LYNCH INTERACTIVE
CORPORATION
Press Release
For Immediate Release
LYNCH INTERACTIVE CORPORATION
REPORTS FIRST QUARTER OPERATING RESULTS
RYE, New York, May 16, 2005 - Lynch Interactive Corporation (AMEX:LIC) reported
that first quarter revenues rose to $21.6 million from $21.4 million in the
first quarter of 2004. The increase during this quarter is primarily due to
higher interstate access revenues, USF support payments and additional DSL lines
offset by a 3.4% decline in access lines and lower intrastate revenues.
First quarter of 2005 EBITDA (earnings before interest, taxes, depreciation and
amortization) before corporate expense slipped $0.5 million to $10.6 million,
compared to $11.1 million in the first quarter of 2004 due to an increase in
operating costs. Corporate expenses increased by $1.1 million as we recorded
incremental legal costs of $0.8 million associated with the Taylor litigation.
Reflecting these "corporate" costs, operating income for the first quarter of
2005 was $3.3 million or $1.6 million lower than the $4.9 million reported in
the first quarter of 2004. See Attachment A for an explanation of why we believe
EBITDA is useful information to our investors and see Attachment B for a
reconciliation of EBITDA to operating profit.
Earnings were $0.25 per share for the three months ended March 31, 2005, as
compared to $0.58 per share for the three months ended March 31, 2004.
We invested $1.9 million in capital expenditures during the three months ended
March 31, 2005, down from $2.6 million in 2004. The Company is currently
anticipating 2005 capital expenditures of approximately $11 million, but that
amount may increase as the result of ongoing review of capital requirements.
Update On Initiatives
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- California-Oregon Telecommunications Company ("Cal-Ore") - On May 5,
2005, the California Public Services Commission approved the
acquisition of Cal-Ore by Interactive. Cal-Ore is a 2,500 access line
RLEC located in northern California. The transaction is subject to
certain FCC and other approvals and we expect to close about mid-year
2005.
- Utah CATV - On March 18, 2005, Central Telecom Services acquired 2,411
CATV subscribers in central Utah for a total investment of $3.5
million. This acquisition complements both our other CATV operations
in Utah and our telecommunications and data transport operations in
that state.
- Simplifying our Structure - Due to the requirements of Sarbanes-Oxley,
we are attempting to simplify our balkanized structure. In one
initiative, we are selling a portion of our security operation in
Upstate New York. Another initiative is to acquire the remaining
two-thirds interest in KMG Holdings, Inc., which will eliminate the
minority interest associated with Western New
Mexico Telephone Company. In addition, we are considering the
distribution of certain non RLEC assets to our shareholders.
- Going to the Pink Sheets - we have previously announced that we will
be asking our shareholders to give our Board authority to implement a
reverse stock split, whereby our shareholders would be reduced to
under 300 and we could voluntarily deregister from reporting under the
Securities and Exchange Act of 1934. If we go ahead with this, our
stock will be delisted from the American Stock Exchange and begin
trading on the "Pink Sheets". Such an action will save us the
considerable costs associated with the Sarbanes-Oxley Act. At the same
time, we are committed to providing shareholders financial information
to encourage a trading market for our stock.
Telephone Operations
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The following table summarizes certain information regarding Interactive's
multimedia operation. In addition, Interactive has PCS licenses covering areas
with an aggregate population of approximately 380,800.
March 31, December 31, March 31,
2005 2004 2004
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Access Lines .......... 51,156 50,803 52,932
DSL Lines ............. 4,753 4,250 3,102
Cable Subscribers ..... 5,989* 3,630 3,904
Internet Subscribers... 19,599 19,508 19,661
CLEC Customers ........ 5,911 5,837 5,867
Long Distance Resale... 16,173 16,134 15,619
*includes Utah acquisition
Other Investments
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- Network affiliates - We have interests in two network affiliated
television stations, a 50% interest in Station WOI-TV, an ABC
affiliate, serving the Des Moines, Iowa, market (72nd largest in the
U.S.) and a 20% interest in Station WHBF-TV, a CBS affiliate, serving
the Quad-Cities markets (94th largest in the U.S.).
- Hector - We own approximately 166,500 shares of Hector Communications,
Inc., or 4.8% of their outstanding shares (AMEX:HCT). Hector is a
30,000 access line provider of telecommunications and cable service
primarily in Minnesota. On May 3, 2005, in its first quarter earnings
release, Hector announced the management and Board of Directors of the
Company continue to assess all strategic options and are currently in
the process of hiring an investment banking firm to assist in this
effort.
- Spectrum ownership - The Company is developing its PCS license in Las
Cruces, New Mexico. We also own 12 licenses in the Lower 700 MHz
spectrum band, which industry analysts believe have promising
applications. On July 30, 2004, we were high bidder on two licenses,
Buffalo, NY and Davenport, IA in the 24 GHz Auction for a total cost
of $49,000. On February 28, 2005, we were high bidder for two PCS
licenses in Auction 58 for Marquette, MI and Klamath Falls, OR which
serve populations of 75,000 and 81,000 respectively for a total
investment of $500,000. During April and May, 2005, the Company
participated in Auction 59 but did not acquire any licenses.
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- Wireless Investments - Interactive also has four minority-owned
investments in cellular telephone operations in New Mexico and North
Dakota covering a net population of 35,000 and in ventures that own
spectrum licenses in the 39 GHz, 700 MHz Guard Band and Paging.
- Iowa Network Services ("INS") - INS provides wireline
telecommunication access and transport services, long distance
services, internet equipment and services, and wireless
telecommunication services to significant parts of Iowa and retains a
16% ownership in Iowa Telecommunications Services Inc. (NYSE: IWA). We
own 3% of INS preferred stock and 1.8% of INS common stock and also
holds a $400,000 face amount preferred in INS.
Rural Telephone Bank Holdings
President Bush's proposed Budget for Fiscal Year 2006 establishes the process
and terms to implement the dissolution of the Rural Telephone Bank ("RTB").
Under RTB's By-Laws, on dissolution, the holders of its Class B and Class C
stock would be paid the par value of their stock. As of December 31, 2004, the
total par value of RTB Class B and Class C stock at the Company's subsidiaries
was $11.3 million. The dissolution of the RTB and payments to the stock holders
is subject to numerous approvals and actions, including Congressional approval
of President Bush's proposed Budget for Fiscal Year 2006 and actions by RTB's
Board of Directors. Therefore, the Company cannot predict whether, or when, such
payments will actually be made to the Company's subsidiaries.
Stock Repurchase Program
During the three months ended March 31, 2005, Interactive acquired 5,700 shares
at an average investment of $31.53 per share. Since the inception of the stock
repurchase program, Interactive has acquired 72,700 shares at a total investment
of $2.3 million or $32.26 per share.
Balance Sheet
At March 31, 2005, the Company had cash and cash equivalents of $29.7 million as
compared to $27.2 million at December 31, 2004. We point out that the majority
of this cash is not readily available to the parent company. As a result, we are
sensitive to liquidity issues as we are incurring significant cost for
litigation as well as ongoing corporate expenses for accounting and other
"public" company costs. While the parent company maintains a line of credit
facility, which is currently at $5.0 million, over the near term, the Company is
looking to augment this credit facility, and over the longer term we would look
to restructure some or all of our debt. The total debt at March 31, 2005 was
$173.9 million, up from $173.8 million at December 31, 2004. At March 31, 2005,
$68.9 million of debt was at variable interest rates, averaging 5.8% and $105.0
million was at fixed interest rates, averaging 7.0%.
Full Year
Operating profit in 2005 is expected to be $15.3 million, about $0.5 million
less than 2004, even though Cal-Ore Telephone is estimated to be included for
about six months. EBITDA, generated by our operating subsidiaries including
Cal-Ore for the year 2005 is expected to be about $44.6 million versus $44.0
million in 2004. Excluding Cal-Ore, EBITDA from comparable operations is
expected to decline about $1 million. Legal and accounting expenses are expected
to remain at an elevated level for an extended period of time. Operating profit
plus depreciation and amortization expense equals EBITDA. See Attachment A for
an explanation of why EBITDA is useful information to our investors.
* * * * * *
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This release contains certain forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including without limitation,
spectrum applications, dissolution of RTB and payments to The Company, future
financing, and performance and financial targets for 2005. It should be
recognized that such information is based upon certain assumptions, projections
and forecasts, including without limitation business conditions and financial
markets, regulatory actions and initiatives, and the cautionary statements set
forth in documents filed by Interactive with the Securities and Exchange
Commission. As a result, there can be no assurance that any possible
transactions will be accomplished or be successful or that financial targets
will be met, and such information is subject to uncertainties, risks and
inaccuracies, which could be material.
Interactive is a holding company with subsidiaries in multimedia and actively
seeks acquisitions, principally in existing business areas.
Interactive is listed on the American Stock Exchange under the symbol LIC.
Interactive's World Wide Web address is: http://www.lynchinteractivecorp.com.
* * * * * *
Shareholder
Contact: Robert E. Dolan
Chief Financial Officer
914/921-8821
Release: 05-8
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Attachment A
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Use of EBITDA
EBITDA is presented because it is a widely accepted financial indicator of
transaction values and the ability to incur and service debt. Interactive
utilizes EBITDA as one of its metrics for valuing potential acquisitions. EBITDA
is not a substitute for operating profit determined in accordance with generally
accepted accounting principles ($3.3 million and $4.9 million for the three
months ended March 31, 2005 and 2004 respectively).
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