replacements and modifications are ongoing and estimated to be 90% complete and
are expected to be 100% complete in September 1999. The total cost of Year 2000
remediation for the
<PAGE>
Page 20
manufacturing businesses is estimated to be approximately $0.2 million, of which
approximately $0.1 million has been spent to date. A comprehensive contingency
plan has not been completed at this time but is expected to be completed in
September 1999.
The estimated costs and projected dates of completion for the Company's Year
2000 program are based on management's estimates and were developed using
numerous assumptions of future events, some of which are beyond the Company's
control. The Company presently believes that with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company as a whole. However, if such
modifications and conversions are not completed timely or are ineffective, the
Year 2000 issue may materially and adversely impact the Company's financial
condition, results of operations and cash flows.
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 equivalents and short-term investments
(approximately $0.1 million at June 30, 1999 (Note: the disposition of Central
Products and Spinnaker Electrical is initially expected to generate $75 million
of liquid resources). 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, 1999, approximately $45.7 million, or 27% 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 1999 average interest rate under these
borrowings, it is estimated that the Company's second quarter 1999 interest
expense would have changed by $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.
------------------------
Included in this Management Discussion and Analysis of Financial Condition and
Results of Operations and Item 5 below are certain forward looking financial and
other information, including without limitation matters relating to Spinnaker,
PCS, a possible spin-off, Year 2000 matters 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
<PAGE>
Page 21
the expected performance of the economy as it impacts the Registrant's
businesses, government and regulatory actions and approvals, and tax
consequences. 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 "Market Risk" under Item 2 above.
PART II OTHER INFORMATION
Item 5. Other
Lynch Multimedia Corporation, a subsidiary of Registrant, has filed a law
suit claiming that it is entitled to a 60% ownership interest in certain
cable television franchises in Kansas having approximately 3,000 customers.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
Page 22
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 CORPORATION
(Registrant)
By: s/Robert E. Dolan
Robert E. Dolan
Chief Financial Officer
August 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Financial Statements as of June 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000061004
<NAME> Lynch Corporation
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 145
<SECURITIES> 0
<RECEIVABLES> 24,309
<ALLOWANCES> 353
<INVENTORY> 31,477
<CURRENT-ASSETS> 147,747
<PP&E> 64,682
<DEPRECIATION> 19,690
<TOTAL-ASSETS> 442,794
<CURRENT-LIABILITIES> 129,036
<BONDS> 126,380
0
0
<COMMON> 5,139
<OTHER-SE> 23,512
<TOTAL-LIABILITY-AND-EQUITY> 442,794
<SALES> 93,774
<TOTAL-REVENUES> 93,774
<CGS> 82,785
<TOTAL-COSTS> 93,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,529
<INCOME-PRETAX> (4,127)
<INCOME-TAX> 1,637
<INCOME-CONTINUING> (1,475)
<DISCONTINUED> (9,089)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,564)
<EPS-BASIC> (7.46)
<EPS-DILUTED> (7.46)
</TABLE>
