SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(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, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-15097
LYNCH INTERACTIVE CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 06-1458056
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Theodore Fremd Avenue, Rye, New York 10580
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(Address of principal executive offices) (Zip Code)
(914) 921-8821
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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 August 1, 2001
----- -----------------------------
Common Stock, $.0001 par value 2,821,851
INDEX
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets
- June 30, 2001
- December 31, 2000
Condensed Statements of Operations:
- Three and six months ended June 30, 2001 and 2000
Condensed Statements of Cash Flows:
- Six months ended June 30, 2001 and 2000
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.1 - Central Utah Telephone, Inc. Stock Purchase Agreement
Exhibit 10.2 - Membership Purchase Agreement
SIGNATURE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
CONDENSED BALANCE
(In thousands, except share amounts)
June 30, December 31,
2001 2000
---------- ---------
(Unaudited) (Note)
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 26,071 $ 26,926
Marketable securities ............................................. 3,138 2,066
Receivables, less allowances of $379 and $403 ..................... 17,778 15,147
Other current assets .............................................. 8,818 7,562
--------- ---------
TOTAL CURRENT ASSETS .................................................. 55,805 51,701
PROPERTY, PLANT AND EQUIPMENT:
Land .............................................................. 1,645 1,363
Buildings and improvements ........................................ 11,562 10,745
Machinery and equipment ........................................... 173,273 153,915
--------- ---------
186,480 166,023
Accumulated Depreciation .......................................... (71,996) (66,766)
--------- ---------
114,484 99,257
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, NET ...................................................... 73,310 58,949
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES .................... 13,800 13,284
INVESTMENT IN SPINNAKER INDUSTRIES INC ................................ 2,950 5,250
OTHER ASSETS .......................................................... 13,030 11,969
--------- ---------
TOTAL ASSETS .......................................................... $ 273,379 $ 240,410
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks ............................................ $ 3,600 $ 4,333
Trade accounts payable ............................................ 4,774 2,797
Accrued interest payable .......................................... 1,735 2,504
Accrued liabilities ............................................... 20,809 21,143
Customer advances ................................................. 1,548 1,540
Current maturities of long-term debt .............................. 17,658 12,582
--------- ---------
TOTAL CURRENT LIABILITIES ............................................. 50,124 44,899
LONG-TERM DEBT ........................................................ 177,823 150,010
DEFERRED INCOME TAXES ................................................. 7,728 7,746
OTHER LIABILITIES ..................................................... 4,701 5,624
MINORITY INTERESTS .................................................... 9,093 8,732
SHAREHOLDERS' EQUITY
COMMON STOCK, $0.0001 PAR VALUE-10,000,000 SHARES
AUTHORIZED; 2,824,766 issued (at stated value) 2,821,666 Outstanding -- --
ADDITIONAL PAID - IN CAPITAL ....................................... 21,404 21,404
RETAINED EARNINGS .................................................. 2,280 652
ACCUMULATED OTHER COMPREHENSIVE INCOME ............................. 378 1,495
TREASURY STOCK, 3,100 SHARES AT COST ............................... (152) (152)
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TOTAL SHAREHOLDERS' EQUITY .......................................... 23,910 23,399
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................... $ 273,379 $ 240,410
========= =========
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes.
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------------------------------------------------------------
(Restated) (Restated)
SALES AND REVENUES
Multimedia ...................................... $ 17,451 $ 16,019 $ 34,660 $ 31,590
Services ........................................ 25,432 30,432 46,120 58,818
----------- ----------- ----------- -----------
$ 42,883 $ 46,451 $ 80,780 90,408
COSTS AND EXPENSES:
Multimedia ...................................... 12,527 11,482 25,275 22,674
Services ........................................ 23,011 28,046 42,117 54,971
Selling and administrative ...................... 2,717 3,160 5,586 6,162
----------- ----------- ----------- -----------
OPERATING PROFIT ................................ 4,628 3,763 7,802 6,601
Combined total Other income (expense):
Investment income ............................. 1,189 1,233 2,443 1,737
Interest expense .............................. (3,458) (3,562) (6,975) (7,203)
Equity in earnings of affiliated companies .... 204 970 369 1,269
Gain on redemption of East/West preferred stock -- -- -- 4,125
----------- ----------- ----------- -----------
(2,065) (1,359) (4,163) (72)
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 2,563 2,404 3,639 6,529
Provision for income taxes ...................... (811) (1,225) (1,650) (3,172)
Minority Interests .............................. (433) (266) (361) (163)
----------- ----------- ----------- -----------
NET INCOME ...................................... $ 1,319 $ 913 $ 1,628 $ 3,194
=========== =========== =========== ===========
Basic and diluted weighted average shares ....... 2,822,000 2,824,000 2,822,000 2,824,000
outstanding
BASIC & DILUTED EARNINGS PER SHARE .............. $ 0.47 $ 0.32 $ 0.58 $ 1.13
=========== =========== =========== ===========
See accompanying notes.
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
June 30,
2001 2000
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OPERATING ACTIVITIES (Restated)
Net income .................................................... $ 1,628 $ 3,194
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................. 8,693 8,281
Net effect of purchases and sales of trading securities .... (1,072) (15)
Share of operations of affiliated companies ................ (369) (1,269)
Gain on redemption of East/West preferred stock ............ -- (4,125)
Gain on sale of available for sale securities .............. (154) (703)
Minority interests ......................................... 361 163
Changes in operating assets and liabilities:
Receivables ........................................... (1,547) (1,280)
Accounts payable and accrued liabilities .............. (1,169) (2,665)
Other ................................................. (759) (360)
Other ...................................................... -- 491
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NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 5,612 1,712
-------- --------
INVESTING ACTIVITIES
Capital expenditures .......................................... (7,644) (6,628)
Investment in and advances to affiliated entities ............. (186) (395)
Proceeds from redemption of East/West preferred stock ......... -- 8,712
Acquisition of Central Utah Telephone Company (total cost, less
debt assumed and cash equivalents acquired) ................ (6,889) --
Proceeds from sale of available for sale securities ........... 241 1,189
Other ......................................................... (132) 363
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .......... (14,610) 3,241
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FINANCING ACTIVITIES
Issuance of long term debt .................................... 27,368 1,200
Repayments of long term debt .................................. (18,492) (4,224)
Net (repayments) borrowings under lines of credit ............. (733) 931
Treasury stock transactions ................................... -- (20)
Other ......................................................... -- 8
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........... 8,143 (2,105)
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Net (decrease) increase in cash and cash equivalents .......... (855) 2,848
Cash and cash equivalents at beginning of period .............. 26,926 31,354
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CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 26,071 $ 34,202
======== ========
See accompanying notes.
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. Subsidiaries of the Registrant
As of June 30, 2001, the Subsidiaries of the Registrant are as follows:
Subsidiary Owned by Interactive
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Brighton Communications Corporation ............ 100.0%
Lynch Telephone Corporation IV ............... 100.0%
Bretton Woods Telephone Company ............ 100.0%
World Surfer, Inc. ......................... 100.0%
Lynch Kansas Telephone Corporation ........... 100.0%
Lynch Telephone Corporation VI ............... 98.0%
JBN Telephone Company, Inc. ................ 98.0%
JBN Finance Corporation .................. 98.0%
Giant Communications, Inc. ................. 100.0%
Lynch Telephone Corporation VII ............ 100.0%
USTC Kansas, Inc. ........................ 100.0%
Haviland Telephone Company, Inc. ........ 100.0%
Haviland Finance Corporation ........... 100.0%
DFT Communications Corporation ............... 100.0%
Dunkirk & Fredonia Telephone Company ....... 100.0%
Cassadaga Telephone Company .............. 100.0%
Macom, Inc. ............................ 100.0%
Comantel, Inc. ........................... 100.0%
Erie Shore Communications, Inc. ........ 100.0%
D&F Cellular Telephone, Inc. ........... 100.0%
DFT Long Distance Corporation .............. 100.0%
DFT Local Service Corporation .............. 100.0%
LMT Holding Corporation ...................... 100.0%
Lynch Michigan Telephone Holding Corporation 100.0%
Upper Peninsula Telephone Company ...... 100.0%
Alpha Enterprises Limited .............. 100.0%
Upper Peninsula Cellular North, Inc. . 100.0%
Upper Peninsula Cellular South, Inc. . 100.0%
Lynch Telephone Corporation IX ............... 100.0%
Central Scott Telephone Company ............ 100.0%
CST Communications Inc. ................ 100.0%
Global Television, Inc. ...................... 100.0%
Inter-Community Acquisition Corporation ...... 100.0%
Home Transport Service, Inc. ................. 100.0%
Lynch Telephone Corporation X .................. 100.0%
Central Utah Telephone, Inc. ................. 100.0%
Skyline Telecom ........................ 100.0%
Bear Lake Communications, Inc. ......... 100.0%
Central Telecom Services, L.L.C .............. 100.0%
Lynch Entertainment, LLC ..................... 100.0%
Lynch Entertainment Corporation II ........... 100.0%
Subsidiary Owned by Lynch
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Lynch Multimedia Corporation ............................ 100.0%
CLR Video, LLC ........................................ 60.0%
The Morgan Group, Inc. .................................... 70.2%(V)/55.6%(O)
Morgan Drive Away, Inc. ................................... 70.2%(V)/55.6%(O)
Transport Services Unlimited, Inc. .................... 70.2%(V)/55.6%(O)
Interstate Indemnity Company ............................ 70.2%(V)/55.6%(O)
Morgan Finance, Inc. .................................... 70.2%(V)/55.6%(O)
TDI, Inc. ............................................... 70.2%(V)/55.6%(O)
Home Transport Corporation ............................ 70.2%(V)/55.6%(O)
MDA Corporation ....................................... 70.2%(V)/55.6%(O)
Lynch PCS Communications Corporation ...................... 100.0%
Lynch PCS Corporation A ................................. 100.0%
Lynch PCS Corporation F ................................. 100.0%
Lynch PCS Corporation G ................................. 100.0%
Lynch PCS Corporation H ................................. 100.0%
Lynch Paging Corporation ................................ 100.0%
Lynch Telephone Corporation ............................. 83.1%
Western New Mexico Telephone Company, Inc. ............ 83.1%
Interactive Networks Corporation ...................... 83.1%
WNM Communications Corporation ........................ 83.1%
Wescel Cellular, Inc. ................................. 83.1%
Wescel Cellular of New Mexico, L.P. ................. 42.4%
Wescel Cellular, Inc. II .............................. 83.1%
Northwest New Mexico Cellular, Inc. ................. 40.6%
Northwest New Mexico Cellular of New Mexico, L.P. ... 20.7%
Enchantment Cable Corporation ..................... 83.1%
Lynch Telephone II, LLC ................................... 100.0%
Inter-Community Telephone Company, LLC ................. 100.0%
Inter-Community Telephone Company II, LLC ............ 100.0%
Valley Communications, Inc. ............................ 100.0%
Lynch Telephone Corporation III ........................... 81.0%
Cuba City Telephone Exchange Company ................... 81.0%
Belmont Telephone Company .............................. 81.0%
Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
A. Basis of Presentation
Lynch Interactive Corporation (the "Company" or Interactive") consolidates the
operating results of its telephone and cable television subsidiaries (60-100%
owned at June 30, 2001 and December 31, 2000) and The Morgan Group, Inc.
("Morgan"), in which, at June 30, 2001 and December 31, 2000, the Company owned
70.2% of the voting power and 55.6% of the common equity. On July 12, 2001, the
Company, through its wholly owned subsidiary Brighton Communications
Corporation, acquired 1.0 million shares of Morgan's Class B Common Stock from
Morgan at $2.00 per share. As a result of this transaction, the Company's
ownership in Morgan increased to 80.8% of the voting power and 68.8% of the
common equity. Interactive is currently considering whether it should retain its
investment in Morgan and exploring ways on how to appropriately divest itself of
its investment if that decision is made.
All material intercompany transactions and balances have been eliminated.
Investments in affiliates in which the Company does not have a majority voting
control are accounted for in accordance with the equity method. The Company
accounts for the following affiliated companies on the equity basis of
accounting: Coronet Communications Company (20% owned at June 30, 2001 and
December 31, 2000), Capital Communications Company, Inc. (49% owned at June 30,
2001 and December 31, 2000) and the cellular partnership operations in New
Mexico (17% to 21% owned at June 30, 2001 and December 31, 2000).
The shares of Spinnaker Industries, Inc., in which the Company owns 2.5% of the
voting power and 13.6% of the common equity, are accounted for in accordance
with Statements of Financial Accounting Standards (SFAS) No. 115 "Investment in
Debt and Equity Securities."
The accompanying unaudited condensed 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
Articles 10 and 11 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six-month period ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company has not yet completed its analysis on how the new rules will affect
its accounting for goodwill and other intangible assets, for which
implementation is required beginning January 1, 2002. Based on a preliminary
analysis, application of the nonamortization provisions of FAS 141 would have
resulted in an increase in net income of $2.3 million, $0.75 per share, for the
year ended December 31, 2000 and $1.6 million, $0.53 per share, for the six
months ended June 30, 2001. During 2002, the Company will perform the first of
the required impairment tests of goodwill and indefinite lived intangible assets
and has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
Certain 2000 amounts have been restated to conform to the 2001 presentation.
B. Acquisitions
On June 22, 2001, Lynch Telephone Corporation X, a subsidiary of Interactive,
acquired Central Utah Telephone, Inc. and subsidiaries, and Central Telcom
Services, LLC, a related entity for approximately $15.6 million in cash and
notes. Though the purchase price allocation is not yet complete the Company to
recorded approximately $14.0 million in goodwill, which is being amortized over
25 years.
The operating results of the acquired company are included in the Statements of
Operations from its acquisition date. The following unaudited pro forma
information shows the results of the Company's operations as though the
acquisition of Central Utah and related entities was made at the beginning of
2000. (In thousands of dollars, except per share data.)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---------------------------------------
Sales and revenues $44,836 $47,371 $84,161 $91,946
Net income 861 724 1,039 2,824
Basic and diluted earnings per share 0.31 0.26 0.37 1.01
C. Investment in and Advances to Affiliates Entities
Net investment activity during 2001 for the Company occurred in the following
two separate affiliated entities involved in auctions for wireless spectrum:
In the Guard Band auction, PTPMS II Communications, L.L.C. acquired three
licenses at a net cost of $6.3 million; Interactive has loans to PTPMS II of
$6.1 million, $5.0 million of which was funded in the first quarter of 2001, and
owns 49.9% of PTPMS II equity.
In the C&F Block PCS reauction, which ended on January 26, 2001, Theta
Communications, LLC acquired one license at a net cost of $4.0 million. The
license has not yet been awarded and, as required under Federal Communications
Commission rules, Theta has 20% of the cost of the license on deposit. During
the first six months ended June 30, 2001, $5.0 million of loans from Interactive
to Theta were returned. Lynch Interactive owns 10% of Theta and has committed to
fund a portion of the remaining license cost. An affiliate of Interactive also
has invested in Theta.
D. Spin-off of Sunshine PCS Corporation
A subsidiary of the Company had previously owned a 49.9% limited partnership
interest in Fortunet Communications, L.P. ("Fortunet").
Fortunet was licensed for 15 MHz of spectrum in three Florida markets covering a
population ("POP") of approximately 785,000 (Based on 1999 census data). In
February 2001, Fortunet converted from a partnership to a corporation with
Interactive receiving 49.9% of common stock. It also changed its name to
Sunshine PCS Corporation ("Sunshine"). On February 14, 2001, the Company
spun-off its common stock of Sunshine to the Company's shareholders. Prior to
the conversion, the Company contributed a portion of the debt owed to it by
Fortunet as a contribution to capital and restructured the terms of the
remaining debt. The face value of the restructured debt is $16.1 million and the
carrying value is $3.4 million at December 31, 2000. In addition, in exchange
for a cash infusion of $250,000, the Company acquired (1) 10,000 shares of
preferred stock in Sunshine with an aggregate liquidation preference of $10.0
million and (2) warrants to purchase 4,300,000 shares of Sunshine Class A common
stock at $0.75 per share. At the time, the Company's obligation to make further
loans was terminated.
E. Indebtedness
The Company maintains a short-term line of credit facility totaling $10.0
million, all of which was available at June 30, 2001. Of note, the Company
borrowed $5.5 million under this facility in July 2001. This facility will
expire on August 31, 2001.
On July 27, 2001, Morgan obtained a new three-year $12.5 million credit facility
"GMAC Commercial Credit LLC." The GMAC credit facility replaces Morgan's
previous credit line that had expired on January 28, 2001. The new credit
facility will be used for working capital purposes and to post letters of credit
for insurance contracts. Borrowings and posted letters of credit on the facility
are limited to a borrowing base calculation that includes 85% of eligible
receivables and 95% of eligible investments. The facility is secured by accounts
receivable, investments, inventory, equipment and general intangibles. The prior
Credit Facility matured on January 28, 2001, at which time Morgan had no
outstanding debt and $6.6 million of outstanding letters of credit. Morgan was
in default of the financial covenants, resulting in the bank failing to renew
such credit facility, which in turn resulted in a payment default under such
credit facility.
June 30,
The company's long-term debt consists of: 2001 December 31,
(Unaudited) 2000
--------- ----
(In thousands)
Rural Electrification Administration (REA) and Rural Telephone Bank (RTB) notes
payable through 2027 at fixed interest rates ranging from 2% to 7.5% (4.9%
weighted average at June 30, 2001), secured by assets of the telephone
companies of $121.0 million .................................................... $ 56,712 $ 52,188
Bank Credit facilities utilized by certain telephone and telephone holding
companies through 2013, $35.0 million at fixed interest rates averaging 7.6%
and $55.6 million at variable interest rates averaging 6.3% ................... 90,555 54,799
Unsecured notes issued in connection with acquisitions through 2006, at fixed
interest rates of 10.0% ........................................................ 34,709 27,259
Convertible subordinated note due in December 2004 at a fixed interest
rate of 6% ..................................................................... 10,000 25,000
Other .......................................................................... 3,505 3,346
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195,481 162,592
Current Maturities ............................................................. (17,658) (12,582)
--------- ---------
$ 177,823 $ 150,010
========= =========
On December 12, 1999, the Company completed the private placement to Cascade
Investment LLC ("Cascade") of a $25 million 6% five-year note, convertible into
its common stock at $42.50 per share (adjusted for subsequent 2 to 1 stock
split) (the "Convertible Notes"). At that time, to assist the Company with the
private placement, the Chairman and CEO of the Company, agreed to grant Cascade
a one-time option to sell the note to him at 105% of the principal amount
thereof. The exercise period was from November 15, 2000 to December 1, 2000.
This option to sell is secured by a bank letter of credit, which is secured by
the Chairman's escrow of securities. The Company agreed to reimburse the
Chairman for the cost of the letter of credit plus his legal fees in connection
with the option to sell agreement and obtaining the letter of credit.
On January 16, 2001, the option to sell agreement between Cascade and the
Company's Chairman was amended. As amended, Cascade had the right to sell up to
$15 million principal amount of Convertible Notes back to the Chairman at any
time prior to January 31, 2001 and the right to sell the remaining $10 million
of principal amount of Convertible Notes between November 15, 2002, and December
1, 2002. The option to sell is at 105% of the principal amount of Convertible
Notes plus accrued and unpaid interest. As a condition to modifying and
extending the option to sell, the Company entered into an agreement in December
2000 with its Chairman whereby it will pay for and acquire, on the same terms
and conditions, any portion of the Convertible Notes sold by Cascade under this
option. During January 2001, Cascade exercised this option with respect to the
$15 million of the Convertible Notes and, pursuant to the agreement between the
Company and the Chairman, on February 14, 2001, the Company transferred $15.9
million to Cascade, including the 5% premium plus accrued and unpaid interest in
exchange for $15.0 million of the Convertible Notes held by Cascade.
The option to sell the remaining $10 million is secured by a collateralized
letter of credit in which the collateral is provided by an affiliate of the
Chairman. The Company has agreed to pay all legal fees, letter of credit fees
and a 10% per annum collateral fee on the amount of collateral provided, which
at June 2001 was valued at $10.5 million. The Company can replace the collateral
at any time and the collateral fee would be eliminated thereafter.
In January 2001, a subsidiary of the Company borrowed $27.0 million secured by
the stock of Western New Mexico Telephone Company. The loan is to be repaid in
equal monthly installments over twelve years beginning in April 2001, bearing
interest at either bank's prime rate or LIBOR plus 2.5%, or at the Company's
option, it can be fixed for its term. $15.9 million of the proceeds were used to
acquire $15 million principal amount of Convertible Notes owned by Cascade. The
stock of Western New Mexico Telephone Company had previously been used to secure
the acquisition facility, the balance of which was $7.9 million prior to
repayment in December 2000.
On July 31, 2001, Morgan closed on a new real estate mortgage for $500,000 that
is secured by the Company's land and buildings in Elkhart, Indiana. The loan
will be used for working capital purposes. The Company's application for
additional capacity under this facility is under consideration.
G. Restatement of Prior Period Earnings
On December 12, 1999, the Company completed the private placement to Cascade
Convertible Notes. At that time, to assist the Company with the private
placement, the Chairman and CEO of the Company, agreed to grant Cascade a
one-time option to sell the note to him at 105% of the principal amount thereof.
The exercise period was from November 15, 2000 to December 1, 2000. Under
accounting principles generally accepted in the United States relating to
significant shareholders, the Company was required to reflect this transaction
in its financial statements. Accordingly, quarterly results of operations for
the three and six months ended June 30, 2000, have been restated to reflect the
recording of $1.25 million (pre-tax) in interest expense associated with the 5%
premium. Therefore, the net income was reduced for the three and six-month
periods ending June 30, 2000 by $220,000, or $0.08 per share, and $491,000, or
$0.17 per share, respectively.
H. Comprehensive Income
Balances of accumulated other comprehensive income, net of tax, which consists
of unrealized gains (losses) on available for sale of securities, at June 30,
2001 and December 31, 2000 are as follows (in thousands):
Unrealized
Gain (Loss) Tax Effect Net
---------- --------- ---------
Balance at December 31, 2000 ... $ 2,576 $(1,081) $ 1,495
Current period unrealized losses (1,912) 804 (1,108)
Reclassification adjustment .... (15) 6 (9)
------- ------- -------
Balance at June 30, 2001 ..... $ 649 $ (271) $ 378
======= ======= =======
The comprehensive income (loss), for the three and six month periods ending June
30, 2001 and 2000 are as follows (in thousands):
Three Months Ended
March 31, June 30,
2001 2000
----------------------
Net income for the period ................................................... $ 1,319 $ 913
Unrealized gains (losses) on available for sale securities - net of income
tax ......................................................................... 132 (555)
(expense) benefit of ($94) and $397, respectively
Reclassification adjustment-net of income tax benefits of $6 and
$302, respectively ........................................................ (9) (435)
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Comprehensive income (loss) ................................................. $ 1,442 (77)
======= =======
Six Months Ended
March 31, June 30,
2001 2000
---------------------
Net income for the period ................................................... $ 1,628 $ 3,194
Unrealized gains (losses) on available for sale securities -
net of income tax ........................................................... (1,108) (1,765)
benefits of $804 and $1,274, respectively
Reclassification Adjustment - net of income tax benefits of $6
and $301, respectively .................................................... (9) (433)
------- -------
Comprehensive income ........................................................ $ 511 $ 996
======= =======
I. Stock Split
A two-for-one stock split, was affected through a distribution to its
shareholders of one share of the Company's Common Stock for each share of Common
Stock owned. The record date was August 28, 2000, and the distribution date was
September 11, 2000.
Share and per share data in the accompanying financial statements and notes have
been adjusted to reflect this change.
J. Earnings per share
For the three and six months ended June 30, 2001 and 2000, the following table
sets forth the computation of basic and diluted earnings per share.
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- ---------- ----------- -----------
Basic earnings per share (Restated) (Restated)
------------------------
Numerators:
Net Income ........................... $1,319,000 $ 913,000 $1,628,000 $3,194,000
Denominator:
Weighted average shares outstanding .. 2,822,000 2,824,000 2,822,000 2,824,000
Earnings per share:
Net income ........................... $ 0.47 $ 0.32 $ 0.58 $ 1.13
Diluted earnings per share
Numerators:
Net Income ............................ $1,319,000 $ 913,000 $1,628,000 $3,194,000
Interest saved on assumed conversion of
convertible notes - net of tax ..... -- -- -- --
---------- ---------- ---------- ----------
Net Income ............................ $1,319,000 $ 913,000 $1,628,000 $3,194,000
---------- ---------- ---------- ----------
Denominators:
Weighted average shares outstanding .. 2,822,000 2,824,000 2,822,000 2,824,000
Shares issued on conversion of
convertible note .................. -- -- -- --
---------- ---------- ---------- ----------
Weighted average share and share
equivalents ....................... 2,822,000 2,824,000 2,822,000 2,824,000
---------- ---------- ---------- ----------
Earnings per share:
Net income ........................... $ 0.47 $ 0.32 $ 0.58 $ 1.13
========== ========== ========== ==========
K. Segment Information
The Company is principally engaged in two business segments: multimedia and
services. All businesses are located domestically, and substantially all
revenues are domestic. The multimedia segment includes local telephone
companies, a cable TV company, an investment in PCS entities and investments in
two network-affiliated television stations. The services segment includes
transportation and related services.
EBITDA (before corporate allocation) for operating segments is equal to
operating profit before interest, taxes, depreciation, amortization and
allocated corporate expenses. EBITDA is presented because it is a widely
accepted financial indicator of value and ability to incur and service debt.
EBITDA is not a substitute for operating income or cash flows from operating
activities in accordance with accounting principles generally accepted in the
United States.
Operating profit is equal to revenues less operating expenses, excluding
unallocated general corporate expenses, interest and income taxes. The
Registrant allocates a portion of its general corporate expenses to its
operating segments. Such allocation was $326,000 and $317,000 for the three
months ended June 30, 2001 and 2000, respectively and $652,000 and $634,000 for
the six months ended June 30, 2001 and 2000, respectively.
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
----------------------------------------------
Unaudited Unaudited
(In thousands) (In thousands)
Revenues
Multimedia ....................................... $ 17,451 $ 16,019 $ 34,660 $ 31,590
Services ......................................... 25,432 30,432 46,120 58,818
-------- -------- -------- --------
Combined Total ................................... $ 42,883 $ 46,451 $ 80,780 $ 90,408
======== ======== ======== ========
EBITDA (before corporate allocation):
Multimedia ....................................... $ 9,068 $ 8,385 $ 17,670 $ 16,545
Services ......................................... 673 426 450 (154)
Corporate expenses, gross ........................ (743) (875) (1,625) (1,509)
-------- -------- -------- --------
Combined total ................................... $ 8,998 $ 7,936 $ 16,495 $ 14,882
======== ======== ======== ========
Operating profit:
Multimedia ....................................... $ 4,613 $ 4,163 $ 8,782 $ 8,188
Services ......................................... 398 113 (77) (785)
Unallocated corporate expense .................... (383) (513) (903) (802)
-------- -------- -------- --------
Combined Total ................................... $ 4,628 $ 3,763 $ 7,802 $ 6,601
======== ======== ======== ========
Operating profit ................................. $ 4,628 $ 3,763 $ 7,802 $ 6,601
Investment income ................................ 1,189 1,233 2,443 1,737
Interest expense ................................. (3,458) (3,562) (6,975) (7,203)
Equity in earnings of affiliated companies ....... 204 970 369 1,269
Gain on redemption of East/West Preferred Stock .. -- -- -- 4,125
-------- -------- -------- --------
Income before income taxes, and minority interests $ 2,563 $ 2,404 $ 3,639 $ 6,529
======== ======== ======== ========
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
SALES AND REVENUES
Revenues for the three months ended June 30, 2001 decreased by $3.6 million to
$42.9 million from the second quarter of 2000. Within the operating segments,
multimedia revenues increased by $1.4 million or 9%, which was offset by a $5.0
million decrease at The Morgan Group Inc. ("Morgan"), the Company's service
subsidiary. The decrease at Morgan was primarily related to a decline in
revenues of $5.9 million from Morgan's manufactured housing division. The
manufactured housing industry has been in a significant slump since 1999. Based
on a report from the Manufactured Housing Institute, shipments of manufactured
homes declined by 30% in April and May of 2001 compared to 2000. (June shipments
were not available). The second quarter of 2001 was an improvement from the
first quarter of 2001 when year over year shipments were down 41%. Multimedia
revenues grew in both regulated telecommunications services and the provision of
non-traditional telephone services such as Internet.
For the six months ended June 30, 2001, revenues decreased by $9.6 million to
$80.8 million as multimedia revenues increased by $3.1 million and service
revenues decreased by $12.7 million. The factors cited above that affected the
second quarter comparisons, also affected the six-month comparisons.
Home manufacturers have reported weaker financial results during the past eight
quarters as a result of weakened demand, tightened consumer audit standards, and
increased industry repossessions. Certain of the manufacturers have reported
large operating losses that have stressed their financial position. These
manufacturers including some of Morgan's significant customers, have closed a
significant number of plants and retail centers and may contemplate additional
closings.
The impact that this industry cycle will have on Morgan's revenues cannot be
predicted, but Morgan may experience decreases in revenue from some of its
largest customers. One customer in particular, which has represented less than
17% of Morgan's revenues for the year to date, has recently announced continuing
losses and plans to close numerous retail locations. The Company believes it is
in its best interest to reduce its dependence on this customer. Based on
correspondence and discussion with this customer, it expects that customer will
reduce its use of Morgan's services in the coming year. Management of Morgan
believes there are new business opportunities that will offset attrition of
existing customer business, which will likely occur in the coming year.
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. Morgan's operating
revenues, therefore, tend to be stronger in the second and third quarters.
On June 22, 2001, a subsidiary of the Company acquired Central Utah Telephone,
Inc. and its subsidiaries and Central Telcom Services, L.L.C., a related entity.
The inclusion of these operations is expected to result in a higher level of
increases in the revenues and operating profits from multimedia in the second
half of the year, though the operating profits will be mitigated by the
amortization of goodwill.
Operating profit for the three months ended June 30, 2001 increased by $0.9
million to $4.6 million from the second quarter of 2000. Within the operating
segments, multimedia's operating profit increased $0.5 million, Morgan's
operating profit increased from $0.1 million to $0.4 million. The improvement in
Morgan's operating profit, on lower volume, reflects Morgan's cost-reduction
efforts over the past 12 months. As a result, Morgan's operating results
improved in the second quarter despite the revenue decline. The increase in
operating profits in the multimedia resulted from increased revenues, which were
offset by the additional start-up costs in developing new communications
services.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company has not yet completed its analysis on how the new rules will affect
its accounting for goodwill and other intangible assets, for which,
implementation is required beginning in the first quarter of 2002. Based on a
preliminary analysis, application of the nonamortization provisions of FAS 141
would have resulted in an increase in net income of $2.3 million, $0.75 per
share, for the year ended December 31, 2000 and $1.6 million, $0.53 per share,
for the six months ended June 30, 2001. During 2002, the Company will perform
the first of the required impairment tests of goodwill and indefinite lived
intangible assets and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company.
For the six months ended June 30, 2001, operating profit increased by $1.2
million to $7.8 million as multimedia operating profits increased by $0.6
million, Morgan's operating losses decreased by $0.7 million.
Investment income for the quarter ended June 30, 2001 was $1.2 million, about
the same as the second quarter of the previous year. During the current year,
the Company recorded significant unrealized gains on "trading securities," due
to its ownership of Class B shares of Tremont Advisers, Inc. (NASDAQ:TMAV),
whereas last year the Company recognized significant realized gains of
"available for sale" securities. For the six months ended June 30, 2001,
investment income increased $0.7 million from the previous year due to
unrealized gains at Tremont.
For the three and six months ended June 30, 2001, interest expense decreased
from the prior year period by $0.1 million as increased level of borrowings were
offset by lower interest rates and the absence of amortization of a put premium
associated with the Company's convertible note issued on December 12, 1999 for
the first six months interest expense decreased by $0.2 million reflecting the
same factors. This premium was fully amortized by the end of 2000. Interest
expense will increase in the second half of 2001 due to the acquisition of
Central Utah and related entities.
During the three months ended June 30, 2000, equity in earnings of affiliates
was impacted by a net gain of $0.7 million on the sale of cellular towers at two
of the Registrant's cellular telephone company investments.
On February 25, 2000, Omnipoint acquired, through a merger all of the
outstanding shares of East/West Communications, Inc. At the time of the merger,
the Company held redeemable preferred stock of East/West Communications, Inc.
with a liquidation value of $8.7 million, including payment in kind of dividends
to date. In accordance with its terms, the preferred stock was redeemed at its
liquidation value and as a result, the Company recorded a pre-tax gain of $4.1
million in the three months ended March 31, 2000.
The Company owns 1,000,000 shares of Spinnaker Industries, Inc. common stock. As
described in the Notes to the accompanying financial statements, the Company
accounts for this investment under the provision of Statement of Financial
Accounting Standards No. 115 "Investment and Debt and Equity Securities." Under
the provision of this standard, the Company records this investment at its
publicly traded market value at the end of each accounting period and records
the change in unrealized gain (loss) in that period's comprehensive income. The
basis of these shares is $3.2 million, or $3.17 per share. At June 30, 2001, the
market price of these shares was $2.95 per share, in trading on the American
Stock Exchange. During the year ended December 31, 2000, Spinnaker recorded a
loss from continuing operations before discontinued operations and extraordinary
gain of $17.7 million. Losses of $5.2 million and $2.8 million were recorded for
the years ended December 31, 1999 and 1998, respectively. In the first quarter
of 2001, Spinnaker recorded a net loss of $41.0 million, including a $36.5
million of restructuring and asset impairment reserves related to the close of
its Spinnaker Coating facility in Westbrook, Maine. The Company's management
will continue to monitor the market value of its Spinnaker holdings and should
the market value of the common shares stay consistently below the $3.2 million
basis, management is required to consider if the decline in value is other than
temporary, and if so, a write-down would be recorded in its reported financial
results. (Of note: at June 30, 2001, the market price of Spinnaker's Class A
common shares, none of which are owned by the Company, in trading on the
American Stock Exchange was $0.85 per share. The only difference between
Spinnaker common and Class A common shares is that the common shares are
entitled to 1/10 vote per share and the Class A common shares are entitled to
one vote per share. )
In the third quarter of 2001, the Company is expecting to record an
administrative fee of $2.7 million of pretax income ($1.6 million or $0.54 per
share after income tax effects) relating to services provided in a previously
conducted auction for PCS Spectrum.
The income tax provision includes federal, as well as state and local taxes. The
tax provision for the six months ended June 30, 2001, and 2000, represent
effective tax rates of 45.3% and 48.6%, respectively. The causes of the
difference from the federal statutory rate are principally the effect of state
income taxes, including the effect of earnings and losses attributable to
different state jurisdictions, and the amortization of non-deductible goodwill.
Minority interest decreased earnings by $0.4 million in the three months ended
June 30, 2001 and $0.3 million in the three months ended June 30, 2000,
increased profits at Morgan caused the swing. A similar variance occurred in the
six-month periods.
Net income for the three months ended June 30, 2001 was $1.3 million or $0.47
per share (basic and diluted) as compared to net income of $0.9 million, or
$0.32 per share (basic and diluted), in the previous years three-month period.
Improved operating results from the multimedia segment and Morgan were the
primary cause of the positive variance. Net income for the six months ended June
30, 2001 of $1.6 million or $0.58 per share (basic and diluted) as compared to
net income of $3.2 million, or $1.13 per share. The most significant item
affecting the swing in earnings was the gain on the redemption of East/West
preferred stock ($2.5 million, net of income tax provision) in 2000.
FINANCIAL CONDITION
Liquidity/ Capital Resources
As of June 30, 2001, the Company had current assets of $55.8 million and current
liabilities of $50.1 million. Working capital was therefore $5.7 million as
compared to $6.8 million at December 31, 2000. The debt restructurings discussed
below, acquisition of Central Utah Telephone Company and related entities and
the additional investment in Morgan was the primary causes of the change in
working capital.
For the first six months, capital expenditures were $7.6 million in 2001 and
$6.6 million in 2000.
At June 30, 2001, total debt was $199.1 million, which was $32.2 million higher
than the $166.9 million at the end of 2000. At June 30, 2001, there was $139.9
million of fixed interest rate debt averaging 6.97% and $59.2 million of
variable interest rate debt averaging 6.6%. Debt at year-end 2000 included
$142.9 million of fixed interest rate debt, at an average interest rate of 6.79%
and $23.9 million of variable interest rate debt at an average interest rate of
8.49%.
On December 12, 1999, the Company completed the private placement to Cascade
Convertible Notes. At that time, to assist the Company with the private
placement, the Chairman and CEO of the Company, agreed to grant Cascade a
one-time option to sell the note to him at 105% of the principal amount thereof.
The exercise period was from November 15, 2000 to December 1, 2000. This option
to sell is secured by a bank letter of credit, which is secured by the
Chairman's escrow of securities. The Company agreed to reimburse the Chairman
for the cost of the letter of credit plus his legal fees in connection with the
option to sell agreement and obtaining the letter of credit.
The option to sell the remaining $10 million is secured by a collateralized
letter of credit in which the collateral is provided by an affiliate of the
Chairman. The Company has agreed to pay all legal fees, letter of credit fees
and a 10% per annum collateral fee on the amount of collateral provided, which
at June 2001 was valued at $10.5 million. The Company can replace the collateral
at any time and the collateral fee would be eliminated from thereafter.
On January 16, 2001, the option to sell agreement between Cascade and the
Company's Chairman was amended. As amended, Cascade had the right to sell up to
$15 million principal amount of Convertible Notes back to the Chairman at any
time prior to January 31, 2001 and the right to sell the remaining $10 million
of principal amount of Convertible Notes between November 15, 2002, and December
1, 2002. The option to sell is at 105% of the principal amount of Convertible
Notes plus accrued and unpaid interest. As a condition to modifying and
extending the option to sell, the Company entered into an agreement in December
2000 with its Chairman whereby it will pay for and acquire, on the same terms
and conditions, any portion of the Convertible Notes sold by Cascade under this
option. During January 2001, Cascade exercised this option with respect to the
$15 million of the Convertible Notes and, pursuant to the agreement between the
Company ad the Chairman, on February 14, 2001, the Company transferred $15.9
million to Cascade, including the 5% premium plus accrued and unpaid interest in
exchange for $15.0 million of the Convertible Notes held by Cascade.
In January 2001, a subsidiary of the Company borrowed $27.0 million secured by
the stock of Western New Mexico Telephone Company. The loan is to be repaid in
equal monthly installments over twelve years beginning in April 2001, bearing
interest at either bank's prime rate or LIBOR plus 2.5%, or at the Company's
option, it can be fixed for its term. $15.9 million of the proceeds were used to
acquire $15 million principal amount of Convertible Notes owned by Cascade. The
stock of Western New Mexico Telephone Company had previously been used to secure
the acquisition facility, the balance of which was $7.9 million prior to
repayment in December 2000.
As of June 2001, the Company had $10.0 million available under a short-term line
of credit facility, $4.5 million at July 31, 2001, which expires on August 31,
2001.
On July 27, 2001, Morgan obtained a new three-year $12.5 million credit facility
"GMAC Commercial Credit LLC." The GMAC credit facility replaces Morgan's
previous credit line that had expired on January 28, 2001. The new credit
facility will be used for working capital purposes and to post letters of credit
for insurance contracts. Borrowings and posted letters of credit on the facility
are limited to a borrowing base calculation that includes 85% of eligible
receivables and 95% of eligible investments. The facility is secured by accounts
receivable, investments, inventory, equipment and general intangibles. The prior
Credit Facility matured on January 28, 2001, at which time Morgan had no
outstanding debt and $6.6 million of outstanding letters of credit. Morgan was
in default of the financial covenants, resulting in the bank failing to renew
such credit facility, which in turn resulted in a payment default under such
credit facility. On July 12, 2001, the Company acquired 1.0 million shares of
Morgan's Class B Common Stock from Morgan at $1.00 per share. As a result of
this transaction the Company's ownership increased to 80.8% of the voting power
and 68.8% of the common equity.
Effective July 2, 2001, Morgan renewed its primary liability insurance
arrangements with Liberty Mutual Group. Morgan has posted increased letters of
credit to Liberty Mutual through the new credit facility as collateral for the
payment of claim reimbursements. Morgan's management believes the combination of
the above financial transactions will be adequate to allow the Company to post
all required letters of credit for insurance contracts. As a result of the
insurance renewal, Morgan's premium expense will increase substantially over the
next twelve months. Morgan anticipates that it will be able to pass a portion of
this increase through to its customers, but is unable to predict how much of it
will be recoverable.
The Morgan Board of Directors has also authorized its management to further
develop plans to provide an opportunity for other shareholders to acquire
additional equity investment in Morgan. Interactive is currently considering
whether it should retain its investment in Morgan and is exploring ways on how
to appropriately divest itself of its investment if that decision is made.
On July 31, 2001, Morgan closed on a new real estate mortgage for $500,000 that
is secured by the Company's land and buildings in Elkhart, Indiana. The loan
will be used for working capital purposes. The Company's application for
additional capacity under this facility is under consideration.
Lynch Corporation, the Company's predecessor, has not paid any cash dividends on
its Common Stock since 1989. The Company does not expect to pay cash dividends
on its Common Stock in the foreseeable future. The Company currently intends to
retain its earnings, if any, for use in its business. Future financings may
limit or prohibit the payment of dividends.
The Company has a high degree of financial leverage. As of June 30, 2001, the
ratio of total debt to equity was 7.8 to 1. Certain subsidiaries also have high
debt to equity ratios. In addition, the debt at subsidiary companies contains
restrictions on the amount of readily available funds that can be transferred to
the respective parent of the subsidiaries.
The Company has a need for resources primarily to fund future long-term growth
objectives. The Company considers various alternative long-term financing
sources: debt, equity, or sale of an investment asset. While management expects
to obtain adequate financing resources to enable the Company to meet its
obligations, there is no assurance that such can be readily obtained or at
reasonable costs.
On June 22, 2001, a subsidiary of the Company acquired Central Utah Telephone,
Inc. and subsidiaries, a 7,000-access line telephone company located in Utah.
The subsidiary has also agreed to acquire Central Telcom Services, LLC, a
related entity, which has certain PCS and MMDS interests and Internet, long
distant and telephone equipment businesses. The combined aggregate $15.6 million
purchase price was financed primarily through the issuance of additional debt
and the remaining coming from resources currently available.
The Company has initiated an effort to monetize certain of its assets, including
selling a portion or all of certain investments in certain of its operating
entities. These may include minority interest in network affiliated television
stations and certain telephone operations where competitive local exchange
carrier opportunities are not readily apparent. The Company's approximately
13.6% ownership interest in Spinnaker Industries, Inc. (AMEX:SKK) may also be
sold in order to fund future growth initiatives. There is no assurance that all
or any part of this program can be effectuated on acceptable terms.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk relating to changes in the general level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned on the Company's cash, cash equivalents and marketable securities ($29.2
million at June 30, 2001 and $29.0 million at December 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 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, 2001, approximately $59.2 million, or 29.7% 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 2001 average interest rate under these
borrowings, it is estimated that the Company's 2001 six-month interest expense
would have changed approximately $0.4 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.
FORWARD LOOKING INFORMATION
Included in this Management Discussion and Analysis of Financial Condition and
Results of Operations are certain forward looking financial and other
information, including potential write-downs of its investment in Spinnaker and
Morgan. It should be recognized that such information are projections, estimates
or forecasts based on various assumptions, including without limitation, meeting
its assumptions regarding expected operating performance and other matters
specifically set forth, as well as the expected performance of the economy as it
impacts the Registrant's businesses, government and regulatory actions and
approvals, and tax consequences and cautionary statements set forth in documents
filed by the Company and The Morgan Group with the Securities and Exchange
Commission. As a result, such information is subject to uncertainties, risks and
inaccuracies, which could be material.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Stockholders of the Company held on May 10, 2001, the
following persons were elected as Directors with the following votes:
Name Votes For Votes Withheld
---- --------- --------------
Paul J. Evanson ...... 2,527,638 28,500
John C. Ferrara ...... 2,525,438 30,700
Mario J. Gabelli ..... 2,526,234 29,904
Daniel R. Lee ........ 2,527,208 28,930
David C. Mitchell .... 2,527,638 28,500
Salvatore Muoio ...... 2,525,422 30,716
Ralph R. Papitto ..... 2,525,422 30,716
Vincent S. Tese ...... 2,527,208 28,930
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 10.1 - Central Utah Telephone, Inc.
Stock Purchase Agreement
Exhibit 10.2 - Membership Purchase Agreement
(b) Report on Form 8-K
- None
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LYNCH INTERACTIVE CORPORATION
(Registrant)
By: s/Robert E. Dolan
-----------------------------------
Robert E. Dolan
Chief Financial Officer
August 14, 2001