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 March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-106
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)
(914) 921-7601
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practical date.
Class Outstanding at May 12, 2000
Common Stock, no par value 1,510,183
<PAGE>
INDEX
LYNCH CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets:
- March 31, 2000
- December 31, 1999
Condensed Consolidated Statements of Operations:
- Three months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows:
- Three months ended March 31, 2000 and 1999
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 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Part 1 - FINANCIAL INFORMATION -
Item 1 - Financial Statements
<TABLE>
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31 December 31
2000 1999
(unaudited) (A)
----------- ---
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents ............................. $ 23,543 $ 13,106
Receivables, less allowances of $412 and $361 ......... 28,147 24,642
Inventories ........................................... 30,957 31,680
Deferred income tax benefits .......................... 8,943 8,943
Other current assets .................................. 1,463 1,303
----- -----
TOTAL CURRENT ASSETS .................................. 93,053 79,674
Restricted Cash .......................................... 20,907 56,026
PROPERTY, PLANT AND EQUIPMENT:
Land .................................................. 672 672
Buildings and improvements ............................ 11,028 11,015
Machinery and Equipment ............................... 55,312 54,529
------ ------
67,012 66,216
Accumulated Depreciation ................................. (23,410) (22,137)
------- -------
43,602 44,079
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET 21,822 22,020
OTHER ASSETS ............................................. 8,253 9,393
----- -----
TOTAL ASSETS .......................................... $ 187,637 $ 211,192
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks ................................ $ 22,470 $ 23,178
Trade accounts payable ................................ 16,783 14,404
Accrued interest payable .............................. 3,644 2,426
Accrued liabilities ................................... 14,642 13,956
Customer advances ..................................... 3,015 860
Current maturities of long-term debt .................. 1,823 1,636
----- -----
TOTAL CURRENT LIABILITIES ............................. 62,377 56,460
LONG-TERM DEBT ........................................... 83,284 116,765
DEFERRED INCOME TAXES .................................... 6,225 6,225
OTHER LONG-TERM LIABILITIES .............................. 5,080 4,866
MINORITY INTERESTS ....................................... 11,184 10,885
SHAREHOLDERS' EQUITY
COMMON STOCK, NO PAR VALUE - 10,000,000 SHARES
AUTHORIZED; 1,513,191 and 1,471,191 shares issued .... 5,139 5,139
ADDITIONAL PAID-IN CAPITAL ............................ 10,111 8,302
RETAINED EARNINGS ..................................... 4,339 3,843
ACCUMULATED OTHER COMPREHENSIVE (LOSS) ................ (40) (40)
TREASURY STOCK OF 3,008 AND 52,943 SHARES, AT COST .... (62) (1,253)
--- ------
TOTAL SHAREHOLDERS' EQUITY ............................... 19,487 15,991
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $ 187,637 $ 211,192
========= =========
<FN>
(A) The Balance Sheet at December 31, 1999 has been derived from the Audited
Financial Statements at that date, but does not include all of the information
And footnotes required by generally accepted accounting principles for complete
Financial statements.
</FN>
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share amounts)
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
<S> <C> <C>
SALES AND REVENUES ............................................................. $ 52,474 $ 46,411
Costs and expenses:
Manufacturing cost of sales ................................................. 46,327 41,771
Selling and administrative .................................................. 5,756 4,502
Restructuring charge ........................................................ 533 450
--- ---
OPERATING (LOSS) ............................................................... (142) (312)
Other income (expense):
Investment income ........................................................... 688 11
Interest expense ............................................................ (3,450) (2,201)
------ ------
(2,762) (2,190)
------ ------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
MINORITY INTERESTS, DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM .......................................................... (2,904) (2,502)
Benefit from income taxes ...................................................... 1,064 966
Minority interests ............................................................. 1,082 561
----- ---
LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM ...................................................... (758) (975)
DISCONTINUED OPERATIONS:
(Loss) from operations of Lynch Interactive
Corporation distributed to shareholders (less income tax
benefit of $4,647 and minority interests of $199) .......................... 0 (9,465)
Loss from discontinued operations of industrial tape segment of Spinnaker
Industries (less applicable income tax
benefit of $647 and minority interests of $420) ............................ 0 (551)
EXTRAORDINARY ITEM
Gain on early extinguishments of debt (less income tax
provision of $1,577 and minority interest of $1,381) ....................... 1,254 0
----- -----
NET INCOME (LOSS) .............................................................. $ 496 ($ 10,991)
=========== ===========
Weighted average shares outstanding ......................................... 1,433,000 1,418,000
Basic and diluted earnings per share:
Loss from continuing operations before discontinued operations .............. ($ 0.53) ($ 0.69)
Income (loss) from Lynch Interactive Corporation ............................ 0.00 (6.67)
Income (loss) from discontinued operations .................................. 0.00 (0.39)
Extraordinary item .......................................................... 0.88 0.00
---- ----
NET INCOME (LOSS) .............................................................. $ 0.35 ($ 7.75)
=========== ===========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended
March 31
2000 1999
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) ...................................................... $ 496 ($10,991)
Adjustments to reconcile net income (loss) to net cash provided by
Operating activities:
Loss from operations of Lynch Interactive Corporation ................ 0 9,465
Loss from operations of industrial tape segment ...................... 0 551
Extraordinary item ................................................... (1,254) 0
Depreciation and amortization ........................................ 1,524 1,484
Amortization of deferred financing charges ........................... 278 205
Deferred taxes ....................................................... 0 458
Minority interests ................................................... (1,082) (561)
Changes in operating assets and liabilities:
Receivables ........................................................ (3,505) 144
Inventories ........................................................ 723 (3,399)
Accounts payable and accrued liabilities ........................... 6,438 6,457
Other .............................................................. (438) (1,365)
---- ------
Cash provided by (used in) operating activities of continuing operations 3,180 2,448
----- -----
INVESTING ACTIVITIES
Capital expenditures ................................................... (796) (767)
Other .................................................................. (53) (587)
--- ----
Cash provided by (used in) investing activities of continuing operations (849) (1,354)
---- ------
FINANCING ACTIVITIES
Change in notes payable ................................................ (708) (4,813)
Repayment & buy back of long-term debt ................................. (30,659) 25
Deferred financing costs ............................................... (69) (123)
Sale of common stock ................................................... 3,000 0
Other .................................................................. 1,423 (765)
----- ----
Cash provided by (used in) operating activities of continuing operations (27,013) (5,676)
------- ------
Net decrease in cash and cash equivalents .............................. (24,682) (4,582)
Cash provided by Lynch Interactive Corporation ......................... 0 357
Cash provided by (used in) industrial tape segment ..................... 0 3,671
------ -----
Increase/decrease in cash and cash equivalents ......................... (24,682) (554)
Cash and cash equivalents at beginning of period including $56,026 of
Restricted Cash at December 31, 1999 ................................. 69,132 1,132
------ -----
Cash and cash equivalents at end of period including $20,907 of
Restricted Cash at March 31, 2000 .................................... $ 44,450 $ 578
======== ========
See accompanying notes
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements
A. Subsidiaries of the Registrant
As of March 31, 2000, after the effect of the distribution of Lynch Interactive
Corporation and the sale of the industrial tape segment of Spinnaker Industries,
Inc. (see Notes C and D), the Subsidiaries of the Registrant are as follows:
Subsidiary Owned by Lynch
<TABLE>
<S> <C>
Lynch Display Technologies, Inc. ....... 100.0%
Lynch Systems, Inc. .................... 92.0%
Lynch International Holding Corporation 92.0%
Lynch-AMAV LLC ........................ 69.0%
M-tron Industries, Inc. ................ 100.0%
M-tron Industries, Ltd. ............. 100.0%
Spinnaker Industries, Inc. .......... 47.6%(O)/60.4%(V)
Entoleter, Inc. ................... 47.6%(O)/60.4%(V)
Spinnaker Coating, Inc. ........... 47.6%(O)/60.4%(V)
Spinnaker Coating-Maine, Inc. .... 47.6%(O)/60.4%(V)
Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</TABLE>
B. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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 three
month period ended March 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. 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, 1999.
The accompanying unaudited condensed consolidated financial statements reflect
the spin off of Lynch Interactive Corporation from Lynch Corporation ("Lynch" or
"Registrant") that occurred in the third quarter of 1999 (see Note D) and the
sale of the industrial tape segment of Spinnaker Industries, Inc., that occurred
in the third quarter of 1999 (see Note C).
C. Discontinued Operations
In the third quarter of 1999, the Company's 48% owned subsidiary, Spinnaker
Industries, Inc. sold its two industrial tape units, Central Products Company
and Spinnaker Electrical, which comprised 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 recognized a gain on the
transactions of $24 million before tax and the Registrant recognized a similar
gain before income tax and minority interests. 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 statements 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 $29.5 million for the three-month
period ended March 31, 1999.
D. Spin Off
On August 12, 1999, the Board of Directors approved a plan to distribute the
stock of Lynch Interactive Corporation ("Interactive") on a one for one basis to
the shareholders of Lynch ("Spin Off"). Lynch completed the Spin Off on
September 1, 1999 to stockholders of record on August 23, 1999. Pursuant to the
Spin Off, each Lynch shareholder received one share of Interactive stock for
each share of Lynch owned. Lynch had received a private letter ruling from the
Internal Revenue Service that the Spin Off would be tax free to Lynch
shareholders. Interactive is listed on the American Stock Exchange under the
symbol "LIC."
Interactive owns all of what was Lynch's multimedia and service businesses while
Lynch retains the manufacturing businesses. Interactive owns the telephone
companies, television interests and PCS interests, as well as the 55% equity
interest of The Morgan Group, Inc. In addition, Interactive owns a 13.6% equity
interest in Spinnaker Industries, Inc. Lynch owns a 47.6% equity interest in
Spinnaker (60.4% of voting interest), 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 distributed to shareholders in the accompanying condensed
consolidated financial statements. Accordingly, operating results of Interactive
have been segregated from continuing operations and reported as a separate line
item on the statement of operations.
Lynch has restated its prior period financial statements to present the
operating results on a comparable basis. Interactive's net sales for the
three-month period ended March 31, 1999 were $48.7 million.
In the third quarter of 1999, Lynch acquired by merger, all of the stock of
Central Scott Telephone Company. This company became part of Interactive and was
included in the Spin Off.
Interactive and Lynch have entered into certain agreements governing various
ongoing relationships, including the provision of support services and a tax
allocation agreement. The tax allocation agreement provides for the allocation
of tax attributes to each company as if it had actually filed with the
respective tax authority. At the Spin Off, the employees of the corporate office
of Lynch became the employees of Interactive and Interactive will provide
certain corporate management service to Lynch, which will be charged a
management fee for these services.
Net assets of approximately $23 million were distributed to Interactive at the
Spin Off.
<PAGE>
E. Inventories
Inventories are stated at the lower of cost or market value. At
March 31, 2000, inventories were valued by three methods: last-in, first-out
(LIFO) - 18%, specific identification - 80%, and first-in, first-out (FIFO) -
2%. At December 31, 1999, the respective percentages were 12%, 80%, and 8%.
<TABLE>
(In Thousands)
<CAPTION>
March 31, December 31,
2000 1999
---------------------
<S> <C> <C>
Raw material and supplies $ 9,498 $10,407
Work in process ......... 1,712 2,114
Finished goods .......... 19,747 19,159
------- -------
Total Inventories ..... $30,957 $31,680
======= =======
</TABLE>
F. Indebtedness
Spinnaker Industries, Inc. maintains revolving lines of credit at its
subsidiaries which total $40 million, of which $20.8 million was outstanding and
$10.9 million was available as of March 31, 2000. These facilities were
refinanced in conjunction with the sale of Central Products and Spinnaker
Electrical. In general, the 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.
<TABLE>
<CAPTION>
Long term debt consists of: March 31, December 31,
2000 1999
-------- -----------
<S> <C> <C>
Spinnaker Industries, Inc. 10.75% Senior
Secured Notes due 2006 ................. $ 75,215 $ 108,585
Unsecured notes issued in connection with
acquisitions at fixed interest rates
averaging 9.6% ......................... 7,000 7,000
Other ................................... 2,892 2,816
--------- ---------
85,107 118,401
Current Maturities ...................... (1,823) (1,636)
--------- ---------
$ 83,284 $ 116,765
========= =========
</TABLE>
As of May 12, 2000 proceeds from the sale of Central Products (see Note C above)
have been utilized in accordance with the terms of the Senior Secured Notes
indenture to either repay indebtedness or invest in the adhesive-backed paper
business. Restricted Proceeds on the accompanying balance sheets is that portion
of the proceeds that had not yet been utilized as of the balance sheet date.
During the first quarter of 2000, Spinnaker purchased $33.4 million (par value)
of the outstanding Senior Notes on the open market at an average price of 83.6%
of par value. In addition, Spinnaker purchased all of the Senior Note holdings
of Spinnaker Electrical at 81.5% of par value, plus accrued interest,
representing Spinnaker Electrical's cost basis.
Subsequent to March 31, 2000, Spinnaker, utilizing Restricted Proceeds,
purchased an additional $24.1 million (par value) of the outstanding Senior
Notes on the open market at an average price of 82.3% of par value. The Senior
Note purchases to date and capital expenditures in the business have fully
utilized the Restricted Proceeds.
Proceeds from the sale of Spinnaker Electrical, an unrestricted subsidiary,
repaid approximately $6.9 million of term debt and working capital revolver debt
collateralized by the assets of Spinnaker Electrical. The remaining net proceeds
are available for general purposes, which may include purchasing additional
Senior Notes in the open market. Other options include acquisitions, capital
expenditures to support remaining subsidiaries, and/or repurchase shares of
Spinnaker Common Stock.
During the first quarter Lynch Systems completed a project specific line of
credict totaling $7.1 million related to a contract to deliver equipment in
2000. Substantially all assets of Lynch Systems are pledged in support of the
credit facility. In addition, the Company has guaranteed the full amount of the
facility and has pledte $4.0 million of its Spinnaker holdings as additional
collateral.
G. 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 of which there were none.
<PAGE>
H. Segment Information
After the distribution to shareholders of the stock of Interactive, the Company
is engaged in the manufacture of adhesive-backed label stock, frequency control
devices and other manufacturing. The Company measures performance of its
segments primarily by revenues, operating profit and EBITDA (operating profit
before income taxes, depreciation, amortization and allocated corporate
expenses). Except for Spinnaker (the adhesive-backed label stock business) using
approximately $30.7 million of restricted cash to repurchase debt, identifiable
assets of each segment have not changed materially since December 31, 1999.
EBITDA for operating segments is equal to operating profit before interest,
taxes, depreciation, amortization. EBITDA is presented because it is a widely
accepted financial indicator of value and ability to incur and service debt.
EBITDA is not a substitute for operating income or cash flows from operating
activities in accordance with generally accepted accounting principles.
Operating profit (loss) is equal to revenues less operating expenses, excluding
interest and income taxes. Prior to the Spin Off, Lynch allocated a portion of
its general corporate expenses to its operating segments. Subsequent to the Spin
Off, Interactive is providing certain corporate management services to the
Registrant and charging a corporate overhead management fee while the Registrant
still allocates a portion of its general corporate expenses to its operating
segments.
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 attributable to discontinued operations.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------
Revenues
<S> <C> <C>
Adhesive backed label stock .......... $ 40,286 $ 38,591
Frequency control devices ............ 5,425
Other manufacturing .................. 3,778 2,395
-------- --------
Consolidated Revenues ................ 52,474 46,411
-------- --------
EBITDA
Adhesive backed label stock .......... 1,807 2,348
Frequency control devices ............ 521
Other manufacturing .................. (151) (459)
Corporate manufacturing expenses ..... (548) (671)
-------- --------
Total manufacturing .................. 2,292 1,739
Corporate expenses ................... (377) (117)
Restructuring charge - Spinnaker ..... (533) (450)
-------- --------
Consolidated Total ................... 1,382 1,172
-------- --------
Operating Profit
Adhesive backed label stock .......... 711 1,247
Frequency control devices ............ 358
Other manufacturing .................. (284) (591)
Corporate manufacturing expenses ..... (604) (677)
-------- --------
Total manufacturing .................. 843 337
Unallocated corporate expenses ....... (452) (199)
Restructuring charge - Spinnaker ..... (533) (450)
-------- --------
Consolidated Total ................... (142) (312)
-------- --------
Total Operating Profit fot reportable segments (142) (312)
Other profit or loss
Investment Income .................... 688 11
Interest expense ..................... (3,450) (2,201)
-------- --------
Income from continuing operations
before income taxes, minority interest
and extraordinary items .............. $ (2,904) $ (2,502)
-------- --------
</TABLE>
I. Shareholders Equity
Pursuant to a subscription agreement entered into on March 11, 2000, the
Registrant sold 100,000 shares of its Common Stock to Mario J. Gabelli, Chairman
of Registrant for $30.00 per share, in cash, or $3 million in total, a preimum
of 14.8% above the closing price of $26.125 per share of the stock on the
American Stock Exchange on March 9, 2000, the date said sale was aurthorized by
the Board of Directors. 58,000 of such shares were issued from the treasury with
the remaining 42,000 share being newly issued.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The accompanying unaudited condensed consolidated financial statements reflect
the spin off of Lynch Interactive Corporation from the Registrant that occurred
in the third quarter of 1999 and also the sale by Spinnaker Industries, Inc., a
consolidated subsidiary of the Registrant, of its two industrial tape units,
Central Products Company and Spinnaker Electrical that also occurred in the
third quarter of 1999. Accordingly, the operating results of both Interactive
and the industrial tape segment have been segregated from continuing operations
of the Registrant and are reported as separate line items on the financial
statements as discontinued operations. The ensuing narrative considers these
changes and only includes discussions of the Registrant as it is currently
composed.
Sales and Revenues
Revenues for the first quarter of 2000 increased by $6.1 million or 13%, to
$52.5 million, from the first quarter of 1999, reflecting increased activity in
each of the Company's business segments.
Revenues from Spinnaker's continuing operations increased by $1.6 million
between the two quarters. Spinnaker's net sales for the quarter ended March 31,
2000 were $41.8 million, compared to $40.2 million in the corresponding 1999
period. The increase in net sales for 2000 is attributed to recent product
releases and new business with the Bureau of Printing and Engraving ("BEP"),
partially offset by lower average unit pricing resulting from increased capacity
in the domestic market. The release of new products to serve a changing
technology market and higher unit sales of pressure sensitive postage paper
stock increased sales. Unit sales of pressure sensitive postage stock were
impacted by orders for certain cartoon theme stamps previously sourced by a
competitor. Revenues at M-tron increased by $3.0 million for the three-month
period due to increased demand from the telecommunications industry and
increased sales of new products. Lynch Systems' revenues for the quarter
increased by $1.4 million, reflecting increased production activity on recently
received orders for large glass press machines.
Operating (loss) for the first quarter 2000 declined by $0.2 million from the
operating (loss) in the prior year's first quarter. Spinnaker's operating profit
declined by $0.5 million due to reduction in gross margins, principally due to
pricing pressure caused by overcapacity in its industry. There was also a $.5
million restructuring charge in both periods representing termination and
severance associated with selective locations closings. M-tron's operating
profit increased by $0.7 million due to increased volume and Lynch Systems'
operating loss decreased during the first quarter by $0.3 million due to
increased sales mentioned above.
Corporate expenses rose due to the hiring of corporate office personnel
necessitated by the transfer of all corporate office employees to Interactive at
the time of the Spin Off.
Other Income (Expense), Net
Interest income increased for the quarter due to the net proceeds of the
Spinnaker sale of the industrial tape units after payment of certain debt
instruments, which were invested in short term instruments during the period.
Interest expense was $3.5 million for the quarter and increased by $1.2 million
from the prior year quarter by $1.2 million due to allocations during the 1999
period of a portion of the interest associated with the Spinnaker 10.75% Senior
Secured Notes Due 2006 to the discontinued industrial tape segment until the
time of their sale.
Tax Provision
The income tax provision (benefit) includes federal, as well as state and local
taxes. The tax provision (benefit) for the quarter ended March 31, 2000,
represents an effective tax rate of (37%). 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 $0.5
million for the quarter, from the prior year quarter of 1999 due both to the
increased losses from continuing operations at Spinnaker and the related
increased minority interest percentage at this subsidiary.
Discontinued Operations
As a result of the Spin Off (see Note D), the Company's multimedia and services
segments are being reported as operations distributed to shareholders in the
accompanying condensed consolidated financial statements. Accordingly, operating
results of Interactive have been segregated from continuing operations and
reported as a separate line item on the statement of operations.
Lynch has restated its prior quarter financial statements to present the
operating results of Interactive on a comparable basis. Interactive's net sales
were $48.7 million for the three month period ended March 31, 1999.
As a result of Spinnaker's sale of its industrial tape segment in the third
quarter of 1999 (see Note C), operating results of the industrial tape segment
have been segregated from continuing operations and reported separately in the
statement of operations for 1999. In addition, the Company has restated its
prior financial statements to present the operating results of the industrial
tape segment as a discontinued operation. The industrial tape segment's net
sales were $29.5 million in the first quarter of 1999.
Net Income/Loss
Net income for the quarter ended March 31, 2000 was $.5 million, or $.35 per
share, as compared to a net loss of $11.0 million, or $(7.75) per share in the
quarter ended March 31, 1999. The significant swing is primarily due to the
Spinnaker gain on debt buy back this quarter ($1.3 million) and the significant
reserve on PCS licenses of Interactive in 1999.
Backlog/New Orders
Total backlog of manufactured products from continuing operations at March 31,
2000 was $30.5 million, which represents an increase of $21.0 million from the
backlog of $9.5 million at March 31, 1999. All operating units contributed
significant increases to the backlog at March 31, 2000. At March 31, 2000
M-tron's backlog was $10.9 million compared to $5.9 million at March 31, 1999.
Included in the backlog at March 31, 2000 is a $14 million order for large glass
press machines at Lynch Systems. In connection with this order, Lynch Systems
obtained a $7.1 million credit facility to protect advances by the customer and
for working capital.
FINANCIAL CONDITION
Liquidity/Capital Resources
As of March 31, 2000, the Company had current assets of $93.1 million and
current liabilities of $62.4 million. Working capital was therefore $30.7
million as compared to $23.2 million at December 31, 1999. The increase is
primarily due to the sale of the industrial tape units mentioned above.
First quarter capital expenditures were $.8 million in 2000 and $.8 million in
1999.
At March 31, 2000, total debt was $107.6 million, which was $34.0 million less
than the $141.6 million at year end 1999 primarily due to principal repayments
and debt repurchases. Long term debt at March 31, 2000, included $83.1 million
of fixed interest rate debt, at an average cash interest rate of 10.7% and $2.0
million of variable interest rate debt at an average interest rate of 7.9%.
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 March 31, 2000, the combined effective
interest rate was 9%. In conjunction with the industrial tape sale, 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 March 31, 2000, aggregate availability under the
Refinanced Credit Facility was approximately $31.7 million, of which
approximately $20.8 million was outstanding.
During the first quarter Lynch Systems completed a project specific line of
credit totaling $7.1 million related to a contract to deliver equipment in 2000.
Substantially all assets of Lynch Systems are pledged in support of the credit
facility. In addition, the Company has guaranteed the full amount of the credit
facility and has pledged $4 million of its Spinnaker holdings as additional
collateral.
In conjunction with the Spin Off of Lynch Interactive, lines of credit
facilities of $20 million were transferred from the Registrant to Interactive.
YEAR 2000
The Registrant is not aware of any material problems resulting from Year 2000
issues, either with its internal systems or with the products and services of
third parties. The Company will continue to monitor its mission critical IT and
non-IT system and the impact of the Year 2000 on its suppliers and vendors
throughout the Year 2000 to insure that any latent Year 2000 matters that may
arise are addressed promptly.
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 $25 million at March 31, 2000). 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 by borrowing on a fixed long-term basis. 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 March 31, 2000, approximately $24.5 million, or 23% of the Company's
long-term debt and notes payable bears interest at variable rates. Accordingly,
the Company's earnings and cash flows are affected by changes in interest rates.
Assuming the current level of borrowings for variable rate debt and assuming a
one percentage point change in the 2000 average interest rate under these
borrowings, it is estimated that the Company's first quarter 2000 interest
expense would have changed by less than $0.1 million. In the event of an adverse
change in interest rates, management would likely take actions to further
mitigate its exposure. However, due to the uncertainty of the actions that would
be taken and their possible effects, the analysis assumes no such actions.
Further, the analysis does not consider the effects of the change in the level
of overall economic activity that could exist in such an environment.
- ------------------------
Included in this Management Discussion and Analysis of Financial Condition and
Results of Operations are certain forward looking financial and other
information, including without limitation matters relating to Spinnaker, 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 the expected
performance of the economy as it impacts the Registrant's businesses, government
and regulatory actions and approvals, and tax consequences, and the risk factors
and cautionary statements set forth in reports filed by Registrant and Spinnaker
with the Securities and Exchange Commission. As a result, such information is
subject to uncertainties, risks and inaccuracies, which could be material.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
See "Market Risk" under Item 2 above.
PART II OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds
c) Pursuant to a subscription agreement entered into on March 11,
2000, Registrant sold 100,000 shares of its Common Stock to Mario
J. Gabelli, Chairman of Registrant for $30 per share, in cash, or
$3 million in total, a premium of 14.6% above the closing price of
$26.125 per share of the stock on the American Stock Exchange on
March 9, 2000, the date said sale was authorized by the Board of
Directors.
The sale was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) thereof. The proceeds
were used for general corporate purposes, including possible
acquisitions. The sale was ratified by shareholders of Registrant
at its Annual Meeting held on May 11, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(v)- Subscription Agreement dated as of March 9, 2000 between
Registrant and Mario J. Gabelli (incorporated by reference to
Exhibit E to Amendment No. 1 dated March 15, 2000 to Schedule 13D
with respect to Lynch Corporation filed by Mario J. Gabelli et.
al.)
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2000
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/Roger J. Dexter
Roger J. Dexter
Chief Financial Officer
May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Financial Statements as of March 31, 2000 and is qualified in its entirety by
reference to such financial information.
</LEGEND>
<CIK> 0000061004
<NAME> Lynch Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 23,543
<SECURITIES> 0
<RECEIVABLES> 28,147
<ALLOWANCES> (412)
<INVENTORY> 30,957
<CURRENT-ASSETS> 93,053
<PP&E> 67,012
<DEPRECIATION> (23,410)
<TOTAL-ASSETS> 187,637
<CURRENT-LIABILITIES> 62,377
<BONDS> 83,284
0
0
<COMMON> 5,139
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 187,637
<SALES> 52,474
<TOTAL-REVENUES> 52,474
<CGS> 46,327
<TOTAL-COSTS> 52,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,450
<INCOME-PRETAX> (1,822)
<INCOME-TAX> 1,064
<INCOME-CONTINUING> (758)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,254
<CHANGES> 0
<NET-INCOME> 496
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
</TABLE>