SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
--------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-15097
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LYNCH INTERACTIVE CORPORATION
-----------------------------
(Exact name of Registrant as specified in its charter)
Delaware 06-1458056
-------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Theodore Fremd Avenue, Rye, New York 10580
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(914) 921-8821
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Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practical date.
Class Outstanding at May 14, 2003
----- ---------------------------
Common Stock, $.0001 par value 2,787,551
INDEX
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets:
- March 31, 2003
- December 31, 2002
- March 31, 2002
Condensed Consolidated Statements of Operations:
- Three months ended March 31, 2003 and 2002
Condensed Consolidated Statements of Cash Flows:
- Three months ended March 31, 2003 and 2002
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31, December 31, March 31,
2003 2002 2002
----------- ------------ ----------
(Unaudited) (Note) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 25,744 $ 23,356 $ 35,337
Receivables, less allowances of $303,
$316 and $483, respectively ........................... 8,700 8,916 9,767
Material and supplies ................................... 3,470 3,351 3,453
Prepaid expenses and other current assets ............... 1,583 1,451 2,406
--------- --------- ---------
TOTAL CURRENT ASSETS ...................................... 39,497 37,074 50,963
PROPERTY, PLANT AND EQUIPMENT:
Land .................................................... 833 807 840
Buildings and improvements .............................. 12,908 12,741 10,858
Machinery and equipment ................................. 198,772 195,015 184,401
--------- --------- ---------
212,513 208,563 196,099
Accumulated Depreciation ................................ (92,744) (88,201) (78,434)
--------- --------- ---------
119,769 120,362 117,665
GOODWILL, NET ............................................. 60,884 60,884 61,566
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES ........ 9,491 9,343 13,785
OTHER ASSETS .............................................. 18,579 17,684 14,095
--------- --------- ---------
TOTAL ASSETS .............................................. $ 248,220 $ 245,347 $ 258,074
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks .................................. $ 10,639 $ 12,882 $ 9,804
Trade accounts payable .................................. 3,462 1,638 480
Accrued interest payable ................................ 362 384 1,690
Accrued liabilities ..................................... 13,917 16,682 19,007
Current maturities of long-term debt ..................... 18,474 18,272 21,154
--------- --------- ---------
TOTAL CURRENT LIABILITIES .............................. 46,854 49,858 52,135
LONG-TERM DEBT ......................................... 162,898 158,349 167,638
DEFERRED INCOME TAXES .................................. 6,573 6,621 8,117
OTHER LIABILITIES ...................................... 690 736 843
MINORITY INTERESTS ..................................... 7,228 7,151 6,752
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
COMMON STOCK, $0.0001 PAR VALUE-10,000,000
SHARES AUTHORIZED; 2,824,766 ISSUED; 2,790,651,
2,792,651 and 2,814,151 outstanding .................. -- -- --
ADDITIONAL PAID-IN CAPITAL .............................. 21,456 21,406 21,406
RETAINED EARNINGS ....................................... 3,292 1,879 720
ACCUMULATED OTHER COMPREHENSIVE INCOME .................. 467 534 946
TREASURY STOCK, 34,115, 32,115 and 10,615 shares, at cost (1,238) (1,187) (483)
--------- --------- ---------
TOTAL SHAREHOLDER'S EQUITY .............................. 23,977 22,632 22,589
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $ 248,220 $ 245,347 $ 258,074
========= ========= =========
Note: The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by accounting principles generally accepted in the Untied
States for complete financial statements.
See accompanying notes.
1
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share and share amounts)
Three Months Ended
March 31,
------------------------
2003 2002
------------------------
SALES AND REVENUES ................................................................... $ 21,303 $ 20,974
COSTS AND EXPENSES:
Operations, exclusive of depreciation and amortization ............................... 10,844 10,227
Depreciation and amortization ........................................................ 4,915 4,811
Selling and administrative ........................................................... 770 692
----------- -----------
OPERATING PROFIT ..................................................................... 4,774 5,244
Combined total ----------- -----------
Other income (expense):
Investment income ................................................................. 558 997
Interest expense .................................................................. (3,026) (3,373)
Equity in earnings of affiliated companies ........................................ 260 204
Gains on sales of subsidiary stock ................................................ -- 4,965
----------- -----------
(2,208) 2,793
----------- -----------
INCOME BEFORE INCOME TAXES, MINORITY INTERESTS AND OPERATIONS
OF MORGAN GROUP HOLDING CO. DISTRIBUTED TO SHAREHOLDERS
2,566 8,037
Provision for income taxes ........................................................... (1,076) (3,132)
Minority Interests ................................................................... (77) (632)
----------- -----------
INCOME FROM CONTINUING OPERATIONS ................................................... 1,413 4,273
Loss from operations of Morgan Group Holding Co. distributed
to shareholders, net of income taxes of $-, and minority
interests of $868 .................................................................... -- (1,888)
----------- -----------
NET INCOME ........................................................................... $ 1,413 $ 2,385
=========== ===========
Basic weighted average shares outstanding ............................................ 2,791,000 2,818,000
Diluted weighted average shares outstanding .......................................... 2,791,000 3,053,000
BASIC EARNINGS PER SHARE
INCOME FROM CONTINUING OPERATIONS ................................................... $ 0.51 $ 1.52
Loss from operations of Morgan Group Holding Co. .....................................
distributed to shareholders ........................................................ -- (0.67)
----------- -----------
NET INCOME ........................................................................... $ 0.51 $ 0.85
========== ===========
DILUTED EARNINGS PER SHARE
INCOME FROM CONTINUING OPERATIONS .................................................... $ 0.51 $ 1.45
Loss from operations of Morgan Group Holding Co. distributed
to shareholders....................................................................... -- (0.62)
------------ -----------
NET INCOME ........................................................................... $ 0.51 $ 0.83
=========== ===========
See accompanying notes.
2
LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
March 31,
--------- --------
2003 2002
--------- --------
OPERATING ACTIVITIES
Net Income ................................................... $ 1,413 $ 2,385
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 4,915 4,811
Equity in earnings of affiliated companies ................ (260) (204)
Minority interests ........................................ 77 632
Stock option expense ...................................... 50 --
Gain on sale of cellular partnership ...................... -- (4,965)
Non-cash items and assets and operating liabilities....
from operations of Morgan Group Holding Co. ............. -- 1,888
distributed to shareholders
Changes in operating assets and liabilities:
Receivables .......................................... 216 270
Accounts payable and accrued liabilities ............. (1,039) 2,911
Other ................................................ (251) (752)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................... 5,121 6,976
-------- --------
INVESTING ACTIVITIES
Capital expenditures ......................................... (4,229) (3,371)
Investment in and advances to affiliated entities ............ (34) (476)
Proceeds from sale of available for sale securities .......... -- 345
Proceeds from sale of cellular partnership ................... -- 5,570
Other ........................................................ (927) 254
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES ......................................... (5,190) 2,322
-------- --------
FINANCING ACTIVITIES
Issuance of long term debt ................................... 7,773 603
Repayments of long term debt ................................. (3,022) (5,035)
Net repayments on lines of credit ............................ (2,243) (532)
Treasury stock transactions .................................. (51) (252)
Other ........................................................ -- 22
-------- --------
NET CASH PROVIDED BY (USED IN) ............................... 2,457 (5,194)
FINANCING ACTIVITIES
-------- --------
Net increase in cash and cash equivalents .................... 2,388 4,104
Cash and cash equivalents at beginning of period ............. 23,356 31,233
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................... $ 25,744 $ 35,337
======== ========
3
See accompanying notes.
LYNCH INTERACTIVE CORPORATION & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Subsidiaries of the Registrant
As of March 31, 2003, the Subsidiaries of the Registrant are as follows:
Subsidiary Owned by Lynch
Brighton Communications Corporation ............ 100.0%
Lynch Telephone Corporation IV ............... 100.0%
Bretton Woods Telephone Company ............ 100.0%
World Surfer, Inc. ......................... 100.0%
Lynch Broadband Corporation .................. 100.0%
Lynch Telephone Corporation VI ............... 98.0%
JBN Telephone Company, Inc. ................ 98.0%
JBN Finance Corporation .................. 98.0%
CLR Video, L.L.C ......................... 98.0%
Giant Communications, Inc. ................. 100.0%
Lynch Telephone Corporation VII ............ 100.0%
USTC Kansas, Inc. ........................ 100.0%
Haviland Telephone Company, Inc. ........ 100.0%
Haviland Finance Corporation ........... 100.0%
DFT Communications Corporation ............... 100.0%
DFT Telephone Holding Company, L.L.C ...... 100.0%
Dunkirk & Fredonia Telephone Company ....... 100.0%
Cassadaga Telephone Company .............. 100.0%
Macom, Inc. ............................ 100.0%
Comantel, Inc. ........................... 100.0%
Erie Shore Communications, Inc. ........ 100.0%
D&F Cellular Telephone, Inc. ........... 100.0%
DFT Long Distance Corporation .............. 100.0%
DFT Local Service Corporation .............. 100.0%
DFT Security Services, Inc. ................ 100.0%
LMT Holding Corporation ...................... 100.0%
Lynch Michigan Telephone Holding Corporation 100.0%
Upper Peninsula Telephone Company ...... 100.0%
Alpha Enterprises Limited .............. 100.0%
Upper Peninsula Cellular North, Inc. . 100.0%
Upper Peninsula Cellular South, Inc. . 100.0%
Lynch Telephone Corporation IX ............... 100.0%
Central Scott Telephone Company ............ 100.0%
CST Communications Inc. ................ 100.0%
Global Television, Inc. ...................... 100.0%
Inter-Community Acquisition Corporation ...... 100.0%
Lynch Telephone Corporation X ................ 100.0%
Central Utah Telephone, Inc. .............. 100.0%
Central Telecom Services, LLC ............. 100.0%
Cache Valley Wireless, LC .............. 100.0%
4
Subsidiary Owned by Lynch
Lynch Entertainment, LLC ................. 100.0%
Lynch Entertainment Corporation II ....... 100.0%
Lynch Multimedia Corporation ............. 100.0%
Lynch Paging Corporation ................. 100.0%
Lynch PCS Communications Corporation ....... 100.0%
Lynch PCS Corporation A .................. 100.0%
Lynch PCS Corporation F .................. 100.0%
Lynch PCS Corporation G .................. 100.0%
Lynch PCS Corporation H .................. 100.0%
Lynch 3G Communications Corporation......... 100.0%
Lynch Telephone Corporation ................ 83.1%
Western New Mexico Telephone Company, Inc. 83.1%
Interactive Networks Corporation ......... 83.1%
WNM Communications Corporation ........... 83.1%
WNM Interactive, L.L.C ................... 83.1%
Wescel Cellular, Inc. .................... 83.1%
Wescel Cellular of New Mexico, L.P. .... 42.4%
Wescel Cellular, Inc. II ................. 83.1%
Enchantment Cable Corporation ........ 83.1%
Lynch Telephone II, LLC .................... 100.0%
Inter-Community Telephone Company, LLC ... 100.0%
Valley Communications, Inc. .............. 100.0%
Lynch Telephone Corporation III ............ 81.0%
Cuba City Telephone Exchange Company ..... 81.0%
Belmont Telephone Company ................ 81.0%
5
B. Basis of Presentation
The Company consolidates the operating results of its telephone and cable
television subsidiaries (81-100% owned at March 31, 2003, December 31, 2002 and
March 31, 2002). All material intercompany transactions and balances have been
eliminated. Investments in affiliates in which the Company does not have a
majority voting control are accounted for in accordance with the equity method.
The Company accounts for the following affiliated companies on the equity basis
of accounting: Coronet Communications Company (20% owned at March 31, 2003 and
December 31, 2002), Capital Communications Company, Inc. (49% owned at March 31,
2003, December 31, 2002 and March 31, 2002) and the cellular partnership
operations in New Mexico (17% to 21% owned at March 31, 2003, December 31, 2002
and March 31, 2002).
On January 24, 2002, Interactive spun off its interest in The Morgan Group, Inc.
("Morgan"), its only services subsidiary, via a tax-free dividend to its
shareholders of the stock of Morgan Group Holding Co., a corporation that was
formed to serve as a holding company for Interactive's controlling interest in
Morgan. Morgan Group Holding Co. is now a public company. Accordingly, the
amounts for Morgan are reflected on a one-line basis in the condensed
consolidated financial statements for the three months ended March 31, 2002, as
amounts "distributed to shareholders."
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Articles 10 and 11 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. 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 effect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
As noted, in footnote H, in the first quarter of 2003, the Company issued stock
options to its President and Chief Operating Officer. The Company has elected to
account for these options under the provisions of FASB Statement No. 123
"Accounting and Disclosure of Stock-Based Compensation" and FASB Statement No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123." Under the provisions of these two
statements stock options are valued at fair value on the date of the grant and
such amount is amortized as an expense over the vesting period.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
obligations." This standard provides accounting guidance for legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction or development and (or) normal operation of that
asset. According to the standard, the fair value of an asset retirement
obligation (ARO liability) should be recognized in the period in which (1) a
legal obligation to retire a long-lived asset exists and (2) the fair value of
the obligation based on retirement cost and settlement date is reasonably
estimable. Upon initial recognition of the ARO liability, the related asset
retirement cost should be capitalized by increasing the carrying amount of the
related long-lived asset. The Company adopted SFAS No. 143 on January 1, 2003.
Although the Company generally has had no legal obligation to remove assets,
depreciation rates of certain assets established by regulatory authorities for
the Company's telephone operations subject to SFAS No. 71 have historically
included a component for removal costs in excess of the related estimated
salvage value. Under SFAS No. 71 the Company is not permitted to remove this
accumulated liability for removal costs in excess of salvage value even though
there is no legal obligation to remove the assets. For the Company's operations
not subject to SFAS No. 71 the Company has not accrued a liability for
anticipated removal costs in the past and will continue to expense the costs of
removal as incurred since there is no legal obligation to remove such assets.
Accordingly, the adoption of SFAS No. 143 had no impact on the Company's
financial statements.
6
Certain 2002 amounts have been reclassified to conform to the 2003 presentation.
C. Intangibles
The application of the non-amortization provisions of Statement No. 142,
Goodwill and Other Intangible Assets, has increased net income in the first
quarter of 2003 by approximately $0.6 million ($0.22 per basic share) and the
first quarter of 2002 by $0.7 million ($0.24 per basic share).
The following tables display the details of goodwill and intangible assets as of
the dates shown.
March 31, December 31, March 31,
2003 2002 2002
---------- ------------ ---------
Unaudited Unaudited
---------- ------------ ---------
(000s)
Intangible assets subject to amortization:
Subscriber lists ........................... $ 7,777 $ 7,284 $ 3,195
Accumulated amortization ................... (2,642) (2,370) (961)
-------- -------- --------
$ 5,135 $ 4,914 $ 2,234
======== ======== ========
Amortization expense for three months ended .. $ 148 $ 406
Intangible assets not subject for amortization
Goodwill ................................... $ 60,884 $ 60,884 $ 59,916
Cellular Licenses .......................... 1,650 1,650 1,650
Estimated aggregate amortization expense by year for Intangible assets subject
to amortization:
(000's)
-------
2003 $552
2004 $552
2005 $547
2006 $547
2007 $547
D. Acquisitions and Dispositions
In March 2002, the Company sold its 20.8% interest in the New Mexico cellular
partnership, RSA #1B, to Verizon Wireless for $5.6 million ($5 million pre-tax
gain) and repaid $2.6 million of outstanding indebtedness to Verizon.
E. Spin-off of Morgan
On January 24, 2002, Interactive spun off its interest in The Morgan Group,
Inc., its only services subsidiary, via a tax-free dividend to its shareholders
of the stock of Morgan Group Holding Co., a corporation that was formed to serve
as a holding company for Interactive's controlling interest in The Morgan Group,
Inc. Morgan Group Holding Co. is now a public company.
7
F. Investments in Affiliated Companies
Interactive has equity investments in both broadcasting and telecommunications
companies.
Summarized financial information for companies accounted for by the equity
method as of and for the three months ended March 31, 2003 and 2002 and as of
December 31, 2002 is as follows:
Broadcasting Combined Information
March 31, December 31, March 31,
--------- ------------ ---------
2003 2002 2002
--------- ------------ ---------
Current assets ................................. $ 5,666 $ 6,181 $ 5,424
Property, plant & equipment, intangibles & other 10,514 11,260 13,339
-------- -------- --------
Total assets ................................... $ 16,180 $ 17,441 $ 18,763
======== ======== ========
Current liabilities ............................ $ 3,356 $ 3,790 $ 4,367
Long term liabilities .......................... 17,456 18,069 19,826
Equity ......................................... (4,632) (4,418) (5,430)
-------- -------- --------
Total liabilities & equity ..................... $ 16,180 $ 17,441 $ 18,763
======== ======== ========
Three months ended
Revenues ....................................... $ 2,838 $ 2,623
Gross profit ................................... 673 683
Net loss ....................................... (205) (224)
At March 31, 2003 and December 31, 2002, the Company's investment in Coronet
Communications Company ("Coronet") was carried at a negative $821,000 and a
negative $791,000, respectively, due to the Company's guarantee of $3.8 million
of Coronet's third party debt. Long-term debt of Coronet, at March 31, 2003,
totaled $10.5 million due to a third party lender which is due quarterly through
December 31, 2005.
Telecommunications Combined Information
March 31, December 31, March 31,
--------- ------------ ---------
2003 2002 2002
--------- ------------ ----------
Current assets ................................. $ 9,194 $14,102 $12,888
Property, plant & equipment, intangibles & other 28,501 27,849 25,894
------- ------- -------
Total assets ................................... $37,695 $41,951 $38,782
======= ======= =======
Current liabilities ............................ $ 5,556 $ 9,211 $ 8,661
Long term liabilities .......................... 12,089 11,869 15,838
Equity ......................................... 20,050 20,871 14,283
------- ------- -------
Total liabilities & equity ..................... $37,695 $41,951 $38,782
======= ======= =======
Three months ended
Revenues ....................................... $10,411 $ 9,833
Gross profit ................................... 3,428 2,559
Net income ..................................... 2,501 1,914
8
G. Indebtedness
The parent company maintains a short-term line of credit facility totaling $10.0
million. Borrowings under this facility were $7.5 million and $10.0 million at
March 31, 2003 and December 31, 2002, respectively. This facility will expire on
August 31, 2003. Long-term debt consists of (all interest rates are at March 31,
2003):
March 31, March 31,
2003 December 31, 2002
(Unaudited) 2002 (Unaudited)
-------------- ------------- -----------
(In thousands)
Rural Electrification Administration (REA) and Rural Telephone
Bank (RTB) notes payable through 2027 at fixed interest rates
ranging from 2% to 7.5%. (5% weighted average, secured by
assets of the telephone companies of $152.8 million)....... $ 58,800 $ 58,119 $ 55,305
Bank Credit facilities utilized by certain telephone and
telephone holding companies through 2016, $29.7 million at
fixed interest rates averaging 7.9% and $54.9 million at
variable interest rates averaging 4.3% ....................... 84,556 80,166 85,667
Unsecured notes issued in connection with acquisitions
through 2006, at fixed interest rates of 10.0% ................ 34,690 34,749 34,454
Convertible note due in December 2007 at a fixed interest
rate of 10% ................................................... -- -- 10,000
Other ......................................................... 3,326 3,587 3,366
--------- -------- --------
181,372 176,621 188,792
Current maturities ............................................ (18,474) (18,272) (21,154)
--------- -------- --------
$ 162,898 $ 158,349 $ 167,638
========= ========= =========
H. Stock Options
The Company has a stock option plan which calls for 83,000 options to be issued,
a maximum option term of ten years and vesting at the discretion of the Option
Committee.
On February 10, 2003, the Company issued stock options to its newly hired
President and Chief Operating Officer, covering 55,000 shares. The exercise
prices are as follows: 20,000 at $26.06 (market price at date of grant), 20,000
at $36.06 and 15,000 at $46.06. These options vest at one year, three years and
four years from February 10, 2003 and expire on February 10, 2008. The estimated
fair value of these options at the date of grant was $650,000, using the
Black-Scholes Option Pricing model with the following assumptions: risk free
interest rate of 3%, dividend yield of 0% and volatility factor of the estimated
market price of the Company's common stock of .582 and an expected life of the
options of five years. $50,000 of expense was recognized in the first quarter of
2003 for these options - $30,000 net of tax. No options were exercised or
forfeited during the quarter.
9
I. Comprehensive Income
Balances of accumulated other comprehensive income, net of tax, which consists
of unrealized gains (losses) on available for sale of securities, at March 31,
2003, December 31, 2002 and March 31, 2002 are as follows (in thousands):
Unrealized
Gain (Loss) Tax Effect Net
Balance at December 31, 2002 ... $ 915 $ (381) $ 534
Current period unrealized losses (115) 48 (67)
------- ------- -------
Balance at March 31, 2003 .... $ 800 $ (333) $ 467
======= ======= =======
Balance at March 31, 2002 .... 1,605 (659) 946
Comprehensive income, for the three month periods ended March 31, 2003 and 2002
are as follows (in thousands):
Three Months Ended
March 31,
---------------------------------
2003 2002
---------------------------------
Net income for the period ............................................ $ 1,413 $ 2,385
Reclassification adjustment-net of income tax benefit of $-- and $126 -- (196)
Unrealized losses on available for sale securities - net of income tax
benefit as of $48 and $272 respectively .............................. (67) (400)
------- -------
Comprehensive income ............................................... $ 1,346 $ 1,789
======= =======
J. Earnings per share
The following table set forth the computation of basic and diluted earnings per
share for the periods indicated: During the three months ended March 31, 2003,
the Company purchased 2,000 shares of its common stock for treasury. Subsequent
to March 31, 2003, the Company acquired an additional 1,000 shares at an average
cost of $20.43 per share. Stock options outstanding have excluded from the
earnings per share computation because their inclusion would have been
anti-dilutive.
10
Three Months Ended
March 31,
2003 2002
---------- ----------
Basic earnings per share
Numerator:
Net Income ........................... $1,413,000 $2,385,000
Denominator:
Weighted average shares outstanding .. 2,791,000 2,818,000
---------- ----------
Earnings per share:
Net income ........................... $ 0.51 $ 0.85
========== ==========
Diluted earnings per share
Numerator:
Net Income ............................ $1,413,000 $2,385,000
Interest saved on assumed conversion of
convertible notes - net of tax .... -- 161,000
---------- ----------
Net Income ............................ $1,413,000 $2,546,000
---------- ----------
Denominator:
Weighted average shares outstanding .. 2,791,000 2,818,000
Shares issued on assumed conversion of
convertible note .................. -- 235,000
---------- ----------
Weighted average shares and share
Equivalents ....................... 2,791,000 3,053,000
---------- ----------
Earnings per share:
Net Income ........................... $ 0.51 $ 0.83
========== ==========
K. Segment Information
The Company is engaged in one business segment: multimedia. All operating units
are located domestically, and substantially all revenues are domestic. The
Company's operations include local telephone companies, a cable TV company,
investment in PCS entities and investment in two network-affiliated television
stations. The Company's primary operations are located in the states of Iowa,
Kansas, Michigan, New Hampshire, New Mexico, New York, North Dakota, Utah and
Wisconsin. 75% of the Company's telephone customers are residential. The
remaining customers are businesses.
EBITDA (before corporate allocation) for operating segments is equal to
operating profit before interest, taxes, depreciation, amortization and
allocated corporate expenses. EBITDA is presented because it is a widely
accepted financial indicator of value and ability to incur and service debt.
Management uses EBITDA to evaluate the operating performance of the Company's
operations. EBITDA is not a substitute for operating income or cash flows from
operating activities in accordance with accounting principles generally accepted
in the United States.
Operating profit is equal to revenues less operating expenses, including
unallocated general corporate expenses and excluding, interest and income taxes.
The Registrant allocates a portion of its general corporate expenses to its
operating segment. Such allocation was $333,000 and $327,000 for the three
months ended March 31, 2003 and 2002, respectively.
11
Three Months Ended
March 31,
2003 2002
-------- --------
Sales and revenues: ......................................................... $ 21,303 $ 20,974
======== ========
EBITDA (before corporate allocation):
Operations ................................................................ $ 10,457 $ 10,743
Corporate expenses, gross ................................................. (768) (687)
-------- --------
Combined total ........................................................... $ 9,689 $ 10,056
======== ========
Operating profit:
Operations ................................................................ $ 5,211 $ 5,609
Corporate expenses, net ................................................... (437) (365)
-------- --------
Combined total ........................................................... $ 4,774 $ 5,244
======== ========
Operating profit ............................................................ $ 4,774 $ 5,244
Other income (expense):
Gain on sale of cellular partnership ...................................... -- 4,965
Investment income ......................................................... 558 997
Interest expense .......................................................... (3,026) (3,373)
Equity in earnings of affiliated companies ................................ 260 204
-------- --------
Income before income taxes, minority interests and operations of Morgan Group
Holding Co. .................................................................
distributed to shareholders ................................................. $ 2,566 $ 8,037
======== ========
L. Litigation
Interactive and several other parties, including our Chief Executive Officer,
and Fortunet Communications, L.P., which was Sunshine PCS Corporation's
predecessor-in-interest, have been named as defendants in a lawsuit brought
under the so-called "qui tam" provisions of the federal False Claims Act in the
United States District Court for the District of Columbia. The complaint was
filed under seal with the court on February 14, 2001. At the initiative of one
of the defendants, the seal was lifted on January 11, 2002. Under the False
Claims Act, a private plaintiff, termed a "relator," may file a civil action on
the U.S. government's behalf against another party for violation of the statute.
In return, the relator receives a statutory bounty from the government's
litigation proceeds if he is successful.
The relator in this lawsuit is R.C. Taylor III, an individual who, to the best
of our knowledge, has no relationship to any of the entities and affiliates that
have been named parties in this litigation. Indeed at the time of his filings,
and to the best of our knowledge, Mr. Taylor was a lawyer at Gardner, Carton &
Douglas. Thereafter, we believe he was a lawyer with a Washington, D.C., law
firm. We do not know his current status. We issued a press release dealing with
this litigation on January 16, 2002.
The main allegation in the case is that the defendants participated in the
creation of "sham" bidding entities that allegedly defrauded the federal
Treasury by improperly participating in certain Federal Communications
Commission spectrum auctions restricted to small businesses, as well as
obtaining bidding credits in other spectrum auctions allocated to "small" and
"very small" businesses. The lawsuit seeks to recover an unspecified amount of
damages, which would be subject to mandatory trebling under the statute.
12
Interactive strongly believes that this lawsuit is completely without merit, and
intends to defend the suit vigorously. The U.S. Department of Justice has
notified the court that it has declined to intervene in the case. Nevertheless,
we cannot predict the ultimate outcome of the litigation, nor can we predict the
effect that the lawsuit or its outcome will have on our business or plan of
operation.
Interactive was formally served with the complaint on July 10, 2002. On
September 19, 2002, Interactive filed two motions with the United States
District Court for the District of Columbia: a motion to dismiss the lawsuit and
a motion to transfer the action to the Southern District of New York. On
November 25, 2002, the relator filed an opposition reply to our motion to
dismiss and on December 5, 2002, Interactive filed a reply in support of its
motion to dismiss.
In addition to the litigation described above, Interactive is a party to routine
litigation incidental to its business. Based on information currently available,
Interactive believes that none of this ordinary routine litigation, either
individually or in the aggregate, will have a material effect on its financial
condition and results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sales And Revenues
Revenues for the three months ended March 31, 2003 increased by $0.3 million to
$21.3 million from the first quarter of 2002. Increases in the current quarter
are the result of additional deregulated revenues and increased regulated
telephone revenues from one of the Company's telephone operations that is in the
process of a significant capital upgrade program. Notwithstanding the overall
increase in revenues for the period, lower intrastate revenues were recorded by
certain operations during the first quarter of 2003.
Operating Profit
Operating profit for the three months ended March 31, 2003 decreased by $0.5
million to $4.8 million from the first quarter of 2002 reflecting the above
noted lower intrastate revenues, higher depreciation associated with capital
spending programs, and increased expenses as compared to the previous year. The
Company's security operation in upstate New York recorded less amortization
expense during the first quarter of 2003 as compared to the first quarter of
2002 as it changed the amortization period of customer lists from three to ten
years in the fourth quarter of 2002.
Other Income (Expense)
For the three months ended March 31, 2003 investment income was down by $0.4
million from the same period in the prior year due to lower investment balances
and lower dividends from bank stocks.
During the first quarter of 2002, the Company sold its interest in a cellular
partnership in New Mexico (RSA 1 (North) for $5.6 million resulting in a pre-tax
gain of $5.0 million.
Interest expense decreased by $0.3 million in the first quarter due primarily to
lower variable interest rates.
Income Tax Provision
The income tax provision includes federal as well as state and local taxes. The
tax provision for the three months ended March 31, 2003 and 2002, represent
effective tax rates of 41.9% and 38.9%, respectively. The difference between
these effective rates and the federal statutory rate is principally due to state
income taxes, including the effect of earnings and losses attributable to
different state jurisdictions.
13
Minority Interests
Minority interests decreased earnings by $77,000 for the three months ended
March 31, 2003 as compared to $632,000 for the three months ended March 31, 2002
primarily due to minority interest recorded on the gain from the sale of the
cellular minority interest.
Net Income (Loss)
The Company recorded income from continuing operations for the three months
ended March 31, 2003 of $1.4 million, or $0.51 per share (basic and diluted),
compared to income from continuing operations for the same period last year of
$4.3 million, or $1.52 per basic share and $1.45 per diluted share. The gain
from the sale of the cellular property of $2.5 million or $0.89 per basic share
after tax and minority interest effects was the primary cause for the difference
in income from continuing operations for these periods
Net income for the three months ended March 31, 2003 was $1.4 million, or $0.51
per share (basic and diluted share), as compared to net income of $2.4 million,
or $0.85 per basic share (and $0.83 diluted share), in the same period last
year. Operating losses of Morgan of $1.9 million, or $0.67 per basic share, in
the first quarter of 2002 offset the $2.5 million gain from the sale of the
cellular property.
FINANCIAL CONDITION
Liquidity/ Capital Resources
As of March 31, 2003, the Company had current assets of $39.5 million and
current liabilities of $46.9 million. Working capital deficiency was therefore
$7.4 million as compared to $12.8 million at December 31, 2002. The addition of
$7.7 million of long-term debt was the primary cause of the decrease.
For the three months ended March 31, 2003, capital expenditures were $4.2
million versus $3.4 million for the same period last year.
At March 31, 2003, total debt was $192.0 million, which was $2.5 million higher
than the $189.5 million at the end of 2002. At March 31, 2003, there was $124.4
million of fixed interest rate debt averaging 7.0% and $67.6 million of variable
interest rate debt averaging 4.4%. Debt at year-end 2002 included $124.7 million
of fixed interest rate debt, at an average interest rate of 7.1%, and $64.8
million of variable interest rate debt, at an average interest rate of 4.4%.
As of March 31, 2003, Interactive, the parent company, had $2.5 million
available under a $10 million short-term line of credit facility, which expires
on August 31, 2003. Management currently expects that this line of credit
facility will be renewed but there is no assurance it will be.
Interactive and its predecessor have not paid any cash dividends on its common
stock since 1989. Interactive does not expect to pay cash dividends on its
Common Stock in the foreseeable future. Interactive currently intends to retain
its earnings, if any, for use in its business. Future financings may limit or
prohibit the payment of dividends.
Interactive has a high degree of financial leverage. As of March 31, 2003, the
ratio of total debt to equity was 8.0 to 1. Certain subsidiaries also have high
debt to equity ratios. In addition, the debt at subsidiary companies contains
restrictions on the amount of readily available funds that can be transferred to
the parent company.
14
The Company has a need for resources primarily to fund future long-term growth
objectives. Interactive considers various alternative long-term financing
sources: debt, equity, or sale of an investment asset. While management expects
to obtain adequate financing to enable the Company to meet its obligations,
there is no assurance that such financing will be readily obtained at reasonable
costs.
The Company is obligated under long-term debt and lease agreements to make
certain cash payments over the term of the agreements. The following table
summarizes these contractual obligations for the period shown:
Payments Due by Period
(In thousands)
Less than
Total 1 year (b) 2 - 3 years 4 - 5 years After 5 years
-------- ---------- ----------- ----------- -------------
Long-term Debt (a) ............... $181,372 $ 18,474 $ 39,342 $ 48,358 $ 75,198
Operating Leases ................. 1,306 321 564 321 100
-------- -------- -------- -------- --------
Total Contractual Cash Obligations $182,678 $ 18,795 $ 39,906 $ 48,679 $ 75,298
======== ======== ======== ======== ========
(a) Does not include interest payments on debt
The Company has certain financing commitments from banks and other financial
institutions that provide liquidity. The following table summarizes the
expiration of these commitments for the periods shown:
Amount of Commitment Expiration
Per Period
(In thousands)
Total
Amounts
Committed Less than
Other Commercial Commitments 1 year 1 - 3 years 4 - 5 years Over 5 years
------- ------- ----------- ----------- ------------
Lines of Credit ............ $10,639 $10,639 -- -- --
Guarantees ................. 3,750 3,750 -- -- --
------- ------- ----------- ----------- ------------
Total Commercial Commitments $14,389 $14,389 -- -- --
======= ======= =========== =========== ============
The Company has initiated an effort to monetize certain of its assets, including
selling a portion or all of certain investments and/or certain of its operating
entities. These may include minority interest in network affiliated television
stations and certain telephone operations where growth opportunities are not
readily apparent. There is no assurance that all or any part of this program can
be effectuated on acceptable terms. In March 2002, the Company sold its 20.8%
interest in the New Mexico cellular property, RSA 1 (North), to Verizon Wireless
for $5.6 million and repaid certain outstanding indebtedness to Verizon.
Critical Accounting Policies and Estimates
In the first quarter of 2003, the Company issued stock options to its President
and Chief Operating Officer. The Company has elected to account for these
options under the provisions of FASB Statement No. 123 "Accounting and
Disclosure of Stock-Based Compensation" and FASB Statement No. 148 "Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." Under the provisions of these two statements stock options
are valued at fair value on the date of the grant and such amount is amortized
as an expense over the vesting period.
15
General
Interactive's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
Interactive to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, Interactive evaluates its
estimates, including those related to revenue recognition, carrying value of its
investments in the spectrum entities and long-lived assets, purchase price
allocations, and contingencies and litigation. Interactive bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Interactive believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition
The principal business of Interactive's telephone companies is to provide
telecommunications services. These services fall into four major categories:
local network, network access, long distance and other non-regulated
telecommunications services. Toll service to areas outside franchised telephone
service territory is furnished through switched and special access connections
with intrastate and interstate long distance networks.
Local service revenues are derived from providing local telephone exchange
services. Local service revenues are based on rates filed with various state
telephone regulatory bodies.
Revenues from long distance network services are derived from providing certain
long distance services to the Company's local exchange customers and are based
on rates filed with various state regulatory bodies.
Revenue from intrastate access is generally billed monthly in arrears based on
intrastate access rates filed with various state regulatory bodies. Interactive
recognizes revenue from intrastate access service based on an estimate of the
amounts billed to interexchange carriers in the subsequent month. Estimated
revenues are adjusted monthly as actual revenues become known.
Revenue from interstate access is derived from settlements with the National
Exchange Carrier Association ("NECA"). NECA was created by the FCC to administer
interstate access rates and revenue pooling on behalf of small local exchange
carriers who elect to participate in a pooling environment. Interstate
settlements are determined based on the various subsidiaries' cost of providing
interstate telecommunications service. Interactive recognizes interstate access
revenue based on an estimate of the current year cost of providing service.
Estimated revenue is adjusted to actual upon the completion of cost studies in
the subsequent period.
Other ancillary revenues derived from the provision of directory advertising and
billing and collection services are billed monthly based on rates under
contract.
16
Purchase Price Allocation
Interactive's business development strategy is to expand its existing operations
through internal growth and acquisition. From 1989 through 2002, the Company has
acquired fourteen telephone companies. Significant judgments and estimates are
required to allocate the purchase price of acquisitions to the fair value of
tangible assets acquired and identifiable intangible assets and liabilities
assumed. Any excess purchase price over the above fair values is allocated to
goodwill. Additional judgments and estimates are required to determine if
identified intangible assets have finite or indefinite lives and the period of
their lives.
Depreciation and Amortization
The calculation of depreciation and amortization expense is based on the
estimated economic useful lives of the underlying property, plant and equipment
and intangible assets. Although Interactive believes it is unlikely that any
significant changes to the useful lives of its tangible or intangible assets
will occur in the near term, rapid changes in technology, the discontinuance of
accounting under SFAS No. 71 by the Company's wireline subsidiaries, or changes
in market conditions could result in revisions to such estimates that could
materially affect the carrying value of these assets and the Company's future
consolidated operating results.
Annually, the Company tests goodwill for impairment using the two-step process
prescribed in SFAS No. 142. The first step is a screen for potential impairment,
while the second step measures the amount of impairment, if any. The Company
performed the first of its required annual impairment tests of goodwill and
other indefinite lived intangible assets.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk relating to changes in the general level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned on the Company's cash and cash equivalents ($25.7 million at March 31,
2003 and $23.4 million at December 31, 2002).
The Company generally finances the debt portion of the acquisition of long-term
assets with fixed rate, long-term debt. The Company generally maintains the
majority of its debt as fixed rate in nature either by borrowing on a fixed
long-term basis or, on a limited basis, entering into interest rate swap
agreements. The Company does not use derivative financial instruments for
trading or speculative purposes. Management does not foresee any significant
changes in the strategies used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions dictate.
At March 31, 2003, approximately $67.6 million, or 35%, 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 2003 average interest rate under these
borrowings, it is estimated that the Company's 2003 three-month interest expense
would have changed by less than $0.1 million. In the event of an adverse change
in interest rates, management would likely take actions to further mitigate its
exposure. However, due to the uncertainty of the actions that would be taken and
their possible effects, the analysis assumes no such actions. Further, the
analysis does not consider the effects of the change in the level of overall
economic activity that could exist in such an environment.
17
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our chief executive officer and chief financial officer have
evaluated the effectiveness of the Company's disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of
the Securities Exchange Act of 1934 (the "Act")) as of a date
within 90 days of the filing date of this quarterly report
(Evaluation Date). They have concluded that, as of the Evaluation
Date, the Company's disclosure controls and procedures were
adequate and effective to ensure that information required to be
disclosed by the Company in the reports that if files or submits
under the Act is recorded, processed, summarized and reported,
within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
(b) Changes in internal controls.
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect
these controls subsequent to the Evaluation Date, nor were there
any significant deficiencies or material weaknesses in these
controls requiring corrective actions.
18
FORWARD LOOKING INFORMATION
Included in this Management Discussion and Analysis of Financial Condition and
Results of Operations are certain forward looking financial and other
information, including without limitation, the Company's effort to monetize
certain assets, Liquidity and Capital Resources and Market Risk. It should be
recognized that such information are estimates or forecasts based upon various
assumptions, including the matters, risks, and cautionary statements referred to
therein, 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.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Interactive and several other parties, including our Chief Executive Officer,
and Fortunet Communications, L.P., which was Sunshine PCS Corporation's
predecessor-in-interest, have been named as defendants in a lawsuit brought
under the so-called "qui tam" provisions of the federal False Claims Act in the
United States District Court for the District of Columbia. The complaint was
filed under seal with the court on February 14, 2001. At the initiative of one
of the defendants, the seal was lifted on January 11, 2002. Under the False
Claims Act, a private plaintiff, termed a "relator," may file a civil action on
the U.S. government's behalf against another party for violation of the statute.
In return, the relator receives a statutory bounty from the government's
litigation proceeds if he is successful.
The relator in this lawsuit is R.C. Taylor III, an individual who, to the best
of our knowledge, has no relationship to any of the entities and affiliates that
have been named parties in this litigation. Indeed at the time of his filings,
and to the best of our knowledge, Mr. Taylor was a lawyer at Gardner, Carton &
Douglas. Thereafter, we believe he was a lawyer with a Washington, D.C., law
firm. We do not know his current status. We issued a press release dealing with
this litigation on January 16, 2002.
The main allegation in the case is that the defendants participated in the
creation of "sham" bidding entities that allegedly defrauded the federal
Treasury by improperly participating in certain Federal Communications
Commission spectrum auctions restricted to small businesses, as well as
obtaining bidding credits in other spectrum auctions allocated to "small" and
"very small" businesses. The lawsuit seeks to recover an unspecified amount of
damages, which would be subject to mandatory trebling under the statute.
Interactive strongly believes that this lawsuit is completely without merit, and
intends to defend the suit vigorously. The U.S. Department of Justice has
notified the court that it has declined to intervene in the case. Nevertheless,
we cannot predict the ultimate outcome of the litigation, nor can we predict the
effect that the lawsuit or its outcome will have on our business or plan of
operation.
Interactive was formally served with the complaint on July 10, 2002. On
September 19, 2002, Interactive filed two motions with the United States
District Court for the District of Columbia: a motion to dismiss the lawsuit and
a motion to transfer the action to the Southern District of New York. On
November 25, 2002, the relator filed an opposition reply to our motion to
dismiss and on December 5, 2002, Interactive filed a reply in support of its
motion to dismiss.
In addition to the litigation described above, Interactive is a party to routine
litigation incidental to its business. Based on information currently available,
Interactive believes that none of this ordinary routine litigation, either
individually or in the aggregate, will have a material effect on its financial
condition and results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99.1 - Chief Executive Officer Section 906 Certification.
Exhibit 99.2 - Chief Financial Officer Section 906 Certification.
(b) Current Report on Form 8-K filed on March 26, 2003 reporting
rights offering under consideration.
20
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LYNCH INTERACTIVE CORPORATION
(Registrant)
By: /s/Robert E. Dolan
----------------------------
Robert E. Dolan
Chief Financial Officer
May 13, 2003
21
CERTIFICATIONS
I, Mario J. Gabelli, the Chief Executive Officer of the Registrant, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Lynch Interactive
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Mario J. Gabelli
Mario J. Gabelli
Chief Executive Officer of
Lynch Interactive Corporation
May 13, 2003
22
I, Robert E. Dolan, the Chief Financial Officer of the Registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lynch Interactive
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to record,
process, summarize and report financial data and have identified for the
Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Robert E. Dolan
Robert E. Dolan
Chief Financial Officer of
Lynch Interactive Corporation
May 13, 2003
23