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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000 Commission file number 1-106
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from --------------- To ---------------
LYNCH CORPORATION
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(Exact name of Registrant as specified in its charter)
Indiana 38-1799862
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State of other jurisdiction (I.R.S. Employer
Incorporation or organization Identification No.)
401 Theodore Fremd Avenue, Rye, NY 10580
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 921-7601
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
------------------- On which registered
Common Stock, No Par Value ---------------------
American Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
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 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 by mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S - K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant (based upon tye closing price of the Registrant's Common Stock on the
American Stock Exchange on March 15, 2001 of $30 per share) was $31,682,460. (In
determining this figure, the Registrant has assumed that all of the Registrant's
directors and officers are affiliates. This assumption shall not be deemed
conclusive for any other purpose.)
The number of outstanding shares of the Registrant's Common Stock was 1,510,183
as of March 15, 2001.
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DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Certain portions of Registrant's Proxy Statement for the 2001 Annual
Meeting of Shareholders.
FORWARD LOOKING INFORMATION
This Form 10-K contains certain forward looking information, including, without
limitation, the exploring of options with respect to Spinnaker (Item 1.A);
strategic alternatives involving Entoleter (Item 1.A); Item 1.B a possible
rights offering and "M-tron Objectives"; Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations," including without
limitation Liquidity and Capital Resources and Market Risk; and, Notes to
Financial Statements (Item 14(a) below). It should be recognized that such
information contains estimates or forecasts based upon various assumptions,
including the matters referred to therein and the cautionary statements and risk
factors in documents filed by Spinnaker and M-tron with the Securities and
Exchange Commission, as well as meeting the Registrant's internal performance
assumptions regarding expected operating performance and the expected
performance of the economy and financial markets as it impacts Registrant's
businesses. As a result, such information is subject to uncertainties, risks and
inaccuracies, which could be material.
PART I
ITEM 1. BUSINESS
The Registrant, Lynch Corporation ("Lynch"), incorporated in 1928 under the laws
of the State of Indiana, is a diversified holding company with subsidiaries
engaged in manufacturing. Lynch's executive offices are located at 401 Theodore
Fremd Avenue, Rye, New York 10580-1430. Its telephone number is 914/921-7601.
Registrant's business development strategy is to expand its existing operations
through internal growth and acquisitions. It may also, from time to time,
consider the acquisition of other assets or businesses that are not related to
its present businesses. As used herein, the Registrant includes subsidiary
corporations.
On September 1, 1999, Registrant spun off to its shareholders the stock of Lynch
Interactive Corporation, which holds the multimedia and service operations
previously owned by Registrant and which accounted for approximately 40% of the
Registrant's 1998 revenues and 47.6% of Registrant's total assets at December
31, 1998.
A. Spinnaker Industries, Inc. ("Spinnaker")
Spinnaker's Common Stock (1/10 vote per share) and Class A Common Stock (1 vote
per share) are listed on the American Stock Exchange under the symbols "SKK" and
"SKK.A.", respectively. At March 1, 2001, Registrant owned 1,237,203 shares of
Spinnaker Common Stock, approximately 33% of the outstanding, and 2,259,063
shares of Class A Common Stock, approximately 63% of the outstanding. On a
combined basis, Registrant owns approximately 47.6% of the common equity and has
a 60.4% voting interest.
Spinnaker is a manufacturer and marketer of adhesive-backed material, primarily
for the pressure sensitive label stock market. Spinnaker has three 100% owned
subsidiaries: Spinnaker Coating, Inc., ("Spinnaker Ohio") acquired in 1994,
Spinnaker Coating-Maine, Inc. ("Spinnaker Maine"), acquired in 1998; and
Entoleter, Inc. ("Entoleter"), which Spinnaker owned prior to its acquisition by
the Company in 1987. In 1996, Spinnaker acquired the remaining 19.9% of the
outstanding stock of Spinnaker Ohio (plus management stock options), which were
owned primarily by the management of Spinnaker Ohio, Boyle Fleming & Co., Inc.
and Registrant, for an immediate payment and a contingent payment made in 2000.
Spinnaker Ohio, which was founded in 1928 and was formerly called Brown-Bridge
Industries, Inc., and Spinnaker Maine (which are collectively referred to herein
as "Spinnaker Coating") are in the adhesive-backed label stock industry.
On July 30, 1999, and August 10, 1999, Spinnaker sold its industrial tape
operations for approximately $105 million plus 300,000 warrants to purchase the
common stock of Intertape Polymer Group, Inc. (AMEX:ITP) at $29.50 per share.
The industrial tape operation generated $121.8 million of net sales for the
fiscal year ended December 31, 1998, and $69.5 million of net sales in 1999
until the effective time of disposition. Registrant has stated that it is
continuing to explore all options with respect to Spinnaker, including
liquifying and monetizing its investment, although there is no assurance that
any option will be implemented or, if implemented, would be successful.
Spinnaker's adhesive-backed label stock business is conducted through Spinnaker
Coating. With the acquisition of the Spinnaker Maine assets from S.D. Warren
Company ("Warren") in March 1998, Spinnaker Coating broadened its product
offerings and further established itself as a major manufacturer of
adhesive-backed label stock in the United States. Spinnaker Ohio primarily
manufactures custom, low-volume, pressure sensitive products used for specialty
applications, whereas Spinnaker Maine manufactures standard, high volume,
pressure sensitive products. As a result, Spinnaker Coating offers a full line
of more than 2,000 variations of adhesive-backed label stock that it sells in
roll and sheet form to over 1,000 printers, paper merchants, industrial users
and major forms manufacturers and distributors. Customers convert its label
stock into labels used for a broad range of end use applications, including
bar-coding, mailing and shipping, packaging for pharmaceutical, food and other
consumer products, office identification and business forms, postage stamps,
decorative labels and other specialty industrial uses. Spinnaker Coating is the
largest supplier of pressure sensitive postage stamp stock for ultimate use by
the United States Postal Service. In 1995 and again in March 1998, Spinnaker
Coating was selected to supply exclusively U.S. Paper Corporation of America and
the U.S. Bureau of Engraving and Printing the label stock for pressure-sensitive
postage stamps. The March 1998 contract, a five-year supply contract, is valued
at approximately $75 million.
The Spinnaker Maine assets were acquired from Warren for an aggregate purchase
price of approximately $51.8 million plus the assumption of certain liabilities
(excluding substantially all trade payables). The purchase price was paid by the
issuance of a subordinated convertible note (the "Note") to Warren, in the
original principal amount of $7.0 million, and the remainder with funds
available under Spinnaker's asset-backed working capital revolving credit.
Spinnaker also manufactures and markets industrial process equipment and air
pollution control scrubbers through Entoleter. Spinnaker is exploring strategic
alternatives with respect to Entoleter to improve shareholder value, including a
possible split off. There is no assurance that such a transaction will be
effected, or if effected, would be successful.
Adhesive-backed Label Stock
Spinnaker Coating develops, manufactures and markets adhesive-backed label stock
that is converted by printers and industrial users into products that are
utilized for marking, identifying, labeling and decorating applications and
products. Spinnaker Coating's products are offered in two primary adhesive
categories: pressure sensitive and water sensitive. Pressure sensitive products
constituted approximately 97% of Spinnaker's net sales of adhesive-backed label
stock products in 2000. To better concentrate on Coating's strengths and market
niche, a decision was made by Spinnaker's management to reorganize and realign
the business in the fourth quarter of 2000 and going forward in 2001. The
restructuring involves the elimination of non-pressure sensitive product lines,
outsourcing of non-core manufacturing processes and termination of seven
salaried employees, primarily senior management. During 2000, Spinnaker sold the
assets that had been previously used to manufacture heat sensitive products.
Pressure Sensitive. Pressure sensitive products, which are activated by the
application of pressure, are manufactured with a three-element construction
consisting of face stock, adhesive coating and silicone coated release liner.
The adhesive product is sold in roll or sheet form for further conversion into
products used primarily for marking, identification and promotional labeling.
Spinnaker Coating's pressure sensitive products are sold under the trade names
Strip Tac(R) and Strip Tac Plus(R). Roll pressure sensitive products are
generally sold to label printers that produce products used primarily for
informational labels (shipping labels, price labels, warning labels, etc.),
product identification and postage stamps. Sheet pressure sensitive products are
sold to commercial sheet printers, who provide information labels and other
products (such as laser printer stock).
Water Sensitive. Water sensitive products, which are activated by the
application of water, include a broad range of paper and cloth materials, coated
with a variety of adhesives. The adhesive coated products are sold in roll or
sheet form for further conversion to postage and promotional stamps, container
labels, inventory control labels, shipping labels and splicing, binding and
stripping tapes. The water sensitive line is sold under the trade name
Pancake(R) and consists of three product groups: dry process, conventional
gummed and industrial. Dry process is sold primarily for label and business form
uses. Conventional gum products serve many of the same end uses for hand-applied
labels as dry process stock. A major portion of these products is sold for
government postage and promotional stamp uses. Industrial products are sold in
several niche markets, such as electrical and other specialty markets. During
1999, Spinnaker entered into an alliance with Ivex Packaging Corporation under
which Spinnaker assumed responsibility for the sales and marketing of Ivex's dry
gum products and Ivex agreed to accept orders for, and to manufacture,
Spinnaker's dry gum and water activated products. As compensation, Spinnaker
receives a commission on all such sales.
Marketing and Customers
Spinnaker Coating markets its broad range of products to a variety of customers.
Its marketing strategy focuses not only on products but also customer service
and specific customer applications. Spinnaker has conducted business with its
top 10 customers for approximately 20 years on average. During 2000, one
customer, U.S. Paper Corporation of America, accounted for approximately 13.1%
of Spinnaker's net sales.
Spinnaker Coating generally markets its products through its own sales
representatives to regional and national printers, converters and merchants. The
majority of sales represent product sold and shipped from Spinnaker Coating's
facilities in Troy, Ohio and Westbrook, Maine. However, to broaden its market
penetration, Spinnaker Coating also contracts with regional processors
throughout the United States, with whom Spinnaker Coating stores product until
sold. Generally, these processors perform both slitting and distribution
services for Spinnaker Coating.
Manufacturing and Raw Materials
Spinnaker Coating manufactures its adhesive-backed label stock products at two
plants in Troy, Ohio and the facility in Westbrook, Maine acquired in 1998.
Spinnaker has made approximately $17 million in capital expenditures at the Ohio
facilities over the last five years, including $4 million for the addition of a
new production line for silicone coating. During 1996, before the addition of
the new production line, Spinnaker Coating outsourced a portion of its silicone
liner requirements.
Raw materials are the most significant cost component in Spinnaker Coating's
production process. The material component accounts for approximately 65-75% of
the total cost of its products, with the most important raw materials being
paper (gumming kraft and face stock), adhesive materials, fiberglass, and
polypropylene resin. These materials are currently readily available and are
procured from numerous suppliers. The cost of Spinnaker's principal raw
materials have generally remained stable or increased over recent years.
Historically, the increases in raw material costs for Spinnaker's products have
not materially impacted Spinnaker's gross margin. The future impact of a change
in raw material costs on Spinnaker's profitability is based in part on pricing
by Spinnaker's competitors. Although historically changes in Spinnaker's raw
material costs have not materially impacted Spinnaker's gross margin, Spinnaker
cannot be assured that future raw material cost increases can be passed through
to its customers or that such cost increases will not negatively impact
Spinnaker's gross margin.
See Item 2 below for a description of manufacturing and distribution facilities.
Competition
The adhesive-backed label stock industry is fragmented and highly competitive.
Spinnaker Coating competes with several national manufacturers, including the
Fasson unit of Avery Dennison and the MACtac unit of Bemis Company, Inc., as
well as a number of importers and smaller regional manufacturers. As a result of
the competitive environment in the markets in which Spinnaker Coating operates,
the company faces (and will continue to face) pricing pressure on its products.
As a result of such pricing pressure, Spinnaker Coating has experienced, and may
in the future, experience reductions in the profit margins on its sales, or has
and may be unable to pass future raw material price increases to its customers
(which would also reduce profit margins).
Backlog
Spinnaker Coating's label stock backlog believed to be firm was $8.4 million at
December 31, 2000, as compared to $9.1 million at December 31, 1999.
Industrial Process Equipment Business
Through Entoleter, Spinnaker engineers, manufactures and markets a line of
industrial process equipment and a line of air pollution control equipment.
Entoleter's net sales consist entirely of sales to commercial and industrial
customers. Entoleter's sales were $5.6 million in 2000 compared to $7.0 million
in 1999.
General
Environmental Regulations
Spinnaker's operations are subject to environmental laws and regulations
governing emissions to the air, discharges to waterways, and generation,
handling, storage, transportation, treatment and disposal of waste materials.
Spinnaker is also subject to other federal and state laws and regulations
regarding health and safety matters. Environmental laws and regulations are
constantly evolving and it is impossible to predict the effect that these laws
and regulations will have on Spinnaker in the future. While Spinnaker believes
it is currently in substantial compliance with all such environmental laws and
regulations, there can be no assurance that it will at all times be in complete
compliance with all such requirements. In addition, although Spinnaker believes
that any noncompliance is unlikely to have a material adverse affect on
Spinnaker, it is possible. Spinnaker has made, and expects to continue to make,
capital expenditures to comply with environmental requirements. As is the case
with manufacturers in general, if a release of hazardous substances occurs on or
from Spinnaker's properties or any associated offsite disposal location, or if
contamination from prior activities is discovered at any of Spinnaker's
properties, Spinnaker may be held liable and the amount of such liability could
be material.
Patents and Trademarks
Patents are held by Spinnaker with respect to the manufacture of certain of its
products, but its management does not consider such patents to be important to
Spinnaker's operations. The patents expire over various lengths of time with the
last patent expiring in about 10 years. Spinnaker has registered several of its
trade names and trademarks for adhesive-backed materials.
International Sales
Spinnaker's international sales were $20.1 million, $17.5 million and $16.9
million in 2000, 1999 and 1998, respectively. Of the $20.1 million in 2000
international sales, approximately 91% were represented by exports of Spinnaker
Coating. The substantial majority of these sales were to Canadian customers and,
consequently, Spinnaker believes that the risks commonly associated with doing
business in international countries are minimal. The profitability of
international sales is substantially equivalent to that of domestic sales.
Because international sales are transacted in United States dollars, payments in
many cases are secured by irrevocable letters of credit.
Employees
As of December 31, 2000, Spinnaker employed 435 persons, of whom 400 were
Spinnaker Coating employees and 35 were Entoleter employees. Spinnaker Coating's
Troy, Ohio plants have begun negotiating a collective bargaining agreement with
the Paper, Allied Industrial, Chemical and Energy Workers International Union,
AFL-CIO ("PACE") in February 2001. This agreement will cover approximately 174
hourly employees. Spinnaker Coating's Westbrook, Maine facility has a labor
agreement with PACE covering approximately 71 employees, which expires in 2002.
Entoleter's approximately 16 hourly production employees are members of the
United Electrical, Radio and Machine Workers of America Union. The current
collective bargaining agreement expires in 2002. Spinnaker believes that its
relations with its employees are good; however, there can be no assurance that
Spinnaker will not experience work stoppages or slowdowns in the future.
Additional Information
For further information on Spinnaker, reference is made to its Form 10-K and
other filings with the Securities and Exchange Commission.
B. M-tron Industries, Inc. ("M-tron")
Registrant currently owns all of the stock of M-tron. M-tron has filed a
registration statement with the Securities and Exchange Commission with respect
to a rights offering to Registrant's shareholders of up to 1,000,000 shares of
its Class A Common Stock at $5 per share. That offering has been delayed until
market conditions are more favorable, and the Company will continue to evaluate
the situation. Assuming completion of the rights offering and the sale of the
entire 1,000,000 shares, Registrant would own no shares of Class A Common Stock
and 6,500,000 shares of Class B Common Stock, which would constitute
approximately 87% of the Common equity and, approximately 97% of the voting
power of M-tron. There is no assurance that the rights offering will be
completed. The Class A and Class B Common Stock are identical except for voting
rights. In January 2000, Robert R. Zylstra joined M-tron as its new President
and Chief Executive Officer replacing Martin J. Kiousis who retired.
Overview
M-tron is a designer, manufacturer and marketer of custom designed electronic
components that are used primarily to control the frequency or timing of
electronic signals in communications equipment. Its devices, which are commonly
called frequency control devices, crystals or oscillators, support fixed and
mobile wireless, copper wire, coaxial cable and fiber optic systems. It sells
its products to communications original equipment manufacturers, contract
manufacturers and to distributors.
M-tron's products are quartz crystal based frequency control devices consisting
of packaged quartz crystals and oscillators incorporating those crystals. Its
products enable communications equipment manufacturers and communications
service providers to meet the increasing demands of their customers because they
produce an electrical signal that is:
o accurate - the frequency of the signal does not change significantly over a
period of time;
o stable - the frequency of the signal does not vary significantly when our
product is subjected to a range of operating temperatures; and
o has low electronic noise - the signal does not add interfering signals that
can degrade the performance of the communications system.
In addition, M-tron sells crystals and oscillators which are used outside the
communications industry. These frequency control devices are used in
microprocessor and computer applications. It expects this portion of its
business to decline over time as M-tron increases its emphasis on the growing
communications market.
M-tron has over 35 years of experience designing, manufacturing and marketing
crystal based frequency control products. Its customers rely on the skills of
M-tron's engineering and design team to help them solve frequency control
problems during all phases of their product's life cycles, including product
design, prototyping, manufacturing and subsequent product improvements.
M-tron Objectives
M-tron's objective is to build on the strength of its core expertise in packaged
quartz crystal and oscillator technologies to become the supplier of choice to
original equipment manufacturers who supply infrastructure equipment to the
communications industry.
M-tron intends to increase its investment in technical resources, including
design and engineering personnel to enable it to provide a higher level of
design and engineering support to its customers. It believes that increasing its
technical participation with its original equipment manufacturers customers in
the early stages of their design process will lead to its frequency control
devices being designed into their products more regularly.
To increase capacity, M-tron has committed to expand its manufacturing capacity
at its main facility in South Dakota. It intends to increase the use of its
offshore contract manufacturers who have recently committed to adding capacity
on its behalf. In addition, M-tron's long term objective is to reduce the time
it takes to manufacture its products which will result in further increases in
its manufacturing capacity. To that end, it has dedicated additional resources
to evaluating its manufacturing processes and to identifying and implementing
process improvements.
M-tron believes that it can significantly enhance its business opportunities by
acquiring technology, product portfolios and/or customer base. Some of these may
offer immediate sales opportunities while other may meet longer term objectives.
It plans to pursue these opportunities by making strategic acquisitions or by
acquiring or licensing technology.
M-tron intends to design, manufacture and sell devices that control higher
frequencies or greater precision than its current products. These devices will
serve applications within the communications industry for which it does not
currently provide products. It intends to achieve this through a combination of
increased research and development and strategic acquisitions, if they are
appropriate
There is no assurance that M-tron can achieve these objectives.
Products
M-tron's products are high quality, reliable, technically advanced frequency
control devices, including packaged quartz crystals and oscillators
incorporating those crystals.
M-tron designs and produces a range of packaged quartz crystals and quartz
crystal based oscillators. There are a variety of features in its product
family. The Packaged Crystal is a single crystal in a hermetically sealed
package and is used by electronic equipment manufacturers, along with their own
electronic circuitry, to build oscillators for frequency control in their
electronic devices. The Clock Oscillator is the simplest of its oscillators. It
is a self-contained package with a crystal and electronic circuitry that is used
as a subsystem by electronic equipment manufacturers to provide frequency
control for their devices. The Voltage Controlled Crystal Oscillator (VCXO) is a
variable frequency oscillator whose frequency can be changed by varying the
control voltage to the oscillator. The Temperature Compensated Crystal
Oscillator (TCXO) is an oscillator designed for use over a range of
temperatures. The Digitally Compensated Crystal Oscillator (DCXO) is a
temperature compensated oscillator in which the compensation electronics are
digital and offer greater frequency stability than the TCXO over a range of
temperatures. This variety of features in M-tron's product family offers the
designers at electronic equipment manufacturers a range of options as they
create the needed performance in their products.
Currently, M-tron's oscillator products operate at frequencies ranging from 32
kilohertz to 160 megahertz which constitute most of the frequencies that are now
used in communications equipment. However, many of its products, through
amplification or other means, are ultimately incorporated into those products
that operate at frequencies in excess of 160 megahertz. The prices for its
products range from $0.09 for basic packaged crystals to $98.18 for highly
accurate temperature compensated crystal oscillators.
M-tron's products are employed in numerous applications within the
communications industry, including computer and telephone network switches,
modems, wireless transmitters/receivers, multiplexers, data
recovery/regeneration devices, repeaters, data transceivers, line interface
devices and base station controllers. Its products are incorporated into end
products that serve all elements of the communications industry.
The crystals and oscillators M-tron sells for use in non-communications
applications are used in industrial applications such as security systems,
metering systems and industrial control systems as well as in various computer
peripheral equipment such as printers, modems, monitors, video cards and sound
cards. These non-communications applications do not require the quality and
reliability demanded by manufacturers of communications equipment.
Research and Development
At December 31, 2000, M-tron employed 11 engineers and technicians in South
Dakota who devoted most of their time to research and development. M-tron
intends to significantly increase the number of engineers and technicians who
perform research and development in 2001. Its research and development expense
was approximately $994,000 in 2000, $856,000 in 1999, and $673,000 in 1998.
M-tron intends to increase spending on research and development during 2001.
Customers
M-tron markets and sells its frequency control devices primarily to:
o original equipment manufacturers of communications equipment;
o contract manufacturers for original equipment manufacturers; and
o distributors who sell to original equipment manufacturers and contract
manufacturers.
In 2000, Alcatel accounted for approximately 11% of M-tron's net sales, compared
to 12.4% in 1999. No other customer accounted for more than 10% of its 2000 or
1999 revenues. Sales to its ten largest customers accounted for approximately
60% of net sales for 2000, 1999 and 1998.
International Sales
M-tron's international sales represented approximately 48%, 43% and 36% of its
net sales for 2000, 1999 and 1998, respectively. In 2000, this consisted of
approximately 22% from customers in Canada, 12% from customers in Asia, 5% from
customers in Western Europe, 5% from customers in Mexico and 3% from other
international customers. M-tron is increasing its international sales efforts by
adding distributors and manufacturers' representatives in Western Europe and
Asia.
Backlog
M-tron had backlog order of approximately $12.4 million at December 31, 2000
compared with approximately $6.9 million at December 31, 1999. It includes as
backlog those orders which are subject to specific production release orders
under written contracts, verbal and written orders from distributors with which
it has had long-standing relationships, as well as written purchase orders from
sales representatives. Its customers may cancel or defer orders without
significant penalty.
For the nine months ended September 30, 2000 and the three months ended December
31, 2000 M-tron received new orders, net of permitted cancellations, of
approximately $4.0 million per month and $3.0 million per month, respectively.
Monthly new orders for the first two months of 2001 were substantially lower
than the average monthly orders for the last three months of 2000. If new orders
continue at that recent rate, M-tron will be adversely affected.
Competition
Frequency control devices are sold in a highly competitive industry. There are
numerous domestic and international manufacturers who are capable of providing
custom designed quartz crystals and oscillator modules comparable in quality and
performance to its products. Competitors include Vectron International (a
division of Dover Corporation), CTS Corporation and Saronix. Some of M-tron's
competitors currently offer products that use technologies that it does not use
and that operate at frequencies ranging up to 622 megahertz. These frequencies
are increasingly being used in communications equipment. M-tron does not operate
in the same markets as high volume manufacturers of standard products; rather it
focuses on manufacturing lower volumes of custom designed frequency control
devices. Many of its competitors and potential competitors have substantially
greater financial, engineering, manufacturing and marketing resources than it
does. M-tron seeks to manufacture custom designed, high performance crystals and
oscillators, which it believes it can sell competitively based upon performance,
quality, order response time and a high level of engineering support.
Manufacturing
M-tron has one manufacturing facility in Yankton, South Dakota, and has
long-term relationships with two contract manufacturers in Asia. M-tron
maintains a rigorous quality control system and is an ISO 9001 qualified
manufacturer.
In 1990, M-tron established a working relationship with a contract manufacturer
located in South Korea, and in 1994, it established a working relationship with
a contract manufacturer located in the People's Republic of China. While it does
not have written long term agreements with them, it believes that it is the
largest customer for each of these contract suppliers and, as such, believes
that from time to time it received preferential treatment on production
scheduling matters.
M-tron attempts to utilize standard parts and components that are available from
multiple vendors located in the United States or internationally; however, some
components used in its products are available from only a limited number of
sources.
Intellectual Property
M-tron believes that its technological position depends primarily on the
technical competence and creative ability of its engineering and technical staff
in areas of product design and manufacturing processes as well as proprietary
know how and information. To the best of its knowledge, M-tron is not infringing
on the intellectual property rights of others. However, intellectual property
rights are uncertain and involve complex legal and factual questions. It is
possible that it may unknowingly be infringing on the intellectual property
rights of others.
Employees
As of December 31, 2000, M-tron employed 295 people. It also employs independent
contractors and temporary employees. None of its employees is represented by a
labor union and it considers its employee relations to be good.
C. Lynch Systems, Inc.
Lynch Systems, Inc. ("LS"), a 100% owned subsidiary of Registrant, designs,
develops, manufactures and markets a broad range of manufacturing equipment for
the electronic display and consumer glass industries. LS also produces
replacement parts for various types of packaging and glass container-making
machines which LS does not manufacture.
At year-end 1998, LS, through a subsidiary, entered into a joint venture,
Lynch-AMAV LLC, with AMAV GmbH of Germany to develop and manufacture glass
manufacturing equipment for the tableware industry. LS has a 75% interest in the
joint venture. The joint venture designs and develops feeders, shears and
presses, most of which are manufactured for the joint venture by LS. LS believes
that this joint venture has expanded LS's glass tableware equipment business,
particularly in Europe. In 2000, Lynch-AMAV had revenues of approximately $.6
million.
LS manufactures glass-forming presses and electronic controls to provide
high-speed automated systems to form different sizes of face panels and CRT
display tubes for television screens and computer monitors, including presses to
build large screen televisions for the HDTV (high definition television) market.
LS also manufactures and installs forming equipment that sizes, cuts and forms
tableware such as glass tumblers, plates, cups, saucers and commercial optical
glass. Additionally, LS manufactures and installs fire polishing, electronic
controls and retrofit systems for CRT display and consumer glass presses.
The production of glassware entails the use of machines which heat glass and,
using great pressure, form an item by pressing it into a desired shape. Because
of the high cost of bringing the machine and materials up to temperature, a
machine for producing glassware must be capable of running 24 hours a day, 365
days a year.
During 1999, LS, including Lynch-AMAV, rebuilt TV and consumer glass press
machines for customers, as well as selling feeders, shears and spare parts.
However, LS did not deliver any large TV glass press machines in either 1999 or
1998, although it obtained an order for four large glass press machines in the
second half of 1999. These four large machines were delivered in 2000 with a
selling price of approximately $14 million.
At December 31, 2000, LS had orders for $16.2 million for large TV glass press
machines as well as for glass press machines, feeders, shears and spare parts
for the tableware market, all of which are scheduled to be delivered in 2001.
During the first quarter of 2001, LS has obtained a $1.7 million contract for a
large TV glass press and is in negotiations to obtain other orders for large TV
glass presses; however, there can be no assurance that LS will obtain any other
orders. LS believes that in the worldwide pressware market it is the largest
supplier to glass companies that do not manufacture their own pressware
machines. Competitors include various companies in Italy, Japan, Korea, Germany
and elsewhere. While several of the largest domestic and international producers
of glass pressware frequently build their own glass-forming machines and produce
spare parts in-house, nearly all pressware producers have made purchases of
machines and/or spare parts from LS.
International Sales. During 2000, approximately 80% of LS's sales were made to
international customers as compared to approximately 75% in 1999. The
profitability of international sales is approximately equivalent to that of
domestic sales. Because many international orders require partial advance
deposits, with the balance often secured by irrevocable letters of credit from
banks in the foreign country, the Registrant believes that some of the credit
risks commonly associated with doing business in international markets are
minimized. The Registrant avoids currency exchange risk by transacting most
international sales in United States dollars. The East Asian financial crisis
had a very substantial adverse impact on LS in 1998 and 1999, particularly on
its large TV press business, although it did receive an order for 4 large TV
press machines in the fall of 1999. In 2000, LS received orders for 4 large TV
press machines.
Backlog. LS had an order backlog of approximately $13.5 million at December 31,
2000, compared with approximately $19.4 million at December 31, 1999. LS
includes as backlog those orders which are subject to written contract, written
purchase orders and telephone orders from long standing customers who maintain
satisfactory credit ratings. In 1998, LS received $2.4 million in connection
with the cancellation of a $16 million order for large TV glass presses and
parts, which amount can be used by the customer as a credit for future orders.
The $2.4 million amount is not included in backlog.
Raw Materials.
- -------------
Raw materials are generally available to LS in adequate supply from a number of
suppliers.
Employees.
- ---------
Lynch Systems employs approximately 85 employees at its Bainbridge, Georgia
facility, none of whom belong to a union.
IV. OTHER INFORMATION
While the Registrant holds licenses and patents of various types, Registrant
does not believe they are critical to its overall operations.
The Registrant conducts product development activities with respect to each of
its major lines of business. Currently, such activities are directed principally
toward the improvement of existing products, the development of new products
and/or diversification. The cost of such activities (excluding costs associated
with Spinnaker's tape division, which was sold in 1999), which have been funded
entirely by the Registrant, amounted to approximately $609,000 in 2000, $571,000
in 1999 and $1,030,000 in 1998.
The capital expenditures, earnings and competitive position of Registrant have
not been materially affected to date by compliance with current federal, state,
and local laws and regulations relating to the protection of the environment;
however, Registrant cannot predict the effect of future laws and regulations.
The Registrant has not experienced difficulties relative to fuel or energy
shortages. See also "Environmental Regulations" under Item 1. Business A. - A.
Spinnaker Industries, Inc. for more information with respect to Spinnaker.
No portion of the business of the Registrant is regarded as seasonal.
There were no customers in 2000 or 1999 that represent 10% or more of
consolidated revenues. The Registrant does not believe that it is dependent on
any single customer.
Additional information with respect to each of the Registrant's lines of
business is included in Note 15 to the Consolidated Financial Statements
included as Item 14(a) below.
V. EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G (3) of Form 10-K, the following list of
executive officers of the Registrant is included in Part I of this Annual Report
on Form 10-K in lieu of being included in the Proxy Statement for the 2000
Annual Meeting of Shareholders. Such list sets forth the names and ages of all
executive officers of Registrant indicating all positions and offices with the
Registrant held by each such person and each such person's principal occupations
or employment during the past five years.
Name Offices and Positions Held Age
Mario J. Gabelli Chairman (since 1986) and Chief Executive Officer 58
(1986-January 2000); Chairman and Chief Executive Officer of
Lynch Interactive Corporation (since September 1999); Chairman
and Chief Executive Officer (since March 1980) of Gabelli
Funds, Inc., a private company which makes investments for its
own account; and Chairman and Chief Executive Officer of
Gabelli Asset Management Inc. (since 2000), a NYSE listed
holding company for subsidiaries engaged in various aspects of
the securities business.
Anthony J. Castor, III Vice Chairman (since February 2000); President and Chief 49
Executive Officer of Spinnaker (February 2001 to present);
President and Chief Executive Officer of The Morgan Group,
Inc., a subsidiary of Lynch Interactive Corporation (January
2000 to present); President and Chief Executive Officer of
Precision Industrial Corporation (197-1999) and Hayward
Industries, Inc. (1993-1997).
Louis A. Guzzetti, Jr. President and Chief Executive Officer (since January 2000); 62
President and Chief Executive Officer of Envirosource, Inc. a
NASDAQ listed company (1986-2000). Effective April 1, 2001,
he will cease to be an officer and employee of Lynch and will
become an employee of Spinnaker Industries, Inc. while
remaining a director of Registrant.
George E. Fuehrer Vice President-Business Development (since January 2000); 52
Senior Vice President of Planning and Business Development
(1997-2000) and President/Executive Vice President of Imsamet
Division (1994-1997) of Envirosource, Inc.). Effective April
1, 2001, will cease to be an officer and employee of Lynch and
will become an employee of Spinnaker Industries, Inc.
Roger J. Dexter Controller and Chief Financial Officer (since March 2000); 57
Financial Consultant (1995-2000), including consulting to
Registrant, Lynch Interactive Corporation and Gabelli Funds,
Inc.
The executive officers of the Registrant are elected annually by the Board of
Directors at its organizational meeting in May and hold office until the
organizational meeting in the next year and until their respective successors
are chosen and qualified.
ITEM 2. PROPERTIES
Registrant and Lynch Interactive Corporation share space containing
approximately [5,000] square feet in Rye, New York, for use as executive
offices.
During 2000 Spinnaker moved its corporate headquarters from Dallas, Texas to
Troy, Ohio, where it has major facilities.
Spinnaker Coating owns two manufacturing facilities, Plant One and Plant Two, in
Troy, Ohio. Plant One is a 200,000 square foot complex and Plant Two is a 98,000
square foot facility. Spinnaker Coating also leases a 58,000 square foot
facility in Troy, Ohio, on a month to month basis. The facilities house
manufacturing, administrative and shipping operations.
In connection with Spinnaker Coating's acquisition of the Spinnaker Maine assets
from S.D. Warren in March 1998, the parties entered into a site lease, which
provides for Warren's lease of a portion of its Westbrook, Maine facility to
Spinnaker. Such lease is for a term of 99 years, provides for nominal rent of
$1.00 per year, with an option to purchase for $1.00. The facility contains
approximately 151,000 square feet. Spinnaker Coating also leases a 15,000 square
foot facility (expiring April 2004) in Westbrook. Spinnaker's plants are subject
to security interests relating to its indebtedness.
Entoleter owns a manufacturing plant containing 72,000 square feet located on
approximately 5 acres of land in Hamden, Connecticut. The land and building are
subject to a mortgage and security agreement executed in support of a bank loan.
Entoleter also owns approximately 6 unimproved acres located in Hamden,
Connecticut adjacent to its property.
LS's operations are housed in two adjacent buildings situated on 3.19 acres of
land in Bainbridge, Georgia. In January 1997, LS completed an expansion of its
manufacturing capacity at this site, which added approximately 15,000 square
feet, bringing total manufacturing space to approximately 73,000 square feet.
Finished office area in the two buildings totals approximately 17,000 square
feet. All such properties are subject to security deeds relating to loans.
M-tron's operations are housed in two separate facilities in Yankton, South
Dakota. These facilities contain approximately 51,000 square feet in the
aggregate. One facility owned by M-tron contains approximately 35,000 square
feet and is situated on approximately 5 acres of land. This land and building
are subject to a mortgage executed in support of a bank loan. The other Yankton
facility containing approximately 16,000 square feet is leased, which lease
expires on September 30, 2003, with options to extend the lease to 2006.
During 2000 and 1999, Registrant's manufacturing facilities operated in the
aggregate at a relatively high level of capacity utilization.
It is Registrant's opinion that the facilities referred to above are in good
operating condition and suitable and adequate for present uses.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business subsidiaries of the Registrant are defendants
in certain product liability, worker claims and other litigation in which the
amounts being sought may exceed insurance coverage levels. The resolution of
these matters is not expected to have a material adverse effect on the
Registrant's consolidated financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of Lynch Corporation is traded on the American Stock Exchange
under the symbol "LGL." The market price highs and lows in consolidated trading
of the Common Stock during the two years ended December 31, 2000 and 1999 are as
follows:
Three Months Ended
2000 March 31 June 30 September 30 December 31
- ---- -------- ------- ------------ -----------
High ....................... 33 1/2 32 7/8 51 50
Low ........................ 25 1/4 25 1/2 31 7/8 43
1999 March 31 June 30 September 30 December 31
- ---- -------- ------- ------------ -----------
High ...................... 85 1/2 84 87 34 1/4 26 1/2
Low ....................... 70 1/2 69 78 26 1/8 18 7/8
At March 15, 2001, the Company had 865 shareholders of record.
On September 1, 1999, the Company spun off the shares of Lynch Interactive
Corporation to its shareholders. As a result, stock prices before and after that
date are not comparable. The high and low sales prices of Lynch Interactive from
September 1, 1999 to December 31, 1999, were $120 and $42, respectively, and the
closing price at December 31, 1999, was $99 7/8.
The Board of Directors has adopted a policy of not paying cash dividends, a
policy which is reviewed annually. This policy takes into account the long term
growth objectives of the Company, especially its acquisition program,
shareholders' desire for capital appreciation of their holdings and the current
tax law disincentives for corporate dividend distributions. Accordingly, no cash
dividends have been paid since January 30, 1989 and none are expected to be paid
in 2001.
ITEM 6. SELECTED FINANCIAL DATA
LYNCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
(Adjusted to Reflect Discontinued Operations and Spin Off of Lynch Interactive Corporation)
(In thousands, except per share amounts)
Year Ended December 31 (a)
2000 1999 1998 1997 1996
---------------------------------------------------------------
Revenues ........................................... $ 219,196 $ 194,222 $ 187,644 $ 153,735 $ 166,976
Operating profit (loss) (b) ........................ (4,977) 85 4,074 6,730 8,473
Net financial activities ........................... (12,751) (9,528) (8,392) (4,884) (5,166)
Gain on sale of subsidiary stock
and other operating Assets ........................ -- -- 2,090 (91) 5,072
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations bminorityncome taxes,
interests, discontinued operations and
extraordinary items .............................. (17,728) (9,443) (2,228) 1,755 8,379
(Provision) benefit for income taxes ............... 2,793 2,544 1,408 (301) (3,571)
Minority interests ................................. 9,252 2,647 1,107 (121) (119)
--------- --------- --------- --------- ---------
Income(loss) from continuing operations before
discontinued operations and extraordinary items .. (5,683) (4,252) 287 1,333 4,689
Operations of Lynch Interactive Corporation (f) .... -- (7,493) 4,929 (3,349) (818)
Discontinued operations (c) ........................ -- (572) (1,859) (862) 173
--------- --------- --------- --------- ---------
Gain on sale of Spinnaker's industrial tape
segment .......................................... -- 10,431 -- -- --
Extraordinary items (d) ............................ 2,245 303 -- -- (1,348)
--------- --------- --------- --------- ---------
Net income (loss) .................................. $ (3,438) $ (1,583) $ 3,357 $ (2,878) $ 2,696
========= ========= ========= ========= =========
Per Common Share:(e)
Income (loss) from continuing operations before
discontinued operations and
extraordinary items:
Basic .......................................... $ (3.81) $ (3.00) $ .20 $ .94 $ 3.38
Diluted ........................................ (3.81) (3.00) .20 .94 3.34
Net income (loss):
Basic .......................................... (2.31) (1.12) 2.37 (2.03) 1.94
Diluted ........................................ (2.31) (1.12) 2.37 (2.03) 1.92
Cash, securities and short-term investments ........ $ 10,543 $ 13,106 $ 1,132 $ 6,499 $ 10,561
Restricted cash (h) ................................ 6,500 56,026 -- -- --
Total assets (net of discontinued operations) (c)(f) 162,820 211,192 251,658 183,720 144,417
Long-term debt (g) ................................. 61,350 116,765 126,976 115,159 96,577
Shareholders' equity (f) ........................... 15,432 15,991 11,441 14,464 (6,083)
Notes:
(a) The data presented herein reflect the spin off of Lynch Interactive
Corporation (Interactive) from the Company and the sale by Spinnaker
Industries, Inc. (Spinnaker), a 47.6% owned consolidated subsidiary of the
Company, of its industrial tape units, all of which transactions 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 Company and are reported as separate line
items. The data presented also includes results of the business acquired
from S.D. Warren (name changed Spinnaker Coating-Maine, Inc.) from March
17, 1998.
(b) Operating profit is revenues less operating expenses, which excludes
investment income, interest expense, extraordinary items, minority
interests and taxes.
(c) Discontinued operations of the industrial tape segment of Spinnaker
Corporation and Lynch Tri-Can International in 1996. (See Note 3 to
Financial Statements).
(d) Gain (loss) on early extinguishments of debt at Spinnaker in 2000, 1999 and
1996.
(e) Based on weighted average number of common shares outstanding.
(f) No cash dividends have been declared over the period. In 1999 for each
share of Lynch Common Stock, shareholders received one share of Lynch
Interactive Corporation in a Spin Off of the multimedia and transportation
business (See Note 4 to Financial Statements). In 1997, for each share of
Lynch Common Stock, shareholders received one share of East/West
Communications, Inc., an F block PCS licensee with licenses covering a
population of 20 million.
(g) Includes $58.1 million of long-term debt at December 31, 2000 of 47.6%
owned Spinnaker Industries.
(h) See discussion of Restricted Cash in Note 6 - Notes Payable and Long-Term
Debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR 2000 COMPARED TO 1999
Net Sales
Revenues for the year ended December 31, 2000 were $219.2 million, an increase
of $25.0 million from the comparable 1999 period. Spinnaker's 2000 net sales
were $155.7 million, compared to $162.1 million in 1999. The decrease in net
sales for 2000 is attributed to entering into a joint venture to outsource the
manufacturing and sales of non-pressure sensitive product lines in the fourth
quarter of 1999 and lower sales volumes of general purpose pressure-sensitive
products. Net sales were also impacted by lower prices from intense price
competition in the general purpose and other pressure-sensitive product lines.
Offsetting these declines were increased sales of pressure-sensitive sheet
products.
Additionally, net sales at Spinnaker's Entoleter business declined by $1.4
million due to continued lower unit pricing. Revenues at M-tron increased by
$13.4 million due to increased demand from the telecommunications industry and
increased sales of new products. Lynch Systems' revenues increased by $18.0
million due to increased order flow and sales of glass press machines.
Operating Loss
Operating loss for 2000 was $5.0 million compared to an operating profit of $.1
million in 1999. Spinnaker's operating loss was $9.5 million compared to
operating profit of $1.6 million in 1999. Spinnaker's operating results
primarily reflect lower operating margins, increased depreciation and
amortization associated with capital expenditures used in the manufacturing
process, lower product volumes, and an increase in product development costs.
Spinnaker recognized certain restructuring charges, affiliated with its Coating
business, during the fourth quarter 2000 of approximately $2.2 million and had
previously recorded approximately $.5 million in the first quarter of 2000. To
better concentrate on Coating's strengths and market niche, the decision was
made by Spinnaker management to reorganize and realign the business in the
fourth quarter of 2000 and going forward in 2001. The restructuring involved the
elimination of product lines and related manufacturing operations, outsourcing
of non core manufacturing processes and the termination of seven salaried
employees, primarily senior management. Spinnaker expects to incur additional
restructuring charges in 2001 as its management continues to further evaluate
and improve on its business strategies.
M-tron's operating profit increased by $1.4 million to $3.3 million due to
increased volume and increased margins. Lynch Systems operating profit increased
by $4.9 million to $2.7 million due to increased order volume and a significant
increase in margins over 1999 depressed levels.
Other Income/Expense
Investment income decreased by $.6 million due to the utilization of restricted
cash from the 1999 sale of Spinnaker's industrial tape units to buy back debt
which reduced the funds available for short-term investments.
Interest expense was $11.4 million and decreased by $.4 million from the prior
year primarily due to the reduction of Spinnaker's Senior Notes by the
repurchase mentioned above, offset by interest costs for short term borrowings
at various subsidiaries.
In addition, Spinnaker recognized an impairment loss of $2.8 million in its
investment in certain warrants as a result of the decline during the third and
fourth quarter of 2000 in the underlying value of the stock associated with such
warrants. (see Item 7a)
The income tax benefit includes federal, as well as state and local taxes. The
tax benefit for the year ended December 31, 2000, and 1999, represents effective
tax rates of 16% for 2000 and 27% for 1999. The differences from the federal
statutory rate are principally due to the effect of state income taxes, foreign
sales amortization of non-deductible goodwill and a valuation allowance on
Spinnaker's deferred tax assets (see Note 11 to Condolidated Financial
Statements). Spinnaker has approximately $14.6 million of net operating loss
carry forwards (NOL's) available to offset future taxable income. These NOL's
expire in years beginning 2008 through 2020.
Minority interests contribution to the net income (loss) increased by $6.6
million for the year from the prior year due to the increased losses from
continuing operations at Spinnaker.
Net loss for the year ended December 31, 2000, was $3.4 million, or ($2.31) per
share, which compares to the net loss of $1.6 million, or ($1.12) per share, for
the same period of 1999, due primarily to the operating losses mentioned above,
offset by Spinnaker's gain on repurchase of its Senior Notes ($2.2 million after
income taxes and minority interest).
Total backlog of manufactured products at December 31, 2000 was $34.5 million,
which represents an increase of $1.4 million from the backlog of $32.9 million
at December 31, 1999. Not included in this backlog is $2.2 million and $2.4
million at December 31, 2000 and 1999 respectively, representing a payment from
a customer for an earlier glass press order at Lynch Systems which was
subsequently cancelled. The customer can use this amount for future orders and,
if not utilized, will be forfeited to Lynch Systems. The backlog at Lynch
Systems has dropped from $17.0 million to $13.5 million while the backlog at
M-tron has increased by $5.5 to $12.4 million. The backlog at Spinnaker dropped
by $.3 million to $8.6 million.
YEAR 1999 COMPARED TO 1998
The accompanying audited consolidated financial statements reflect the Spin Off
of Lynch Interactive Corporation (Interactive) from Lynch Corporation (Lynch)
that occurred in the third quarter of 1999 and also the sale by Spinnaker
Industries, Inc. (Spinnaker), a consolidated subsidiary of the Company, 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 Company and are reported as separate line
items on the financial statements as discontinued operations. The comparative
amounts for 1998 have also been restated to reflect the above transactions. The
ensuing narrative considers these changes and only includes discussions of the
Company as it is currently composed. 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.
Revenues for the year ended December 31, 1999 were $194.2 million, an increase
of $6.6 million from the comparable 1998 period. Spinnaker's 1999 net sales were
$162.1 million, compared to $159.1 million in 1998. The growth in net sales for
1999 is attributed to approximately $7.6 million in net sales from the
acquisition of Coating-Maine and higher unit sales of certain label stocks from
1998, which were offset by increased domestic capacity and the disruption of
business at Entoleter from a mid-summer labor dispute. Revenues at M-tron
increased by $3.7 million due to increased demand from the telecommunications
industry and increased sales of new products. Lynch Systems' revenues were
essentially flat.
Operating profit for 1999 declined by $4.0 million from the operating profit in
the prior year. Spinnaker's operating profit declined by $3.7 million
principally due to lower gross margins as a result of the lower pricing and the
impact of the Entoleter labor dispute, partially offset by gains on sale of
fixed assets and lower selling, general and administrative expenses. M-tron's
operating profit increased by $.4 million due to increased volume.
Subsequent to the spin off of Interactive, the Company, with the concurrence of
the holders of all outstanding SAR units, terminated its SAR program for
corporate management, including all outstanding units, thus eliminating possible
future profit and loss and cash flow distortions associated with the program. As
a result of the termination, the Company recorded approximately $700,000 of
related corporate expense.
Investment income increased due to the investment in short term securities of
approximately $75 million in proceeds remaining, after payment of certain debt
obligations, from the sale by Spinnaker of its Central Products and Electrical
Tape businesses.
Interest expense was $11.9 million and increased from the prior year due to the
allocation of a portion of the interest associated with the Spinnaker 10.75%
Senior Secured Notes Due 2006 (the Senior Notes) to the discontinued industrial
tape segment that ceased at the time of their sale in the third quarter of 1999.
Interest expense also increased due to higher debt levels resulting from
Spinnaker's acquisition of the Warren assets.
Interest expense from continuing operations is subject to certain matters
associated with the use of the net proceeds from the sales of the industrial
tape units of Spinnaker, including retirement of senior debt or "permitted
investments" as defined under the Indenture.
The income tax benefit includes federal, as well as state and local taxes. The
tax benefit for the year ended December 31, 1999, and 1998, represents effective
tax rates of 27% for 1999 and 63% for 1998. The differences from the federal
statutory rate are principally due to the effect of state income taxes,
operating losses of subsidiaries and amortization of non-deductible goodwill.
Minority interests contribution to the net income (loss) increased by $1.5
million for the year from the prior year due to the increased losses from
continuing operations at Spinnaker and the January 1, 1999, repurchase of M-tron
minority interest.
On August 12, 1999, the Board of Directors approved a plan to distribute the
stock of Lynch Interactive Corporation on a one for one basis to the
shareholders of Lynch Corporation ( the spin off). Lynch completed the spin off
of Lynch Interactive Corporation 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 has listed its stock on the
American Stock Exchange. (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 48% equity interest in
Spinnaker after the spin off, as well as M-tron Industries, Inc. and Lynch
Systems, Inc.
As a result of the spin off, the Company's multimedia and services segments are
being reported as operations distributed to shareholders in the accompanying
consolidated financial statements. Accordingly, operating results of Lynch
Interactive Corporation have been segregated from continuing operations and
reported as a separate line item on the statement of operations. Lynch has
restated its prior year financial statements to present the operating results of
Lynch Interactive on a comparable basis. Interactive's net sales were $204.6
million for the year ended December 31, 1999, and $205.1 million and $194.1
million for the fiscal years ended December 31, 1998 and 1997, respectively.
Prior to the spin off, Lynch Interactive recorded a $15.4 million valuation
reserve due to the decline in market value of its investment in personal
communications licenses. As a result, Lynch Interactive reported an operating
loss for the first eight months of 1999.
In the third quarter of 1999, Spinnaker sold its two industrial tape units,
Central Products Company and Spinnaker Electrical, which comprise its industrial
tape segment. Accordingly, operating results of the industrial tape segment have
been segregated from continuing operations and reported separately in the
statement of operations. Lynch has restated its prior years financial statements
to present the operating results of the industrial tape segment as a
discontinued operation. The industrial tape segment's net sales, up to the point
of its sale, were $69.5 million for the year ended December 31, 1999, and $121.8
million and $119.7 million for the fiscal years ended December 31, 1998 and
1997, respectively.
Net loss for the year ended December 31, 1999, was $1.6 million, or ($1.12) per
share, which compares to the net income of $3.4 million, or $2.37 per share, for
the same period of 1998 due primarily to the operating losses mentioned above
and the loss incurred by Interactive, offset by Spinnaker's gain on sale of its
industrial tape units ($10.4 million after income taxes and minority interest).
Total backlog of manufactured products at December 31, 1999 was $32.9 million,
which represents an increase of $25.5 million from the backlog of $7.4 million
at December 31, 1998. All operating units contributed significantly to the
increase in backlog at December 31, 1999. Not included in this backlog for both
periods is a $2.4 million payment from a customer for an earlier glass press
order at Lynch Systems which was subsequently cancelled. The customer can use
this amount for future orders and, if not utilized, will be forfeited to Lynch
Systems. Included in the backlog at December 31, 1999, is a $14 million order
for large glass press machines at Lynch Systems. In connection with this order,
Lynch Systems has obtained a substantial credit facility to protect advances by
the customer and for working capital.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had current assets of $96.6 million and
current liabilities of $71.2 million. Working capital was therefore $25.4
million as compared to $23.2 million at December 31, 1999.
Cash used in operating activities was approximately $3.4 million in 2000
compared to approximately $9.1 million used in operations in 1999.
Capital expenditures were $4.3 million in 2000 and $3.8 million in 1999. Overall
2001 capital expenditures are expected to be approximately 35% higher than the
2000 level with the increases primarily at Lynch Systems and M-tron. The Company
anticipates that it will have sufficient cash flow from operations and borrowing
availability under various credit facilities at the subsidiaries to fund such
capital expenditure plans.
At December 31, 2000, total debt was $93.0 million, which was $48.6 million less
than the $141.6 million at the end of 1999. The reduction in debt is primarily
due to principal repayments and the repurchase of debt by Spinnaker which
yielded a gain to the Company of $2.2 million (after income tax provision and
minority interest). Debt at year end 2000 included $63.2 million of fixed
interest rate debt, at an average interest rate of 11.0%, and $29.8 million of
variable interest rate debt at an average interest rate of 9.5%. Additionally,
the Company had $5.8 million in unused lines of credit at December 31, 2000, of
which $4.0 million was attributed to Spinnaker ($3.7 million at March 26, 2001).
Spinnaker also has $7.0 million of cash from the sale of the Industrial tape
unit after the repurchase of Senior Notes in 2000 and other uses and $6.5
million of restricted cash for the paydown of the Spinnaker Credit Facility. The
Spinnaker Credit Facility is available to 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 primarily related to LIBOR. The Company anticipates having
sufficient availability under the Spinnaker Credit Facility along with cash
balances to meet its interest obligations for 2001. In January of 2001, Lynch
Systems entered into an agreement with a bank for a $4 million line of credit
for working capital purposes. Also in January of 2001, M-tron amended its line
of credit agreement with its bank to increase the line from $3.7 million to $6.0
million.
In connection with the Spinnaker Coating-Maine acquisition, Spinnaker issued a
promissory note ("Warren Note") to Warren (sellers) in the original principal
amount of $7,000. Subsequent to December 31, 2000, the Warren Note was amended
to have the maturity date extended to January 31, 2003 and interest to accrue at
a rate of 14% commencing 2001. Additionally, at the option of the holder, the
Warren Note may be converted into Spinnaker's Common Stock on a basis of 250
shares per $1,000 of outstanding principal amount of the Warren Note (or $4 per
share). Payments of principal and interest are subject to restrictions contained
in, and in any event are junior and subordinate in right of payment to, the
payment of indebtedness outstanding under the Spinnaker Credit Facility and
Senior Notes. The Warren Note matures on January 31, 2003, however, it can be
prepaid earlier.
Since 1987, the Board of Directors of Lynch has authorized the repurchase of
400,000 common shares. At December 31, 2000, Lynch's remaining authorization is
to repurchase an additional 161,000 shares of common stock. In 2000, there were
no shares purchased for treasury.
Lynch Corporation has had an active acquisition program and has generally
financed each acquisition with a significant component of debt. This acquisition
debt contains restrictions on the amount of readily available funds that can be
transferred to the parent company from its subsidiaries. As the result of
acquisitions, Lynch consolidated and Spinnaker have relatively high debt to
equity ratios. In addition, Spinnaker's financial position has also been
adversely affected by the continuation of depressed business conditions in the
coating business.
The Company has a need for resources to fund the operations of the holding
company and future growth. There currently is no credit facility in place at the
Lynch corporate level, and the Company from time to time considers various long
and short term financing arrangements. In January 2001, Lynch received a cash
dividend of $1.5 million from M-tron
The Company is exploring all options with respect to Spinnaker, including
liquifying and monetizing its investment, and is searching for ways to provide
the Company with a more financially visible investment with respect to M-tron.
In the fall of 2000, M-tron filed a registration statement with respect to a
rights offering to the Company's shareholders. The offering was delayed until
market conditions are more favorable. The Company will continue to evaluate the
situation but there is no assurance that any transaction will be implemented.
In March, 2000, the Company completed the previously announced sale of 100,000
shares of its common stock to its Chairman at $30 per share, or $3 million.
These funds are available for general corporate purposes.
The Board of Directors has adopted a policy of not paying cash dividends, a
policy which is reviewed annually. This policy takes into account the long term
growth objectives of the Company, especially its acquisition program,
shareholders' desire for capital appreciation of their holdings and the current
tax law disincentives for corporate dividend distributions. Accordingly, no cash
dividends have been paid since January 30, 1989 and none are expected to be paid
in 2001.
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 and
restricted cash. 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. The Financial Accounting Standards Board issued Statement (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities" as amended
in 2000 by SFAS #138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." The new standards require that all derivatives be
recognized as assets or liabilities in the statement of financial position and
measured at fair value. Gains or losses resulting from changes in fair value are
required to be recognized in current earnings unless specific hedge criteria are
set. These standards became effective for the Company beginning January 1, 2001.
The Company has determined the effect of this new standard, with the only impact
being the value of the warrants obtained through the sale of Central Products.
At December 31, 2000, the warrants were valued at approximately $.2 million
(fair value) using the Black-Scholes option pricing model and were recorded at
that value. Accordingly, Spinnaker recognized a loss of $2.8 million after a
write-down of these warrants to fair value during 2000.
At December 31, 2000, approximately $29.8 million, or 32% 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 2000 and 1999 interest expense
would have changed by $.3 million and $.2 million, respectively. 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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, investments, trade
accounts receivable, and derivatives.
The Company maintains cash and cash equivalents and short and long-term
investments with various financial institutions. These financial institutions
are located throughout the country and the Company's policy is designed to limit
exposure to any one institution. The Company performs periodic evaluations of
the relative credit standing of those financial institutions that are considered
in the Company's investment strategy. Other than certain accounts receivable,
the Company does not require collateral on these financial instruments. In
relation to export sales, the Company requires letters of credit supporting a
significant portion of the sales price prior to production to limit exposure to
credit risk. Certain subsidiaries and business segments have credit sales to
industries that are subject to cyclical economic changes. The Company maintains
an allowance for doubtful accounts at a level that management believes is
sufficient to cover potential credit losses.
The excess of cost over fair value of net assets of companies acquired
(goodwill) is being amortized over amoritization periods ranging from twenty to
forty years. Management continues to believe the methods and periods are
appropriate (see Note 1 to Consolidated Financial Statements).
PROSPECTIVE INFORMATION
Certain subsidiaries and business segments of the Company sell to industries
that are subject to cyclical economic changes. Any downturns in the economic
environment (as it appears, we are now experiencing) would have financial impact
on the Company and its consolidated subsidiaries and may cause the reported
financial information herein not to be indicative of future operating results,
financial condition or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this Item 7A is included under the caption "Market
Risk" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is included under the caption
"Executive Officers of the Registrant" in Item 1 hereof and included under the
captions "Election of Directors" and "Section 16(a) Reporting" in Registrant's
Proxy Statement for its Annual Meeting of Shareholders for 2001, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is included under the captions
"Compensation of Directors," "Executive Compensation," "Executive Compensation
and Benefits Committee Report on Executive Compensation" and "Performance Graph"
in Registrant's Proxy Statement for its Annual Meeting of Shareholders for 2001,
which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is included under the caption "Security
Ownership of Certain Beneficial Owners and Management," in the Registrant's
Proxy Statement for its Annual Meeting of Shareholders for 2001, which
information is included herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is included under the caption
"Executive Compensation", and "Transactions with Certain Affiliated Persons" in
the Registrant's Proxy Statement for its Annual Meeting of Shareholders for
2001, which information is included herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K Annual Report:
(1) Financial Statements:
The Report of Independent Auditors and the following
Consolidated Financial Statements of the Company are included
herein:
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations - Years ended December
31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows - Years ended December
31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules as of December 31, 2000 and 1999 and for
the three years ended December 31, 2000:
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instructions, or are inapplicable, and therefore
have been omitted.
(3) Exhibits: See the Exhibit Index beginning on page 49 of this Form 10-K
Annual Report.
See Page 2 above re Forward Looking Information.
(b) Reports on Form 8-K: None
(c) The following Exhibits listed in the Exhibit Index are filed with this Form
10-K Annual Report:
10(v) - Promissory Note from Louis A. Guzzetti, Jr. to
Registrant
21 - Subsidiaries of the Registrant
23 - Consent of Ernst & Young LLP
24 - Powers of Attorney
(d) Financial Statement Schedules:
Financial Statement Schedules are listed in response to Item 14(a)(2)
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Lynch Corporation
We have audited the accompanying consolidated balance sheets of Lynch
Corporation and subsidiaries ("Lynch Corporation" or the "Company") as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. Our audits also included the financial
statement schedules listed in the index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lynch Corporation
and subsidiaries at December 31, 2000 and 1999 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statements schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information set forth therein.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
March 30, 2001
LYNCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31, December 31,
2000 1999
-----------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 10,543 $ 13,106
Restricted cash .............................................. 6,500 --
Trade accounts receivables, less allowances of $1,582 and $361 35,019 24,642
Inventories .................................................. 35,139 31,680
Deferred income taxes ........................................ 7,624 8,943
Prepaid expense ............................................. 1,807 1,303
--------- ---------
TOTAL CURRENT ASSETS ........................................... 96,632 79,674
Restricted Cash ................................................ -- 56,026
PROPERTY, PLANT AND EQUIPMENT, Net:
Land ......................................................... 797 672
Buildings and improvements ................................... 11,076 11,015
Machinery and equipment ...................................... 56,951 54,529
--------- ---------
68,824 66,216
Less: Accumulated depreciation .............................. (27,713) (22,137)
--------- ---------
41,111 44,079
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET ..... 21,589 22,020
OTHER ASSETS ................................................... 3,488 9,393
--------- ---------
TOTAL ASSETS ................................................... $ 162,820 $ 211,192
========= =========
See accompanying notes
LYNCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
DECEMBER 31, DECEMBER 31,
2000 1999
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks ....................................................... $ 30,288 $ 23,178
Trade accounts payable ....................................................... 19,251 14,404
Accrued interest payable ..................................................... 1,185 2,426
Accrued liabilities .......................................................... 15,234 13,956
Customer advances ............................................................ 3,916 860
Current maturities of long-term debt ......................................... 1,376 1,636
--------- ---------
TOTAL CURRENT LIABILITIES ...................................................... 71,250 56,460
LONG-TERM DEBT ................................................................. 61,350 116,765
DEFERRED INCOME TAXES .......................................................... 6,752 6,225
OTHER LONG-TERM LIABILITIES .................................................... 4,223 4,866
MINORITY INTERESTS ............................................................. 3,813 10,885
SHAREHOLDERS' EQUITY
COMMON STOCK, NO PAR OR STATED VALUE - 10,000,000 SHARES AUTHORIZED; 1,513,191
and 1,471,191 shares issued and outstanding of
1,510,183 and 1,410,183 ...................................................... 5,139 5,139
ADDITIONAL PAID-IN CAPITAL ................................................... 10,403 8,302
RETAINED EARNINGS ............................................................ 405 3,843
OFFICER'S NOTE RECEIVABLE .................................................... (382) --
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ................................ (71) (40)
TREASURY STOCK OF 3,008 and 61,008 SHARES AT COST ............................ (62) (1,253)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ..................................................... 15,432 15,991
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS EQUTY ....................................... $ 162,820 $ 211,192
========= =========
See accompanying notes
LYNCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
Years ended December 31,
------------------------------------------
2000 1999 1998
------------------------------------------
SALES AND REVENUES .................................. $ 219,196 $ 194,222 $ 187,644
Costs and expenses:
Manufacturing cost of sales ....................... 192,980 172,567 162,735
Selling and administrative ........................ 28,485 21,120 20,835
Restructuring charge .............................. 2,708 450 --
----------- ----------- -----------
OPERATING PROFIT (LOSS)- ............................ (4,977) 85 4,074
Other income (expense):
Investment income ................................. 1,481 2,354 199
Interest expense .................................. (11,432) (11,882) (8,591)
Impairment of Spinnaker's investment in warrants .. (2,800) -- --
Gain on sale of stock by subsidiary ............... -- -- 2,090
----------- ----------- -----------
(12,751) (9,528) (6,302)
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, MINORITY INTERESTS, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM
(17,728) (9,443) (2,228)
Benefit for income taxes ........................... 2,793 2,544 1,408
Minority interests .................................. 9,252 2,647 1,107
----------- ----------- -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (5,683) (4,252) 287
DISCONTINUED OPERATIONS:
Income (Loss) from operations of Lynch Interactive
Corporation distributed to shareholders (less income
tax (provision) benefit of $3,068 and ($5,012), and
minority interests of $578 and $1,226) .............. -- (7,493) 4,929
Loss from discontinued operations of industrial
tape segment of Spinnaker Industries (less
applicable income tax (provision) benefit of $308
and $2,192, and minority interests of $558 and ...... -- (572) (1,859)
$ 1,429)
Gain on sale of Spinnaker's industrial tape
operations (less income tax provision of $6,495
and minority interest of $7,013) .................... -- 10,431 --
EXTRAORDINARY ITEM
Gain on early extinguishments of debt (less income
tax provision of $2,612 and $355 and minority
interest of $2,472 and $300) ........................ 2,245 303 --
----------- ----------- -----------
NET INCOME (LOSS) ................................... $ (3,438) $ (1,583) $ 3,357
=========== =========== ===========
Weighted average shares outstanding ................. 1,491,000 1,415,000 1,418,000
Basic and diluted earnings (loss) per share:
Income (loss) from continuing operations
before discontinued operation ..................... ($ 3.81) ($ 3.00) $ .20
Income (loss) from Lynch Interactive Corporation .. -- (5.30) 3.48
Income (loss) from discontinued operations ........ -- 6.97 (1.31)
Extraordinary item ................................ 1.51 .21 --
----------- ----------- -----------
NET INCOME (LOSS) ................................... ($ 2.31) ($ 1.12) $ 2.37
=========== =========== ===========
See accompanying notes
LYNCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Three Years Ended December 31, 2000
(In thousands except for shares of common stock)
Shares of Officer's Accumulated
Common Stock Additional Note Other
Outstanding Common Paid-In Retained Receiv- Comprehen-siveTreasury
Stock Capital Earnings able Income Stock Total
-------------- -------- --------- --------- ---------- ------------- ---------- -----------
BALANCE AT DEC. 31, 1997 .... 1,417,048 $ 5,139 $ 8,644 $ 23,414 $ 0 -- $ (746) $ 36,451
Issuance of Treasury Stock 1,200 -- 74 -- -- -- 16 90
Capital transactions of The -- -- (164) -- -- -- -- (164)
Morgan Group, Inc. .....
Net income (loss) for year -- -- -- 3,357 -- -- -- 3,357
Other comprehensive income -- -- -- -- -- 59 -- 59
--------- ---------- ---------- ---------- -------- ---------- ---------- - -------
BALANCE AT DEC. 31, 1998 .... 1,418,248 5,139 8,554 26,771 $ 0 59 (730) 39,793
Purchase of Treasury Stock (8,065) -- -- -- -- -- (523) (523)
Capital transactions of The
Morgan Group, Inc. ...... -- -- (252) -- -- -- -- (252)
Dividend of Lynch
Interactive ................. -- -- -- (21,345) -- (59) -- (21,404)
Corporation
Net income (loss) for yea -- -- -- (1,583) -- -- -- (1,583)
Other comprehensive income -- -- -- -- -- (40) -- (40)
---------- --------- ---------- ---------- ---------- -------- ---------- --------
BALANCE AT DEC. 31, 1999 .... 1,410,183 5,139 8,302 3,843 $ 0 (40) (1,253) 15,991
Issuance of Treasury Stock 100,000 -- 1,809 -- -- -- 1,191 3,000
Capital transactions of
Lynch ....................... -- -- 292 -- -- -- -- 292
Systems
Net income (loss) for year -- -- -- (3,438) -- -- -- (3,438)
Other comprehensive income -- -- -- -- -- (31) -- (31)
Loan to Officer to buy
common stock ............. -- -- -- -- (382) -- -- (382)
---------- ---------- ---------- --------- ---------- ---------- ---------- ---------
BALANCE AT DEC. 31, 2000 ....1,510,183 $ 5,139 $ 10,403 $ 405 ($ 382) $ (71) $ (62) $ 15,432
========= ========= ========= ========== ========== ========== ========== =========
See accompanying notes.
LYNCH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) Years Ended December 31,
-----------------------------------
2000 1999 1998
-----------------------------------
OPERATING ACTIVITIES
Net income (loss) ................................................ $ (3,438) $ (1,583) $ 3,357
Adjustments to reconcile net income (loss) to net
cash provided by operating activities of continuing operations:
Adjustment from discontinued operations:
(Income) loss from operations of Lynch Interactive Corporation -- 7,493 (4,929)
Loss from operations of industrial tape segment ............... -- 572 1,859
Gain on sale of industrial tape segment ....................... -- (10,431) --
Extraordinary item ............................................... (2,245) (303) --
Depreciation ..................................................... 6,734 5,147 4,548
Amortization of goodwill and other assets ........................ 1,001 1,087 617
Amortization of deferred financing charges ....................... 876 786 771
Gain on sale of stock by subsidiary corporation .................. -- -- (4,778)
Deferred taxes ................................................... 1,846 (2,719) (1,488)
Minority interests ............................................... (7,072) (2,636) (2,536)
Gain on sale of fixed assets ..................................... -- (854) --
Impairment of Spinnaker's investment in warrants ................. 2,800 0 0
Changes in operating assets and liabilities:
Receivables ............................................... (10,377) 678 2,560
Inventories ............................................... (3,459) (3,284) 2,270
Accounts payable and accrued liabilities .................. 10,112 (3,949) 8,317
Other ..................................................... (212) 864 (728)
---------- --------- ---------
Cash provided by (used in) operating
activities of continuing operations ............................ (3,434) (9,132) 9,840
---------- --------- ---------
INVESTING ACTIVITIES
Capital Expenditures ............................................. (4,323) (3,795) (3,297)
Restricted Cash .................................................. 49,526 (56,026) --
Investment in Spinnaker Coating - Maine .......................... -- -- (47,933)
Proceeds from sale of industrial tape segment .................... -- 104,450 --
Proceeds from sale of fixed assets ............................... -- 2,403 2,696
Other ............................................................ (767) 509 (128)
---------- --------- ---------
Cash provided by (used in) investing activities of
continuing operations ......................................... 44,436 47,541 (48,662)
---------- --------- ---------
FINANCING ACTIVITIES
Net borrowings (repayments) of notes payable ..................... 7,110 (36,127) 42,268
Issuance of long-term debt ....................................... -- -- 6,025
Repayment of long-term debt ...................................... (53,433) (10,937) (1,954)
Deferred financing costs ......................................... (125) (580) (726)
(Purchase) sale of treasury stock ................................ 1,191 (523) 90
Issuance of common stock ......................................... 1,809 -- --
Other............................................................. (117) -- (841)
---------- --------- ---------
Cash provided by (used in) financing activities of
continuing operations ......................................... (43,565) (48,167) 44,862
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............. (2,563) (9,758) 6,040
Cash provided by (used by) Lynch Interactive Corporation ......... -- 15,987 (1,880)
Cash provided by (used by) industrial tape segment ............... -- 5,745 (7,025)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ................. (2,563) 11,974 (2,865)
Cash and cash equivalents at beginning of period ................. 13,106 1,132 3,997
--------- --------- ---------
Cash and cash equivalents at end of period........................ $10,543 $13,106 $ 1,132
========= ========= =========
See accompanying notes.
LYNCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
1. Accounting and Reporting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Lynch Corporation
(the "Company" or "Lynch") and entities in which Lynch has majority voting
control. All material intercompany transactions and accounts have been
eliminated in consolidation. See Note 4 for details of the spin off of Lynch
Interactive Corporation which occurred on September 1, 1999
Organization
Lynch Corporation is a diversified holding company with subsidiaries engaged in
manufacturing primarily in the United States. Information on the Company's
operations by segment and geographic area is included in Note 15 - Segment
Information.
Uses of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of less
than three months when purchased.
At December 31, 2000 and 1999, assets of $8.7 million and $1.1 million, which
are classified as cash and cash equivalents, are invested in United States
Treasury money market funds for which affiliates of the Company serve as
investment managers to the respective funds.
Restricted Cash
At December 31, 2000 and 1999 the Company had $6.5 and $56 million of Restricted
Cash. See discussion of Restricted Cash in Note 6 - Notes Payable and Long-Term
Debt.
Accounts Receivable
Accounts receivable on a consolidated basis consist principally of amounts due
from both domestic and foreign customers. Credit is extended based on an
evaluation of the customer's financial condition and collateral is not generally
required except at Lynch Systems (See Accounting for Long Term Contracts). The
Company considers concentrations of credit risk to be minimal due to the
Company's diverse customer base. One Spinnaker customer accounted for
approximately 13% of its net sales in 2000, and approximately 11% of its net
sales of continuing operations in 1999 and 1998. In relation to export sales,
the Company requires letters of credit supporting a significant portion of the
sales price prior to production to limit exposure to credit risk. Certain
subsidiaries and business segments have credit sales to industries that are
subject to cyclical economic changes. The Company maintains an allowance for
doubtful accounts at a level that management believes is sufficient to cover
potential credit losses.
Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost and include expenditures for
additions and major improvements. Maintenance and repairs are charged to
operations as incurred. Depreciation is computed for financial reporting
purposes using the straight-line method over the estimated useful lives of the
assets, which range from 3 years to 35 years. For income tax purposes,
accelerated depreciation methods are used.
Excess of Cost over Fair Value of Net Assets Acquired, Net
Excess of cost over fair value of net assets of companies acquired (goodwill) is
being amortized on a straight-line basis over periods ranging from twenty to
forty years. The Company periodically reviews goodwill to assess recoverability,
and impairments would be recognized in operating results if a permanent
diminution in value were to occur. The Company measures the potential impairment
of recorded goodwill by the undiscounted value of expected future cash flows in
relation to its net capital investment in the subsidiary. Based on its review,
the Company does not believe that an impairment of its goodwill has occurred.
Excess of cost over fair value of net assets acquired is $23.9 million and $23.4
million, net of accumulated amortization of $2.3 million and $1.4 million at
December 31, 2000 and 1999, respectively.
Revenue Recognition
Revenues, with the exception of certain long-term contracts discussed below, are
recognized on shipment. Shipping costs are included in manufacturing expenses.
Research and Development Costs
Research and development costs are charged to operations as incurred. Such costs
were $1,603,000, $1,386,000 and $1,658,000 in 2000, 1999, and 1998,
respectively.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred $472,000,
$340,000 and $466,000 in advertising costs during 2000, 1999 and 1998,
respectively.
Earnings Per Share
In 1997, the Company adopted Financial Accounting Standards Board Statement
("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. The Company's basic and diluted earnings per share are
equivalent as the Company has no dilutive securities.
Segment Information
Effective December 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information". SFAS No. 131 superseded SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise". SFAS No.
131 establishes new standards for reporting information about operating
segments. SFAS No. 131 requires disclosure of selected financial and descriptive
information for each operating segment based on management's internal
organizational decision-making structure. Additional information is required on
a company-wide basis for revenues by product or service, revenues and
identifiable assets by geographic location and information about significant
customers. The adoption of SFAS No. 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information. Prior
year amounts have been reclassified to conform to the requirements of SFAS No.
131. See Note 15.
Pension and Other Post-Retirement Benefits
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures About
Pensions and Other Post-Retirement Benefits", which is an amendment to SFAS
No.'s 87, 88, and 106. This SFAS revises employers' disclosures about pension
and other post-retirement benefits plans. It did not change the measurement or
recognition of those plans - See Note 13.
Accounting for Long-Term Contracts
Lynch Systems, Inc., a 100% owned subsidiary of the Company is engaged in the
manufacture and marketing of glass-forming machines and specialized
manufacturing machines. Certain sales contracts require an advance payment
(usually 30% of the contract price) which is accounted for as a customer
advance. The contractual sales prices are paid either (i) as the manufacturing
process reaches specified levels of completion or (ii) based on the shipment
date. Guarantees by letter of credit from a qualifying financial institution are
required for most sales contracts. Because of the specialized nature of these
machines and the period of time needed to complete production and shipping,
Lynch Systems accounts for these contracts using the percentage-of-completion
accounting method as costs are incurred (cost to cost basis). At December 31,
2000 and 1999, costs and estimated earnings in excess of billings (included in
accounts receivable) were $2.7 million and $.1 million, respectively.
Impairments
The Company accounts for impairments of long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Assets to be Disposed Of". The Company periodically assesses the net
realizable value of its long-lived assets and evaluates such assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. For assets to be held and used,
impairment is determined to exist if estimated undiscounted future cash flows
are less than the carrying amount. For assets to be disposed of, impairment is
determined to exist if the estimated net realizable value is less than the
carrying amount.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations because the Company believes the alternative fair value
accounting provided for under FASB Statement No. 123, Accounting for Stock-Based
Compensation, (FAS 123) requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of Spinnaker's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Financial Instruments
Cash and cash equivalents, trade accounts receivable, short-term borrowings,
trade accounts payable and accrued liabilities are carried at cost which
approximates fair value due to the short-term maturity of these instruments. The
carrying account of the Company's borrowings under its revolving lines of credit
approximates fair value, as the obligations bear interest at a floating rate.
The fair value of other long-term obligations approximates cost based on
borrowing rates for similar instruments, excluding the Spinnaker Industries,
Inc. ("Spinnaker") senior-secured debt with a carrying value of $51.1 million at
December 31, 2000 and $108.6 million at December 31, 1999 and a fair value based
on market quotes between 40% and 50% was between $$20.5 and $25.6 million and
between $87.8 and $92.3 million, respectively at December 31, 2000 and 1999.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, investments, trade
accounts receivable, and derivatives.
The Company maintains cash and cash equivalents and short and long-term
investments with various financial institutions. These financial institutions
are located throughout the country and the Company's policy is designed to limit
exposure to any one institution. The Company performs periodic evaluations of
the relative credit standing of those financial institutions that are considered
in the Company's investment strategy. Other than certain accounts receivable,
the Company does not require collateral on these financial instruments.
Issuance of Stock by Subsidiaries and Investees
Changes in the Company's equity in a subsidiary or an investee caused by
issuance of the subsidiary's or investees' stock are accounted for as gains or
losses where such issuance is not part of a broader reorganization (see Note
10).
Reclassifications
The consolidated financial statements reflect the spin off of Lynch Interactive
Corporation (Interactive) from Lynch Corporation that occurred in the third
quarter of 1999 and also the sale by Spinnaker Industries, Inc. (Spinnaker), 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 Company and are reported as separate line
items on the financial statements as discontinued operations. The comparative
amounts for 1998 have also been restated to reflect the above transactions.
Certain other amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation. These other reclassifications are immaterial
to the consolidated financial statements taken as a whole.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended in
2000 by SFAS No 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities", which is required to be adopted in years beginning after
June 15, 2000. SFAS No. 133 requires the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in fair value are either offset against the
changes in fair value of assets and liabilities through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The Company has determined the effect of this new standard requires that all
derivatives be recognized as assets or liabilities in the statement of financial
position and measured at fair value. Gains or losses resulting from changes in
fair value are required to be recognized in current earnings unless specific
hedge criteria are met. SFAS No. 133 will become effective for the Company
beginning in the first quarter of fiscal year 2001. The Company has determined
the effect of this new standard, with the only impact being the requirement to
mark-to-market through the Statement of Operations the change in the value of
the warrants obtained through the sale of Central Products. This adoption of
SFAS No. 133 is not expected to have a material impact on the consolidated
financial statements.
Acquisitions
On July 31, 1998, the Company's subsidiary, Spinnaker, acquired tesa tape,
Inc.'s pressure-sensitive electrical tape product line and its Carbondale, IL
manufacturing plant (the "Spinnaker Electrical Acquisition"). The purchase price
totaled $10.7 million, comprised of 200,000 shares of Spinnaker common stock
(subject to adjustment) valued at $3.7 million, $4.5 million in term debt, $2.0
million in cash, and a $0.5 million subordinated note. The acquired business
produces electrical tape for insulating motors, coils and transformers for
customers in Europe, Canada and the U.S. This company was subsequently sold
within the industrial tape segment. See Note 3 - Discontinued Operations.
On March 17, 1998, Spinnaker Coating-Maine, Inc., a wholly owned subsidiary of
Spinnaker, acquired the assets of the pressure-sensitive adhesive-backed label
stock business of S. D. Warren (the "S.D. Warren Acquisition"). The purchase
price was approximately $51.8 million, plus the assumption of certain
liabilities and transaction costs, and was funded by issuing the seller a
convertible subordinated note of $7.0 million with the remainder funded by
Spinnaker's revolving credit facility. As a result of this transaction, the
Company recorded approximately $23.1 million in goodwill which is being
amortized over 30 years.
All of the above acquisitions were accounted for as purchases, and accordingly,
the assets acquired and liabilities assumed were recorded at their estimated
fair market values on their respective dates of acquisition. The operating
results of the acquired companies are included in the Consolidated Statements of
Operations from their respective acquisition dates except for the tesa tape
acquisition, which is included in discontinued operations.
The following unaudited pro forma information for the year ended December 31,
1998, shows the results of the Company's operations presented as if the S. D.
Warren Acquisition was made at the beginning of 1998. The unaudited pro forma
information is not necessarily indicative of the results of operations that
would have occurred had the transactions been made at that date nor is it
necessarily indicative of future results of operations. (In thousands, except
per share amounts.)
Sales .................................... $ 199,758
=========
Income (loss) from continuing operations . $ (3,053)
=========
Net income (loss) ........................ $ 3,197
=========
Basic and diluted earnings per share:
Income (loss) from continuing operations $ (2.15)
=========
Net income (loss) ...................... $ 2.25
=========
3. Discontinued Operations
On April 9, 1999, Spinnaker entered into a definitive agreement to sell its
industrial tape segment to Intertape for approximately $105 million and
five-year warrants to purchase 300,000 shares of Intertape common stock (New
York Stock Exchange Symbol "ITP") at an exercise price of $29.50 per share. At
the time, the warrants were valued at approximately $3.0 million using the
Black-Scholes option pricing model. At December 31, 2000, the fair value of the
warrants was approximately $.2 million, accordingly, in accordance with SFAS No.
121, Spinnaker recognized an impairment loss of $2.8 million as a result of the
decline during the third and fourth quarters of 2000 in the market value of the
stock associated with the warrants which are recorded in other assets.
The sale of the two industrial tape businesses closed on August 10, 1999 and
July 30, 1999. Accordingly, operating results of the industrial tape segment
have been segregated from continuing operations and reported as a separate line
item on the statement of operations. The Company recorded gains totaling $17.4
million, net of applicable income taxes of approximately $6.5 million. Spinnaker
offset the cash tax liability by utilizing net operating loss carry forwards.
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 net sales were $69.5 million and $121.8 million for the
periods ended December 31, 1999 (through the date of sale) and 1998,
respectively.
General corporate office expenses related to finance and administrative
functions including public company compliance reporting, bank and investor
relations, taxes other than income taxes and holding company payroll,
historically allocated and charged to the industrial tape segment were reversed
and allocated back to continuing operations. These expenses were not considered
to be directly attributed to discontinued operations. Historical expenses
allocated back to continuing operations totaled $1.0 million, $1.5 million in
the periods ended December 31, 1999 and 1998, respectively.
Interest expense attributed to the Senior Notes and related deferred financing
has historically been allocated based on the pro rata share of subsidiary debt
obligations retired with the proceeds from the issuance of the Senior Notes, to
total debt obligations retired. The Senior Note proceeds were used to extinguish
certain outstanding term and revolver obligations in October 1996. Interest
expenses charged to the discontinued industrial tape segment totaled $5.2
million and $8.5 million for the period ended December 31, 1999 and 1998,
respectively.
4. Spin Off
On August 12, 1999, the Board of Directors approved a plan to distribute the
stock of Lynch Interactive Corporation on a one for one basis to the
shareholders of Lynch Corporation ("spin off"). Lynch completed the spin off of
Lynch Interactive Corporation ("Interactive") 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 common 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 were Lynch's multimedia and service businesses
while Lynch retained 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 100% of M-tron Industries,
Inc. and 100% of Lynch Systems, Inc.
As a result, the Company's multimedia and services segments are being reported
as operations distributed to shareholders in the accompanying consolidated
financial statements. Accordingly, operating results of Lynch Interactive
Corporation have been segregated from continuing operations and reported as a
separate line item on the statements of operations.
Lynch has restated its prior year financial statements to present the operating
results of the Company on a comparable basis. Interactive's net sales were $
204.6 million and $205.2 million for the fiscal years ended December 31, 1999
and 1998, respectively.
In the third quarter of 1999, Lynch acquired by merger, all of the stock of
Central Scott Telephone Company. This company became part of Lynch Interactive
and was included in the spin off.
Lynch 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 Corporation became the employees of Lynch Interactive
Corporation and Lynch Interactive Corporation began providing certain support
services to Lynch. The Company was charged a management fee for these services
amounting to approximately $265,000 in 2000 and $200,000 in 1999.
The net assets distributed to interactive were estimated to be $ 22.6 million at
September 1, 1999. Such amount was subsequently decreased in the fourth quarter
by $1.6 million to reflect revised estimates of liabilities distributed.
5. Inventories
Inventories are stated at the lower of cost or market value. Inventories valued
using the last-in, first-out (LIFO) method comprised approximately 28% and 12%
of consolidated inventories at December 31, 2000 and 1999, respectively.
Inventories at Spinnaker Coating, 71% and 80% of inventories at December 31,
2000 and 1999, respectively, are valued using the specific identification
method. The balance of inventories are valued using the first-in-first-out
(FIFO) method.
December 31,
2000 1999
-------------------------
(In Thousands)
Raw materials and supplies $10,172 $10,407
Work in progress ......... 2,796 2,114
Finished goods ........... 22,171 19,159
------- -------
Total .................. $35,139 $31,680
======= =======
Current cost exceeded the LIFO value of inventories by $966,000 and $829,000 at
December 31, 2000 and 1999, respectively.
6. Notes Payable and Long-term Debt
Long-term debt consists of (all interest rates are at December 31, 2000):
December 31,
2000 1999
------------ ------------
(In Thousands)
Spinnaker Industries, Inc. 10.75% Senior
Secured Notes due 2006 ............... $ 51,135 $ 108,585
Spinnaker subordinated note at a fixed
interest rate of 14% due 2003 ......... 9,172 7,000
Other .................................. 2,419 2,816
--------- ---------
62,726 118,401
Current maturities ..................... (1,376) (1,636)
--------- ---------
$ 61,350 $ 116,765
========= =========
On October 23, 1996, Spinnaker completed the issuance of $115,000,000 of 10.75%
senior-secured debt due 2006. The debt proceeds were used to extinguish
substantially all existing bank debt, bridge loans and lines of credit at
Spinnaker and its two major operating subsidiaries, Central Products and
Spinnaker Coating. Financing costs were incurred by Spinnaker in conjunction
with the issuance of the 10.75% senior secured notes and other financing
activities. These financing costs are deferred and amortized over the term of
the related debt. Unamortized financing costs of $2.2 million and $5.4 million
at December 31, 2000 and 1999, respectively, are included in other assets.
The notes are redeemable, in whole or in part, at the option of Spinnaker on or
after October 15, 2001, at redemption prices beginning at 105.375% of the
principal amount declining to 100% of the principal amount on October 15, 2005,
plus accrued and unpaid interest. The notes are unconditionally guaranteed,
jointly and severally, by Spinnaker's subsidiaries, Spinnaker Coating, Inc., and
Entoleter, Inc.
During the first half of 2000, Spinnaker utilized certain restricted proceeds as
defined by the indenture from the sale of its industrial tape segment to
purchase approximately $63.9 million (par value) of outstanding Senior Notes on
the open market at an average price of 82.9%, plus accrued and unpaid interest.
The restricted proceeds were fully utilized for the Senior Note purchases and
capital expenditures, and all obligations under the Indenture were satisfied
relating to the use of sale proceeds. The purchase of the Senior Notes resulted
in an extraordinary gain, net of applicable taxes and minority interests, of
approximately $2.2 million, for the difference between par value and the
discounted purchase price offset by the write-off of applicable deferred
financing fees associated with the issuance of the original Senior Notes. 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.
In conjunction with Spinnaker's acquisition of Coating - Maine, Spinnaker issued
a Note to the Seller with a balance at December 31, 2000 of $9.2 million
including payment-in-kind ("PIK") interest of $2.2 million. Subsequent to
December 31, 2000, this note was amended to have the maturity date extended to
January 31, 2003 and interest to accrue at a rate of 14% commencing 2001.
Additionally, at the option of the holder, the note is convertible to shares of
Spinnaker's common stock on a basis of 250 shares per $1,000 principal amount of
the note (or $4 per share). The note and remaining unpaid interest will mature
on January 31, 2003.
On a consolidated basis, at December 31, 2000, Lynch maintains short-term and
long-term line of credit facilities totaling $48.7 million (subject to
limitations that reduce the availability to $36.1 million), of which $5.8
million was available for future borrowings. Spinnaker Industries, Inc.
maintains lines of credit at its subsidiaries which in the aggregate total $40.0
million (subject to limitations that reduce the availability to $30.4 million),
of which $4.0 million was available at December 31, 2000. These facilities, as
well as facilities at other subsidiaries of Lynch, generally limit the credit
available under the lines of credit to certain variables, such as inventories
and receivables, and are secured by the operating assets of the subsidiary, and
include various financial covenants. At December 31, 2000, $ 8.7 million of
these total facilities expire within one year. The weighted average interest
rate for short-term borrowings at December 31, 2000 and 1999 was 9.5% and 8.05%,
respectively. The Company pays fees ranging from 0% to 0.375% on its unused
lines of credit. In January 2001, Lynch Systems entered into a $4.0 million line
of credit agreement with a bank for working capital purposes. Also in January of
2001, M-tron amended its line of credit agreement with its bank to increase the
line from $3.7 million to $6.0 million.
In general, the long-term debt facilities are secured by substantially all of
the borrowing entity's property, land and equipment, inventory, receivables and
common stock of certain of its subsidiaries and contain certain covenants
restricting distributions to Lynch. At December 31, 2000, and 1999,
substantially all the subsidiaries' net assets are restricted.
Cash payments for interest were $10.4 million, $10.3 million and $6.7 million
for the years ended December 31, 2000, 1999 and 1998, respectively.
Aggregate principal maturities of long-term debt for each of the next five years
are as follows: 2001 ---- $1.4 million; 2002 -- $.5 million; 2003 -- $ 9.7
million; 2004 -- $0 million and 2005 -- $0 million.
7. Minority Interests and Related Party Transactions
Pursuant to a subscription agreement entered into on March 11, 2000, the Company
sold 100,000 shares of its Common Stock to Mario J. Gabelli, Chairman of the
Company for $30 per share, in cash, or $3 million in total, which represented 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 available for
general corporate purposes, including possible acquisitions. The sale was
ratified by the shareholders of the Company at its Annual Meeting held on May
11, 2000.
In order to assist the Lynch President, Mr. Guzzetti, in purchasing the
Corporation's stock in the open market, the Corporation loaned Mr. Guzzetti
$309,500 on June 5, 2000 and $61,000 on September 20, 2000. The loans bear
interest at 6% per annum (with accrued interest of $11,656 at December 31, 2000)
and are payable when Mr. Guzzetti ceases to be an employee of the Company or a
subsidiary. To assist the Corporation in funding said loans, Mr. Gabelli loaned
the Corporation $371,000 at an initial interest rate of 7.5% per annum adjusted
prospectively on each interest payment date to two points below the prime rate,
which loan is payable upon demand.
On July 31, 1998, Spinnaker completed the acquisition of the electrical tape
division of tesa tape, inc. (see Note 2). A portion of the purchase price was
200,000 newly issued shares of Spinnaker Class A common stock (subject to
certain adjustments). In accordance with the Company's policy, as a result of
this issuance, the Company recorded a pre-tax gain on the sale of subsidiary
stock of $2.1 million in 1998.
On June 13, 1994, Spinnaker entered into a management agreement with Boyle,
Fleming & Co., Inc. ("BF"), of which a former Director of the Company is a
principal, to assume the management of Spinnaker. Effective August 31, 1996, the
Management Agreement was terminated at which time Messrs. Boyle and Fleming
became employees of Spinnaker. Spinnaker and BF also entered into a Warrant
Purchase Agreement in 1994, pursuant to which BF received warrants to purchase
common stock of Spinnaker (equating to a 20% ownership of Spinnaker at that
time) at any time on or before June 30, 2000, subject to certain restrictions.
The remaining warrants were exercised in January 1998.
In October 1996, Spinnaker acquired all of the approximately 25% minority
interest in its Spinnaker Coating subsidiary held by such subsidiary's other
shareholders. The terms of the acquisition involved a cash payment of
approximately $2.3 million and the issuance of 9,613 shares of Common Stock. As
additional consideration for he shares of capital stock of Spinnaker Coating,
the minority shareholders received the right to a contingent payment
("Contingent Value Rights") or "CVR's"). On May 4, 2000, Spinnaker Electrical
Tape, a Spinnaker subsidiary, acquired all of the CVR's held by the former
minority ownership group of Spinnaker Coating for $500,000 in cash. Accordingly,
the contingent payment was recorded as an addition to goodwill during the second
quarter of 2000.
8. Restructuring Charge
Spinnaker recognized certain restructuring charges, primarily affiliated with
its Spinnaker Coating and Spinnaker Coating - Maine businesses, in 2000 of
approximately $2.7 million. To better concentrate on Coating's strengths and
market niche, a decision was made by Spinnaker's management to reorganize and
realign the business in the fourth quarter of 2000 and going forward in 2001.
The restructuring involved the elimination of non-pressure sensitive product
lines, outsourcing of non-core manufacturing processes and termination of seven
salaried employees, primarily senior management. As part of this restructuring,
certain machinery and equipment was written down to net realizable value. The
restructuring charge was composed of the following:
Total 2000 Balance at
Charge Activity December 31, 2000
--------------------------------------
Machinery and equipment write-down $ 1,115 $(1,115) $ --
Severance and other costs ........ 1,593 (468) 1,125
------- ------- -------
Total restructuring charge ....... $ 2,708 $(1,583) $ 1,125
======= ======= =======
Spinnaker expects to incur additional restructuring charges in 2001 as
management continues to further evaluate and improve upon Coating's business
strategies.
9. Stock Option Plans
Spinnaker has two plans under which stock options for the purchase of common
shares can be granted., The Spinnaker Directors' Stock Option Plan (Directors'
Plan) provides for the granting of options to directors who are not employees of
Spinnaker. All options were granted at an option price equal to the fair market
value of a share on the date of grant. The options vest over three years with
33% of the options becoming exercisable one year after grant date and the
remaining 66% becoming exercisable two years after grant date. The options
expire at the earlier of five years after grant date or 30 days after the
individual ceases to be a director. All outstanding options issued under the
Directors' Plan enable the director to purchase one share each of Spinnaker
Class A Common Stock and Spinnaker Common Stock.
The Spinnaker Stock Incentive Plan provides for the granting of options for the
purchase of Spinnaker Class A Common Stock to key employees of Spinnaker.
Options awarded under the plan may not be granted at an option price less than
the fair market value of a share on the date the option is granted, and the
maximum term of an option may not exceed ten years. All options currently
granted under the plan are exercisable one year after the date of the grant.
Information regarding Spinnaker's stock option plans for the years ended
December 31, 2000, 1999 and 1998 is as follows:
Number of Weighted Average
Shares . Exercise Price
Outstanding
------ -------
Balance at January 1, 1998 .............. 80,000 $ 36.75
Granted ............................... -- --
Exercised ............................. -- --
Cancelled ............................. -- --
------- ------
Balance at December 31, 1998 ............ 80,000 $ 36.75
Granted ............................... 52,000 13.38
Exercised ............................. -- --
Cancelled ............................. (40,000) $ 33.50
------- ------
Balance at December 31, 1999 ............ 92,000 $ 24.95
Granted ............................... 8,000 $ 9.06
Exercised ............................. -- --
Cancelled ............................. (18,000) $ 20.94
------- ------
Balance at December 31, 2000 ............ 82,000 $ 21.53
====== ======
Options Outstanding Options Exercisable
Weighted
Rang of Remaining Weighted-Average Weighted-Average
Exercise Prices Number Contractual Life Exercise Price Number Exercise Price
$900 to $14.00 52,000 3.8 years $ 12.71 14,669 $ 13.375
$27.00 to $40.00 30,000 0.2 years $ 35.67 30,000 $ 35,670
------ ---------- ---------- ---------
82,000 $ 21.53 44,669 $ 28.350
====== ========== ========== =========
Spinnaker has elected to adopt the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and continues to apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
related to Spinnaker's stock option plans. For purposes of pro forma disclosure
required by SFAS No. 12, the estimated fair value of the options is amortized to
expense over the options' vesting period.
The pro forma effect on Lynch's 2000, 1999 and 1998 operations is as follows (in
thousands, except for per share amounts):
As reported: ...... 2000 1999 1998
----- ----- -----
Net income (loss) . $(3,438) $(1,583) $3,357
Per share:
Basic ......... $(2.31) $(1.12) $ 2.37
Diluted ....... (2.31) (1.12) 2.37
Pro forma:
Net income (loss) $(3,464) $(2,832) $3,326
Per share:
Basic ......... $(2.32) $(2.00)$ 2.35
Diluted ....... (2.32) (2.00) 2.35
The fair value of each option grant was estimated as of the grant date using the
Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
----- ----- ----
Expected volatility ............. 50.00% 50.00% 50.00%
Dividend yield .................. 0.00% 0.00% 0.00%
Expected life of options in years 3.00 3.00 3.00
Risk-free interest rates ........ 6.00% 6.09% 5.58%
Option valuation models, such as the Black-Scholes model, were developed for use
in estimating the fair value of traded options, which have no vesting
restrictions and are freely transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because Spinnaker's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, existing models do not provide a reliable single measure of the fair
value of its stock options.
10. Shareholders' Equity
The Board of Directors has authorized the purchase of up to 400,000 shares of
Common Stock. Through December 31, 2000, 238,991 shares had been purchased at an
average cost of $14.88 per share.
On February 1, 1996, the Company adopted a plan to provide a portion of the
compensation for its directors in common shares of the Company. The amount of
common stock is based upon the market price at the end of the previous year.
Through December 31, 2000, 4,126 shares have been awarded under this program.
On February 29, 1996, the Company adopted a Stock Appreciation Rights program
for certain employees. As of the third quarter of 1999, 43,000 of Stock
Appreciation Rights ("SAR") had been granted at prices ranging from $63 to $85
per share (pre spin off prices). Upon the exercise of a SAR, the holder is
entitled to receive an amount in cash equal to the amount by which the market
value of the Company's common stock on the exercise date exceeds the grant price
of the SAR. Effective September 30, 1998, the Company amended the SAR Program so
that the SAR's became exercisable only if the market price for the Company's
shares exceeds 200% of the SAR exercise price within five years from original
grant date. This amendment eliminated the recording of the profit and loss
effect of the SAR's for changes in the market price in the Company's common
stock until it becomes probable that the SAR's will become exercisable. The net
income (expense) relating to this program, prior to the time of the amendment,
was $185,000 in income in 1998.
Subsequent to the spin off of Interactive in 1999, the Company, with the
concurrence of the holders of all outstanding SAR units, terminated its SAR
program for corporate management, including all outstanding units, thus
eliminating possible future profit and loss and cash flow distortions associated
with the program. As a result of the termination, the Company recorded
approximately $700,000 of related corporate expense in the fourth quarter of
1999.
11. Income Taxes
The Company files consolidated federal income tax returns which include all
subsidiaries including Interactive through the date of the spin off, but
excluding Spinnaker for all periods.
Deferred income taxes for 2000 and 1999 are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities. Cumulative temporary differences and
carryforwards at December 31, 2000 and 1999 are as follows:
December 31, 2000 December 31, 1999
----------------------------------------
Deferred Tax Deferred Tax
(In Thousands) Asset Liability Asset Liability
----------------------------------------
Inventory reserve ............................ $ 465 $ -- $ 1,493 $ --
Fixed assets written up under Purchase
accounting and tax over book depreciation .. -- 5,249 -- 6,782
Basis difference in subsidiary and affiliate
Stock.......................................... -- 1,105 -- 1,105
Net operating losses of Subsidiaries .......... 6,027 -- 850 --
Other reserves and accruals ................... 4,268 -- 6,600 --
Other ......................................... -- 398 -- (1,662)
-------- -------- -------- --------
Total deferred income taxes ................... 10,760 $ 6,752 8,943 $ 6,225
Valuation allowance ........................... (3,136) -- -- --
-------- ======= -------- =========
$ 7,624 $ 8,943
======== ========
At December 31, 2000, Spinnaker has federal and state net operating loss
carry-forwards of approximately $14.6 million and $13.0 million for income tax
purposes, respectively. The carry-forwards are available to offset future
taxable income and expire in years 2008 through 2020. Credits of $742,000 with
an indefinite life are also available to offset future taxable income. For
financial reporting purposes, a valuation allowance of $3.1 million has been
recognized to offset the deferred tax assets related to those carry-forwards.
The provision (benefit) for income taxes from continuing operations is
summarized as follows:
(In Thousands) 2000 1999 1998
----------------------------
Current:
Federal ....... $ 136 $ (158) $ 2,048
State and local -- -- 921
------- ------- -------
136 (158) 2,969
------- ------- -------
Deferred:
Federal ....... (2,731) (2,386) (3,435)
State and local (198) -- (942)
------- ------- -------
(2,929) (2,386) (4,377)
------- ------- -------
$(2,793) $(2,544) $(1,408)
======= ======= =======
A reconciliation of the provision (benefit) for income taxes from continuing
operations and the amount computed by applying the statutory federal income tax
rate to income before income taxes, minority interest and extraordinary item:
(In Thousands) 2000 1999 1998
--------------------------------
Tax (benefit) at statutory rate ....................... $(6,028) $(3,211) $ (757)
State and local taxes, net of federal benefit ......... (130) -- (288)
Amortization of goodwill .............................. 111 60 81
Operating losses of subsidiaries ...................... -- 164 (546)
Provision for contingencies ........................... -- 338 --
Foreign Sales Corporation ............................. (199) -- --
Valuation allowance for Spinnaker's deferred tax assets 3,136 -- --
Other ................................................. 317 105 102
------- ------- -------
$(2,793) $(2,544) $(1,408)
======= ======= =======
Loss before income taxes from foreign operations was $726,000 in 2000, $582,000
in 1999 and -0- in 1998.
Income tax payments were $1.3 million, $1.2 million and $.3 million for the
years 2000, 1999 and 1998, respectively.
12. Comprehensive Income
The components of accumulated other comprehensive income, net of related tax, at
December 31, 2000, 1999 and 1998 are as follows:
(In Thousands) 2000 1999 1998
-----------------------
Balance beginning of year ................... $(40) $ 59 $--
Foreign currency translation ................ (31) (40) --
Distribution to Lynch Interactive Corporation -- (59) --
Current year unrealized gains on
available-for-sale securities ............. -- -- 59
---- ---- ----
Accumulated other comprehensive income ...... $(71) $(40) $ 59
==== ==== ====
13. Employee Benefit Plans
The Company, through its operating subsidiaries, has several and various
employee retirement type plans including defined benefit, defined contribution,
multi-employer, profit sharing, and 401 (k) plans. The following table sets
forth the consolidated expenses for these plans (dollars in thousands):
(In Thousands) 2000 1999 1998
--------------------
Defined contributions $373 $561 $643
Defined benefit ..... 98 166 150
Multi-employer ...... 88 121 80
---- ---- ----
Total ............... $559 $848 $873
==== ==== ====
2000 2000 1999 1999 1998 1998
--------------------------------------------------------
Union Non-Union Union Non-Union Union Non-Union
--------------------------------------------------------
Service Cost - benefits earned during the
period ..................................... $ 85 $ 105 $ 105 $ 137 $ 69 $ 100
Interest cost on projected benefit obligation 28 52 21 51 11 50
Expected return on assets ................... (24) (29) (6) (9) -- --
Recognized (gains) or losses ................ (1) (33) 1 (13) -- --
----- ----- ----- ----- ----- -----
Net periodic pension cost ................... $ 88 $ 95 $ 121 $ 166 $ 80 $ 150
===== ===== ===== ===== ===== =====
The foregoing measurement of net periodic pension cost is based on the following
assumptions:
Weighted-average discount rate ............... 8.00% 8.00% 8.00% 8.00% 7.50% 7.50%
Weighted-average rate of compensation increase N/A 4.00% N/A 4.00 %N/A 4.00%
Weighted-average expected long-term rate of
return on plan assets ........................ 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
2000 2000 1999 1999
-------------------------------------------
Union Non-Union Union Non-Union
--------------------------------------------
Benefit obligation at beginning of year ..... $ 370 $ 763 $ 288 $ 1,081
Service cost - benefits earned during the ... 85 105 106 137
period
Interest cost on projected benefit obligation 28 52 21 51
Actuarial (gains) losses .................... (18) (106) (44) (504)
Benefits paid ............................... (3) (9) (1) (2)
------- ------- ------- -------
Ibligation at end of year ................... $ 462 $ 805 $ 370 $ 763
------- ------- ------- -------
2000 2000 1999 1999
--------------------------------------
Union Non-Union Union Non-Union
--------------------------------------
Plan assets at beginning of year $ 198 $ 282 $-- $--
Actual return on assets ........ (30) (31) 9 12
Contributions by employer ...... 189 146 190 272
Benefits paid .................. (3) (9) (1) (2)
----- ----- ----- -----
Plan assets at end of year ..... $ 354 $ 388 $ 198 $ 282
===== ===== ===== =====
The following table sets forth the union and non-union plans' funded status as
of December 31, 2000 and 1999:
2000 2000 1999 1999
----------------------------------------
Union Non-Union Union Non-Union
----------------------------------------
Funded status ....................... $(109) $(418) $(173) $(481)
Unrecognized actuarial (gains) losses 12 (410) (25) (398)
----- ----- ----- -----
Net amount recognized ............... $ (97) $(828) $(198) $(879)
----- ----- ----- -----
Spinnaker Coating has a defined contribution plan that covers substantially all
of its employees. Under the plan, Spinnaker Coating can match, at its
discretion, up to 50% of employee contributions not exceeding 8% of the
employee's compensation. Amounts contributed to the plan by Spinnaker Coating
vest 20% per year for five years. Spinnaker Coating recorded expense for its
contributions under the plan of approximately $335,000, $542,000, and $559,000
in 2000, 1999 and 1998, respectively.
Entoleter
Entoleter has a defined-benefit pension plan for all salaried and full-time
hourly employees. Benefits for the plan are based on compensation and years of
service with Entoleter. Entoleter's funding policy is to contribute funds
necessary to meet future benefit obligations.
Net periodic pension cost for the year ended December 31, 2000, 1999 and 1998
included the following components:
2000 1999 1998
----------------------------
Service cost - benefits earned during the period ... $ 30 $ 30 $ 35
Interest cost on projected benefit obligation ...... 84 78 78
Expected return on plan assets ..................... (104) (102) (106)
Net amortization and deferral ...................... (8) (8) (8)
----- ----- -----
Net periodic pension cost .......................... $ 2 $ (2) $ (1)
===== ===== =====
The foregoing measurement of net periodic
pension cost is based on the following assumptions:
Weighted-average discount rate ..................... 8.00% 8.00% 7.00%
Weighted-average rate of compensation increase ..... 4.00% 4.00% 4.00%
Weighted-average expected long-term rate of
return on plan assets ........................... 8.00% 8.00% 8.00%
The following table sets forth the benefit obligation as of December 31, 2000
and 1999:
2000 1999
------- -------
Benefit obligation at beginning of year ........ $ 1,090 $ 1,177
Service cost - benefits earned during the period 30 30
Interest cost on projected benefit obligation .. 85 78
Contributions by employees ..................... 2 1
Actuarial (gains) losses ....................... 13 (130)
Benefits paid .................................. (91) (66)
------- -------
Benefit obligation at end of year .............. $ 1,129 $ 1,090
======= =======
The following table sets forth the fair value of plan assets as of December 31,
2000 and 1999:
2000 1999
------------------
Plan assets at beginning of year $ 1,316 $ 1,305
Actual return on plan assets ... 25 76
Contributions by employees ..... 1 1
Benefits paid .................. (91) (66)
------- -------
Plan assets at end of year ..... $ 1,251 $ 1,316
======= =======
The following table sets forth the plan's funded status as of December 31, 2000
and 1999:
2000 1999
------- -------
Funded status ........................ $ 122 $ 225
Unrecognized actuarial (gain) or loss 49 (44)
Unrecognized net (asset) or obligation (8) (16)
----- -----
Net amount recognized ................ $ 163 $ 165
===== =====
14. Commitments and Contingencies
In the normal course of business subsidiaries of the Company are defendants in
certain product liability, worker claims and other litigation in which the
amounts being sought may exceed insurance coverage levels. The resolution of
these matters is not expected to have a material effect on the Company's
financial condition or operations.
Future minimum rental payments under long-term non-cancelable operating leases
are as follows at December 31, 2000 (in thousands):
2001 $ 272
2002 271
2003 300
2004 295
2005 233
Thereafter 220
-----
$1,591
======
Rent expense under operating leases was $1,213,000, $1,222,000 and $952,000 for
the years ended December 31, 2000, 1999 and 1998, respectively. The Company
leases certain property and equipment, including warehousing and sales and
distribution equipment, under operating leases that extend from one to ten
years. Certain of these leases have renewal options and escalation provisions.
The Company is party to a lease for its corporate office for an annual payment
of approximately $30,000 with an affiliate of its Chairman.
15. Segment Information
The Company has two reportable business segments. The larger of the two is the
manufacture and sale of adhesive backed label stock for labels and related
applications by Spinnaker. The other reportable segment is M-tron's manufacture
and sale of frequency control devices (quartz crystals and oscillators). The
Company is also engaged in the manufacture and sale of glass forming equipment
by Lynch Systems, impact milling and other equipment, and these results are
combined and reported as Other Manufacturing. Each of the businesses is located
domestically, and export sales (primarily Canada and China) were approximately
$54.7 million in 2000, $31.5 million in 1999 and $33.4 million in 1998. For the
years ended December 31, 2000, 1999 and 1998 one customer accounted for $19.5
million, $18.3 million and $17.7 million, respectively, of the adhesive-backed
label stock segment's net sales. For the year ended December 31, 2000, one
customer accounted for $13.8 million of the other manufacturing segment's net
sales. The Company considers concentrations of credit risk to be minimal due to
its diverse customer base.
M-tron attempts to utilize standard parts and components that are available from
multiple vendors located in the United States or internationally; however, some
components used in its products are available from only a limited number of
sources.
EBITDA (before corporate allocation) for operating segments is equal to
operating profit before 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 generally accepted accounting principles.
Operating profit (loss) is equal to revenues less operating expenses, excluding
unallocated general corporate expenses, interest and income taxes. The Company
allocates a portion of its general corporate expenses to its operating segments.
Such allocation was $300,000 per year during the years ended December 31, 2000,
1999 and 1998, respectively. Identifiable assets of each industry segment are
the assets used by the segment in its operations excluding general corporate
assets. General corporate assets are principally cash and cash equivalents,
short-term investments and certain other investments and receivables.
Years ended December 31
2000 1999 1998
---------------------------------
Revenues
Adhesive-backed label stock ......................... $ 150,136 $ 155,112 $ 151,561
Frequency control devices ........................... 39,855 26,484 22,798
Other manufacturing ................................. 29,205 12,626 13,285
--------- --------- ---------
Consolidated total .................................. $ 219,196 $ 194,222 $ 187,644
========= ========= =========
EBITDA (before corporation allocation)
Adhesive-backed label stock ......................... $ 99 $ 8,889 $ 12,010
Frequency control devices ........................... 4,054 2,640 2,073
Other manufacturing ................................. 3,679 (1,188) (1,411)
Corporate manufacturing expenses .................... (1,973) (2,681) (2,903)
--------- --------- ---------
Total manufacturing ................................. 5,859 7,660 9,769
Corporate expenses, gross ........................... (1,451) (1,452) (530)
Restructuring charge - Spinnaker .................... (1,650) -- --
--------- --------- ---------
Consolidated total .................................. $ 2,758 $ 6,208 $ 9,239
========= ========= =========
Operating Profit
Adhesive-backed label stock ......................... $ (5,137) $ 4,155 $ 8,104
Frequency control devices ........................... 3,345 1,800 1,428
Other manufacturing ................................. 3,147 (1,821) (1,922)
Corporate manufacturing expenses .................... (1,873) (2,894) (3,006)
--------- --------- ---------
Total manufacturing ................................. (518) 1,240 4,604
Unallocated corporate expense ....................... (1,751) (1,155) (530)
Restructuring charge - Spinnaker .................... (2,708) -- --
--------- --------- ---------
Consolidated Total .................................. $ (4,977) $ 85 $ 4,074
========= ========= =========
Depreciation and Amortization
Adhesive-backed label stock ......................... $ 5,236 $ 4,785 $ 3,906
Frequency control devices ........................... 809 740 645
Other manufacturing ................................. 632 528 511
Corporate manufacturing expenses .................... 1,058 967 874
--------- --------- ---------
Consolidated Total .................................. $ 7,735 $ 7,020 $ 5,936
========= ========= =========
Capital expenditures
Adhesive-backed label stock ......................... $ 2,631 $ 2,625 $ 2,219
Frequency control devices ........................... 1,476 804 878
Other manufacturing ................................. 216 366 200
--------- --------- ---------
Consolidated Total .................................. $ 4,323 $ 3,795 $ 3,297
========= ========= =========
Total Assets
Adhesive-backed label stock ......................... $ 116,746 $ 105,674 $ 105,759
Frequency control devices ........................... 18,210 10,940 8,898
Other manufacturing ................................. 20,193 86,699 19,688
Discontinued Operations:
Lynch Interactive ................................ -- -- 228,342
Industrial tape business ......................... -- -- 110,256
General Corporate ................................... 7,671 7,879 7,353
--------- --------- ---------
Consolidated Total .................................. $ 162,820 $ 211,192 $ 480,000
========= ========= =========
Total operating profit for reportable segments ...... ($ 4,977) $ 85 $ 4,074
Other profit or loss:
Investment income ................................. 1,481 2,354 199
Interest expense .................................. (11,432) (11,882) (8,591)
Impairment of Spinnaker's investment in warrants .. (2,800) -- --
Gain on sales of subsidiary stock ................. -- -- 2,090
--------- --------- ---------
Income (loss) from continuing operations before
income taxes, minority interests and extraordinary
items ............................................ ($ 17,728) $ (9,443) $ (2,228)
========= ========= =========
16. Quarterly Results of Operations (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999 (in thousands, except per share amounts):
2000 Three Months Ended
-----------------------------------------------
Mar.31(a) June 30(a) Sep. 30 Dec. 31(b)
-----------------------------------------------
Sales and revenues ....................... $ 52,474 $ 53,008 $ 56,192 $ 57,522
Gross profit ............................. 6,147 7,560 8,266 4,243
Operating profit (loss) .................. (142) 1,532 508 (6,875)
Income (loss) from continuing
operations before extraordinary item .. (758) 140 226 (5,291)
Net income (loss) ........................ 496 1,131 226 (5,291)
Basic and diluted earnings (loss) per
share:
Income (loss) from continuing
operations before extraordinary item .. (.53) 0.09 0.15 (3.50)
Net income (loss) .................... .35 0.75 0.15 (3.50)
1999 Three Months Ended
-----------------------------------------------
Mar.31(c) June 30 Sep. 30 (d) Dec. 31 (d)
-----------------------------------------------
Sales and revenues .................... $ 46,411 $ 47,363 $ 51,070 $ 49,378
Operating profit (loss) ............... (312) 701 1,013 (1,317)
Income (loss) from continuing
operations before extraordinary item .. (975) (500) (617) (2,160)
Net income (loss) ..................... (10,991) 427 7,892 1,089
Basic and diluted earnings (loss) per
share:
Income (loss) from continuing
operations before extraordinary item (0.69) (0.35) (0.44) (1.53)
Net income (loss) .................. (7.75) 0.30 5.59 (.77)
NOTE:
a) Includes gain on early extinguishments of debt of $2.2 million
after income taxes and minority interests.
b) Includes restructuring charge of approximately $2.2 million,
deferred tax asset valuation allowance of $3.1 million and
investment write-down of $2.8 million all at Spinnaker.
c) Includes write down of PCS licenses of $15.4 million of
Lynch Interactive Corporation
d) Includes gain on sale of Industrial Tape Segment of
Spinnaker of $10.4 million after income taxes, and
minority interest.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LYNCH CORPORATION
CONDENSED BALANCE SHEET
(In Thousands)
ASSETS
2000 1999
------------------
CURRENT ASSETS
Cash and Cash Equivalents ....................... $ 1,928 $ 1,154
Marketable Securities and Short Term Investments -- 24
Dividend Receivable From Subsidiary ............ 1,500 --
Deferred Income Tax Benefits ................... 412 412
Other Current Assets ........................... 980 81
------- -------
4,820 1,671
OFFICE EQUIPMENT (Net Depreciation) ............... 16 --
OTHER ASSETS ...................................... 16,682 16,643
------- -------
TOTAL ASSETS ...................................... $21,518 $18,314
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES ............................... $ 2,303 $ 2,110
LONG TERM LIABILITIES ............................. 158 213
TOTAL SHAREHOLDERS' EQUITY ........................ 19,057 $15,991
------- -------
Total Liabilities and Shareholders' Equity ........ $21,518 $18,314
======= =======
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LYNCH CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(In Thousands) Year Ended December 31
2000 1999 1998
----------------------------
Interest, Dividends & Gains on Sale of Marketable Securities $ 187 $ 17 $ 128
Dividend from Subsidiary ................................... 1,500 -- --
Interest & Other Income from Subsidiaries .................. 348 23 35
------- ------- -------
TOTAL INCOME ............................................... $ 2,035 40 163
Costs & Expenses:
Unallocated Corporate Administrative Expense ............... 1,451 1,155 1,371
Interest Expense ........................................... 15 7 1,394
Interest Expense to Subsidiaries ........................... -- 23 830
------- ------- -------
TOTAL COST AND EXPENSE ..................................... 1,466 1,185 3,595
------- ------- -------
LOSS BEFORE INCOME TAXES, AND EQUITY IN
NET INCOME (LOSS) OF SUBSIDIARIES ......................... (569) (1,145) (3,432)
Income Tax Benefit ......................................... 215 321 1,648
Equity in Net Income (Loss) of Subsidiaries ................ (1,049) (759) 5,141
------- ------- -------
NET INCOME (LOSS) .......................................... $(1,403) ($1,583) $ 3,357
======= ======= =======
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LYNCH CORPORATION
CONDENSED STATEMENTS OF CASH FLOW
(In Thousands)
Year Ended December 31
-----------------------------
2000 1999 1998
-----------------------------
Cash provided from (used in) Operating Activities $(2,210) $ 405 $ 1,049
======== ======== ========
INVESTING ACTIVITIES:
Investment in Lynch Manufacturing ............... -- 981 3,000
Investment in and advances to PCS Partnerships .. -- -- 3,692
Other ........................................... -- -- (176)
------- ------- -------
NET CASH PROVIDED FROM (USED IN) INVESTING
ACTIVITIES ................................... -- 981 6,516
------- ------- -------
FINANCING ACTIVITIES:
Net Borrowings .................................. -- -- (7,564)
Lines of Credit ................................. -- -- --
(Purchase) - Sale of Treasury Stock ............. 1,191 (523) --
Issuance of Common Stock ........................ 1,809 -- --
Other ........................................... (16) -- --
NET CASH (USED IN) PROVIDED FROM FINANCING ------- ------- -------
ACTIVITIES ................................... 2,984 (523) (7,564)
------- ------- -------
TOTAL INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................. 774 863 1
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR ...................................... 1,154 291 290
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........ $ 1,928 $ 1,154 $ 291
======= ======= =======
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
In the parent company's financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of the
subsidiaries.
NOTE B - SPIN OFF OF LYNCH INTERACTIVE CORPORATION
On August 12, 1999, the Board of directors approved a plan to distribute the
stock of Lynch Interactive Corporation on a one for one basis to the
shareholders of Lynch Corporation ("spin off"). Lynch completed the spin off of
Lynch Interactive Corporation ("Interactive") 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 common 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".
NOTE C - DIVIDENDS FROM SUBSIDIARIES
Dividends paid to Lynch Corporation from the Registrant's consolidated
subsidiaries were $1,500,000 in 2000, $0 in 1999 and $3,060,000 in 1998. No
other dividends were received from subsidiaries or investees.
NOTE D - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR ADDITIONAL INFORMATION.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
LYNCH CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
--------------- ---------------------- ------------------ ----------------- --------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS BALANCE AT
BALANCE AT ADDITIONS CHARGED TO END OF PERIOD
BEGINNING CHARGED TO COSTS AND OTHER ACCOUNTS
OF PERIOD EXPENSES DESCRIBE DEDUCTIONS
DESCRIPTION DESCRIBE (B)
YEAR ENDED DECEMBER 31, 2000
ALLOWANCE FOR UNCOLLECTIBLE $361,000 $1,312,000 $ 0 $ 91,000 $1,582,000
YEAR ENDED DECEMBER 31, 1999
ALLOWANCE FOR UNCOLLECTIBLE $ 395,000 $ 81,000 $ 0 $115,000 $361,000
YEAR ENDED DECEMBER 31, 1998 $910,000 (A)
ALLOWANCE FOR UNCOLLECTIBLE $1,448,000 $723,000 $ 0 $866,000 $395,000
(A) ALLOCATION OF VALUATION ACCOUNT TO SEGMENTS SOLD OR SPUN OFF
(B) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF ARE NET OF RECOVERIES
Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LYNCH CORPORATION
By:s/LOUIS A. GUZZETTI
- ----------------------------------------
LOUIS A. GUZZETTI
Chief Executive Officer (Principal
Executive Officer)
March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
>
*MARIE J. GABELLI Chairman of the board of Directors and
- -----------------
MARIO J. GABELLI Director March 30, 2001
*ANTHONY T. CASTOR, III Vice Chairman of the Board and Director March 30, 2001
- -----------------------
ANTHONY T. CASTOR, III
S/LOUIS A. GUZZETTI, JR. Principal Executive Officer and Director March 30, 2001
- ------------------------
LOUIS A. GUZZETTI, JR.
*E. VAL CERUTTI Director March 30, 2001
- ---------------
E. VAL CERUTTI
*AVRUM GRAY Director March 30, 2001
- -----------
AVRUM GRAY
*RALPH R. PAPITTO Director March 30, 2001
- -----------------
RALPH R. PAPITTO
*ROBERT E. DOLAN Director March 30, 2001
- ----------------
ROBERT E. DOLAN
S/ROGER J. DEXTER Principal Financial and Accounting Officer March 30, 2001
- -----------------
ROGER J. DEXTER
By:s/ROGER J. DEXTER Attorney in fact
- --------------------
ROGER J. DEXTER
EXHIBIT INDEX
Exhibit No. Description
3 (a) Restated Articles of Incorporation of Registrant (incorporated by
reference to Exhibit 3(a) of the registrant's Annual Report on Form 10-K
for the year ended December 31, 1987).
(b) By-laws of the Registrant, (incorporated by reference to the Exhibit
3(b) of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
4 (a) Purchase Agreement, dated October 18, 1996 (the "Purchase
Agreement")among Spinnaker Industries, Inc., a Delaware corporation
("Spinnaker"), Brown-Bridge Industries, Inc., a Delaware corporation
("Brown-Bridge"), Central Products Company, a Delaware corporation
("Central Products"), and Entoleter, Inc., ("Entoleter") and together with
Brown-Bridge and Central Products, (the "Guarantors") and BT Securities
Corporation (the "Initial Purchaser") (incorporated by reference to Exhibit
4.1 to Registrant's Form 8-K, dated October 23, 1996).
(b) Indenture dated, October 23, 1996, among Spinnaker, the Guarantors and
the Chase Manhattan Bank, as Trustee (incorporated by reference to
Exhibit 4.3 to Registrant's Form 8-K, dated April 19, 1996).
(b)(i) First Supplemental Indenture dates as of March 17, 1998, among
Spinnaker Industries, Inc., Central Products Company, Entoleter, Inc.
Spinnaker Coating, Inc., Spinnaker Coating-Maine, Inc. and the Chase
Manhattan Bank, as Trustee (incorporated by reference by Exhibit 99.6
to the Form 8-K of Spinnaker Industries, Inc. dated as of March 17,
1998.)
(c) Credit Agreement (the "Spinnaker Credit Agreement") amended as of
December 31, 1997, among Central Products Company, Brown-Bridge
Industries, Inc. and Entoleter, Inc. as Borrowers, Spinnaker
Industries, Inc. as Guarantor, each of the financial institutions
listed on Schedule 1 thereto, BT Commercial Corporation, as Agent,
Transamerican Business Credit Corporation, as Collateral Agent, and
Bankers Trust Company as Issuing Bank (incorporated by reference to
Exhibit 99.1 to Registrant's Form 8-K dated October 23, 1996).
(c)(i) Fourth Amendment to the Spinnaker Credit Agreement (incorporated by
reference to Exhibit 9.3 to the Form 8-K of Spinnaker Industries, Inc.
dated as of March 17, 1998).
(c)(ii) Fifth Amendment to Spinnaker Credit Agreement (incorporated by
reference to Exhibit 9.4 to the Form 8-K of Spinnaker Industries, Inc.
dated as of March 17, 1998).
(c)(iii) Sixth Amendment to the Spinnaker Credit Agreement (incorporated by
reference by Exhibit 9.5 to the Form 8-K of Spinnaker Industries, Inc.
dated as of March 17, 1998).
(d) Refinanced Credit Agreement among Spinnaker Coating, Inc., Spinnaker
Coating-Maine, Inc. and Entoleter, Inc. as Borrowers, Spinnaker
Industries, Inc. as Guarantor, each of the financial institutions
listed as Schedule 1 hereto and Transamerica Business Corporation, as
Agent, dated August 9, 1999 and the First, Second and Third Amendments
thereto (incorporated by reference to Exhibits 10.5, 10.6, 10.7 and
10.8 to Spinnaker's Form 10-K for the year ended December 31, 1999).
(d)(i) Fourth Amendment to financed Credit Agreement dated April 17, 2000
(incorporated by reference to Exhibit 10.1 to Spinnaker's Form 10-Q
for the quarter ended March 31, 2000).
(d)(ii) Fifth Amendment to Refinanced Credit Agreement dated September 30,
2000 (incorporated by reference to Exhibit 10.1 to Spinnaker's Form
10-Q for the quarter ended September 30, 2000).
(d)(iv) Sixth Amendment to Refinanced Credit Agreement dated March 2001
(incorporated by reference to Exhibit 10.16 to Spinnaker's Form 10-K
for the year ended December 31, 2001).
The Registrant, by signing this Form 10-K Annual Report, agrees to furnish to
the Securities and Exchange Commission a copy of any long-term debt instrument
where the amount of the securities authorized thereunder does not exceed 10
percent of the total assets of the Registrant on a consolidated basis.
10 *(a) Lynch Corporation 401(k) Savings Plan.
(b) Acquisition Agreement between Brown-Bridge Acquisition Corporation and
`Kimberly-Clark Corporation, dated June 15, 1994 (exhibit omitted)
(incorporated by reference to Exhibit 10(c) to Registrant's Form 10-Q
for the quarter ended June 10, 1994).+
*(c) Management Agreement, dated as of June 10, 1994, by and among Boyle,
Fleming, George & Co., Inc. and Safety Railway Service Corporation
(incorporated by reference by Exhibit 7.1 to the Registrant's Form
8-K, dated June 13, 1994).
(d) Subscription Agreement dated March 9, 2000 between Registrant and
Mario J. Gabelli (incorporated by reference to Exhibit E to Amendment
No. 41 to Schedule 13D of Registrant dated March 15, 2000 filed by
Mario J. Gabelli et. al.).
(e) Warrant Purchase Agreement dated as of June 10, 1994, by and among
Boyle, Fleming, George & Co., Inc. and Safety Railway Service
Corporation (incorporated by reference by Exhibit 7.1 t the
Registrant's Form 8-K, dated June 13, 1994).
(f) A Warrant, dated as of June 10, 1994, executed by Safety Railway
Service Corporation (incorporated by reference to Exhibit 7.1 to
Registrant's Form 8-K, dated June 12, 1994).
(g) Asset Purchase Agreement, dated as of June 15, 1994, between
Kimberly-Clark Corporation and Brown-Bridge Acquisition Corp.
(Exhibits omitted) (incorporated by reference to Exhibit 10(c) to
Registrant's Form 10-Q for the quarter ended June 30, 1994).+
(h) Stock Purchase and Loan Program (incorporated by reference to Exhibit
10(p) to Registrant's Form 10-K for the year ended December 31, 1994).
(i) Shareholders' and Voting Agreement, dated September 16, 1994, among
Safety Railway Service Corporation, Brown-Bridge Industries, Inc. and
the other stockholders of Brown-Bridge (incorporated by reference to
Exhibit 10(q) to Registrant's Form 10-K for the year ended December
31, 1994).
(j) Put Option Agreement, dated September 16, 1994, among Safety Railway
Service Corporation, Brown-Bridge Industries, Inc. and certain
stockholders of Brown-Bridge (incorporated by reference to Exhibit
10(q) to Registrant's Form 10-K for the year ended December 31, 1994).
(k) Directors Stock Plan
(l) Amended Phantom Stock Plan (incorporated by reference to Exhibit 10(p)
to Registrant's Form 10-Q for the year ended September 30, 1998).
(m) Stock and Asset Purchase Agreement, dated as of September 27, 1995, by
and among Central Products Acquisition Corp. Unisource Worldwide, Inc.
and Alco Standard Corporation (incorporated by reference to Exhibit
7.1 to Registrant's Form 8-K, dated October 18, 1885).+
(n) Agreement and Plan of Merger (Brown-Bridge Minority Interest), by and
among Spinnaker Industries, Inc., BB Merger Corp., Brown-Bridge
Industries, Inc. and the stockholder of Brown-Bridge Industries, Inc.
on Exhibit A thereto (incorporated by reference to Exhibit 99.2 to
Registrant's Form 8-K, dated April 19, 1996).+
(o) Lease Agreement between Registrant and Gabelli Funds, Inc.
(incorporated by reference to Exhibit 10(a)(a) to Registrant's Form
10-Q for the Quarter Ended March 31, 1998).
(p) Asset Purchase Agreement, dated as of November 18, 1997, by and
between S.D. Warren Company ("Seller") and Spinnaker Industries, Inc.
(incorporated by reference to Exhibit 2.1 to the Form 8-K of Spinnaker
Industries, Inc., dated as of March 17, 1998).
(p)(i) First Amendment to Asset Purchase Agreement, dated March 17, 1998,
by and between S. D. Warren Company and Spinnaker Industries, Inc.
(incorporated by reference by Exhibit 4.2 to the Form 8-K of Spinnaker
Industries, Inc., dated as of March 17, 1998).+
(p)(ii) Subordinated Note, dated March 17, 1998, issued by Spinnaker
Industries, Inc. to S.D. Warren Company in the original principal
amount of $7 million bearing interest at a rate of 20% per annum
(incorporated by reference to Exhibit 4.1 to the Form 8-K of Spinnaker
Industries, Inc., dated as of March 17,k 1998).
(p)(iii) Site Separation and Service Agreement , dated March 17, 1998,
between S.D. Warren Company and Spinnaker Industries, Inc.
(incorporated by reference by Exhibit 99.1 t the Form 8-K of Spinnaker
Industries, Inc., dated March 17, 1998).
(p)(iv) Lease Agreement, dated March 17, 1998, between S.D. Warren Company
and Spinnaker Industries, Inc. (incorporated by reference by Exhibit
99.2 to the Form 8-K of Spinnaker Industries, Inc., dated as of March
17, 1998.)
(q) Stock Purchase Agreement between Spinnaker Industries, Inc. and
Intertape Polymer Group, Inc., dated April 9, 2000 (incorporated by
reference to Exhibit 2.1 to Spinnaker Industries, Inc. Form 8-K, dated
August 16, 2000).
(r) Asset Purchase Agreement by and among Registrant, Spinnaker Electrical
Tape Company and Intertape Polymer Group, Inc., dated April 9, 2000
(incorporated by reference to Exhibit 2.2 to Spinnaker Industries,
Inc. Form 8-K, dated August 16, 2000.
(s) Information Statement of Lynch Interactive Corporation's (incorporated
by reference to Exhibit 99.1 to Lynch Interactive Corporation's Form
10-A-1, dated August 18, 2000).
(t) Separation Agreement, dated as of August 31, 2000, between Registrant
and Lynch Interactive Corporation (incorporated by reference to
Exhibit 2 to Lynch Interactive Corporation's Form 10a-1, dated August
18, 2000).
*(u) Letter of Understanding between Registrant and Louis A. Guzzetti.
(Incorporated by reference to Exhibit (u) to Registrant's Form 10-K
for the year ended December 31, 1999).
(v) Note from Louis A. Guzzetti, Jr. to Registrant ++
16 Letter Re: Change in Certifying Accountant (incorporated by reference to
Exhibit 16 to Registrant's Form 8-K, dated March 19, 1996).
21 Subsidiaries of the Registrant. ++
23 Consent of Ernst & Young ++
24 Powers of Attorney ++
*Management contract or compensatory arrangement.
+ Registrant agrees to furnish a supplemental copy of any omitted schedule to
the Securities and Exchange Commission upon request.
++ Filed herewith
The Exhibits listed above have been filed separately with the Securities and
Exchange Commission in conjunction with this Annual Report on Form 10-K or
have been incorporated by reference into this Annual Report on Form 10-K.
Lynch Corporation will furnish to each of its shareholders a copy of any such
Exhibit for a fee equal to Lynch Corporation's cost in furnishing such
Exhibit. Requests should be addressed to the Office of the Secretary, Lynch
Corporation, 401 Theodore Fremd Avenue, Rye, New York 10580.