FORM 10-K/A(4)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ 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, 1995 Commission file number 1-106
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
(Exact name of Registrant as specified in its charter)
Indiana 38-1799862
State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
8 Sound Shore Drive, Suite 290, Greenwich, CT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 629-3333
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant (based upon the closing price of the Registrant's Common Stock on the
American Stock Exchange on March 15, 1996 of $66 per share) was $68,254,000. (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
1,390,464 as of March 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I, II, and IV: Certain portions of the Annual Report of Shareholders
for the year ended December 31, 1995, a revised copy of
which is filed as an exhibit herewith.
Part III: Certain portions of the draft Proxy Statement for the
1996
Annual Meeting of Shareholders, filed as an exhibit
herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data as amended August 19, 1996 to
revise Note 2 (Pro Forma Information).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
LYNCH CORPORATION
By:s/ROBERT E. DOLAN
ROBERT E. DOLAN
Chief Financial Officer (Principal
Financial and Accounting Officer)
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
* MARIO J. GABELLI Chairman of the Board of
MARIO J. GABELLI Directors and Chief August 19, 1996
Executive Officer
(Principal Executive Officer)
* MORRIS BERKOWITZ Director August 19, 1996
MORRIS BERKOWITZ
* E. VAL CERUTTI Director August 19, 1996
E. VAL CERUTTI
* PAUL J. EVANSON Director August 19, 1996
PAUL J. EVANSON
* SALVATORE MUOIO Director August 19, 1996
SALVATORE MUOI0
* RALPH R. PAPITTO Director August 19, 1996
RALPH R. PAPITTO
* PAUL P. WOOLARD Director August 19, 1996
PAUL P. WOOLARD
s/ROBERT E. DOLAN Chief Financial Officer
ROBERT E. DOLAN (Principal Financial
and Accounting Officer) August 19, 1996
*by s/ROBERT A. HURWICH
ROBERT A. HURWICH
Attorney-in-fact
<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
LYNCH CORPORATION AND SUBSIDIARIES
<TABLE>
(In Thousands)
<CAPTION>
December 31
1995 1994
------ ------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 15,921 $ 18,010
Marketable securities and short-
term investments 11,432 13,511
Trade accounts receivable,
less allowances of $1,732 and
$737 in 1995 and 1994,
respectively; includes $3,602 and
$3,624 of costs in excess of
billings in 1995 and 1994,
respectively 52,306 36,454
Inventories 33,235 18,955
Deferred income taxes 3,944 2,872
Other current assets 6,810 4,083
_______ _______
TOTAL CURRENT ASSETS 123,648 93,885
PROPERTY, PLANT AND EQUIPMENT:
Land 2,068 1,893
Buildings and improvements 16,675 11,713
Machinery and equipment 128,397 79,290
_______ _______
147,140 92,896
Accumulated depreciation (36,093) (31,451)
_______ _______
111,047 61,445
INVESTMENTS IN AND ADVANCES
TO AFFILIATED COMPANIES 8,982 3,503
INTANGIBLE ASSETS, NET 53,060 23,518
OTHER ASSETS 5,702 3,559
_______ _______
TOTAL ASSETS $302,439 $185,910
======== =======
</TABLE>
See accompanying notes.
<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
LYNCH CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In Thousands)
December 31
1995 1994
_______ _______
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Notes payable to banks $ 9,622 $ 5,904
Trade accounts payable 20,147 11,999
Accrued interest payable 1,146 565
Accrued liabilities 23,612 15,759
Customer advances 3,787 7,400
Current maturities of long-term debt 39,708 29,545
_______ _______
TOTAL CURRENT LIABILITIES 98,022 71,172
LONG-TERM DEBT 138,029 62,745
DEFERRED INCOME TAXES 17,912 10,397
MINORITY INTERESTS 12,964 11,065
SHAREHOLDERS' EQUITY:
Common Stock, no par or stated value:
Authorized 10 million shares
Issued 1,471,191 shares 5,139 5,139
Additional paid-in capital 7,873 8,037
Retained earnings 23,776 18,631
Treasury stock of 92,528 and
92,533 shares, at cost (1,276) (1,276)
_______ _______
TOTAL SHAREHOLDERS' EQUITY 35,512 30,531
_______ _______
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $302,439 $185,910
======== ========
</TABLE>
See accompanying notes.
<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
Consolidated STATEMENTS OF INCOME
LYNCH CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars In Thousands,
Except per Share Amounts) Year ended December 31
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
SALES AND REVENUES:
Multimedia $ 23,597 $ 20,144 $ 16,206
Services 122,303 101,880 82,829
Manufacturing 192,266 66,678 28,004
_________ _________ _________
338,166 188,702 127,039
_________ _________ _________
COSTS AND EXPENSE:
Multimedia 17,889 14,239 11,084
Services 111,672 92,155 75,243
Manufacturing 152,568 50,064 19,243
Selling and administrative 36,722 21,449 14,851
_________ _________ _________
318,851 177,907 120,421
--------- --------- ---------
OPERATING PROFIT 19,315 10,795 6,618
--------- --------- ---------
Other income (expense):
Investment income 3,070 2,446 2,112
Interest expense (10,892) (6,526) (5,686)
Share of operations of
affiliated companies 398 (301) (69)
Gain on sales of subsidiary
and affiliate stock 59 190 4,326
_________ _________ _________
INCOME BEFORE INCOME TAXES, MINORITY INTERESTS,
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE
11,950 6,604 7,301
Provision for income taxes (4,686) (2,652) (2,448)
Minority interests (2,119) (1,360) (737)
_________ _________ _________
INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 5,145 2,592 4,116
Loss on early extinguishment of
debt, net of income tax benefit
of $135 and $106 -- (264) (206)
Cumulative effect to January 1, 1993
of change in accounting
for income taxes -- -- (957)
_________ _________ _________
NET INCOME $ 5,145 $ 2,328 $ 2,953
========= ========= =========
LYNCH CORPORATION AND SUBSIDIARIES
Consolidated STATEMENTS OF INCOME (Cont'd)
Weighted average shares and
share equivalents outstanding 1,407,000 1,337,000 1,226,000
Primary earnings per share:
Income before extraordinary item
and cumulative effect change $ 3.66 $ 1.94 $ 3.36
Extraordinary item -- (.20) (.17)
Cumulative effect change -- -- (.78)
_________ _________ _________
NET INCOME $ 3.66 $ 1.74 $ 2.41
========= ========= =========
Fully diluted earnings per share:
Income before extraordinary item
and cumulative effect change $ 3.66 $ 1.88 $ 2.98
Extraordinary item (.16) (.12)
Cumulative effect change -- (.57)
_________ _________ _________
NET INCOME $ 3.66 $ 1.72 $ 2.29
========= ========= =========
</TABLE>
See accompanying notes.
<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
LYNCH CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars In Thousands)
Year ended December 31
1995 1994 1993
_______ ______ ______
<S> <C> <C> <C>
Operating activities
Net income $ 5,145 $ 2,328 $ 2,953
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 11,276 7,497 5,893
Net effect of (purchases) and
sales of trading securities 2,079 5,450 --
Deferred taxes 201 (1,505) 1,830
Share of operations of
affiliated companies (398) 301 69
Minority interests 2,119 1,360 618
Gain on Morgan \ -- -- (3,851)
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Receivables (3,704) (11,243) (340)
Inventories 1,539 (949) 416
Accounts payable and
accrued liabilities 10,417 12,234 2,062
Other (1,496) (1,026) (379)
Other -- 109 479
------ ------ ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 27,178 14,556 9,750
______ ______ ______
INVESTING ACTIVITIES
Acquisitions (total cost less debt assumed and cash
equivalents acquired):
Central Products Company (85,072) -- --
CLR Video (5,242) -- --
Transport Drivers, Inc. (2,806) -- --
Personal Communications
Services Partnerships (7,010) -- --
Brown-Bridge Industries Inc. -- (29,071) --
Haviland Telephone Company -- (2,854) --
JBN Telephone Company -- -- (6,698)
Other -- -- (1,141)
Capital expenditures (19,569) (11,598) (4,356)
Sales (purchases) of marketable
securities, net -- -- (4,724)
Net investment in Capital
Communications, Inc. 3,000 (2,541) (26)
Other (1,349) (288) (291)
______ ______ ______
NET CASH USED IN
INVESTING ACTIVITIES (118,048) (46,352) (17,236)
______ ______ ______
</TABLE>
See accompanying notes.
<PAGE>
LYNCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
LYNCH CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars In Thousands)
Year ended December 31
1995 1994 1993
_______ ______ ______
FINANCING ACTIVITIES
<S> <C> <C> <C>
Issuance of long-term debt 90,167 31,477 6,688
Payments to reduce long-
term debt (4,720) (3,439) (7,979)
Debenture redemption/conversion -- (11,835) (6,144)
Net borrowings, lines of credit 3,718 3,957 285
Sale of treasury stock -- 2,290 --
Conversion of debentures into
common stock -- 1,597 --
Minority interest transactions (220) 906 8,597
Other (164) 305 (152)
______ ______ ______
NET CASH PROVIDED BY
FINANCING ACTIVITIES 88,781 25,258 1,295
______ ______ ______
Net decrease in cash
and cash equivalents (2,089) (6,538) (6,191)
Cash and cash equivalents at
beginning of year 18,010 24,548 30,739
______ ______ ______
Cash and cash equivalents
at end of year $15,921 $18,010 $24,548
======= ======= =======
</TABLE>
Consolidated Statements of
Shareholders' Equity
<TABLE>
<CAPTION>
(Dollars In Thousands)
Shares of
Common Additional
Stock Common Paid-in Retained
Outstanding Stock Capital Earnings
__________ _______ _______ _______
<S> <C> <C> <C> <C>
Balance at January
1, 1993 1,225,660 $3,542 $7,126 $13,350
Purchase of treasury stock (13) -- -- --
Issuance of treasury stock 30 -- -- --
Net income for the year -- -- -- 2,953
________ ______ ______ ______
Balance at December
31, 1993 1,225,677 3,542 7 ,126 16,303
Sale of stock to Officer 100,000 -- 910 --
Conversion of Debentures 52,881 1,597 -- --
Issuance of treasury stock 100 -- 1 --
Net income for the year -- -- -- 2,328
--------- ------ ------ -------
Balance at December
31, 1994 1,378,658 5,139 8,037 18,631
Issuance of treasury stock 5 -- -- --
Capital transactions of
The Morgan Group Inc. -- -- (164) --
Net income for the year -- -- -- 5,145
________ ______ ______ ______
Balance at December 31, 1995 1,378,663 $5,139 $7,873 $23,776
========= ====== ====== =======
</TABLE>
See accompanying notes.
<PAGE>
Lynch Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
1. Accounting and Reporting Policies principles of Consolidation: The
consolidated financial statements include the accounts of Lynch Corporation
("Company" or "Lynch") and entities in which it has majority voting control.
Investments in affiliates in which the Company does not have majority voting
control are accounted for in accordance with the equity method. All material
intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles 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, 1995 and 1994, assets of $7.9 million and $13.4 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.
Marketable Securities and Short-Term Investments: On January 1, 1994, the
Company adopted Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (Statement No. 115).
Under Statement No. 115, the accounting for investments depends on the
classification of such securities as either held-to-maturity, available-for-
sale, or trading.
Marketable securities and short-term investments consist principally of U.S.
Treasury obligations, preferred and common stocks and bonds. At December 31,
1995, all marketable securities and United States Treasury money market funds
classified as cash equivalents were classified as trading, with the exception
of an equity security with a carrying value of $0.9 million which was classified
as available-for-sale. Trading and available-for-sale securities are stated at
fair value with unrealized gains or losses on trading securities included in
earnings and unrealized gains or losses on available-for-sale securities
included in a separate component of shareholders' equity. Unrealized gains
(losses) of $408,000, and (214,000) for December 31, 1995 and 1994 on trading
securities have been included in earnings. There was no adjustment to
shareholders' equity for the available-for-sale security at December 31, 1995.
The cost of marketable securities sold is determined on the specific
identification method. Realized gains of $529,000 and $293,000, and realized
losses of $108,000 and $233,000 are included in other income for the years ended
December 31, 1995 and 1994.
Properties and Depreciation: 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. For income tax purposes, accelerated depreciation
methods are used.
Excess of Cost Over Net Assets of Companies Acquired: Excess of cost over net
assets of companies acquired (goodwill) is being amortized on a straight-line
basis over periods not exceeding 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 operating cash flows in relation to its net capital
investment in the subsidiary. The Company does not believe that an impairment
of its goodwill has occurred.
Multimedia: Multimedia revenues include local and intrastate telephone company
service revenues which are subject to review and approval by state public
utility commissions, and long distance network revenues, which are based upon
charges to long distance carriers through a tariff filed by the National
Exchange Carriers Association with the Federal Communications Commission.
Revenues are based on cost studies for the Company's exchanges, and have been
estimated pending completion of final cost studies.
Services: Service revenues and related estimated costs of transportation are
recognized when transportation of the manufactured housing, recreational vehicle
or other product is completed.
Liability insurance is maintained with a deductible amount for claims resulting
from personal injury and property damage. Provisions are made for the estimated
liabilities for the self-insured portion of such claims as incurred.
Manufacturing: Manufacturing revenues, with the exception of certain long-term
contracts discussed below, are recognized on shipment.
Research and Development Costs: Research and development costs are charged to
operations as incurred. Such costs approximated $1,673,000 in 1995, $1,231,000
in 1994 and $622,000 in 1993.
Earnings Per Share: Earnings per common and common equivalent share amounts are
based on the average number of common shares outstanding during each period,
assuming the exercise of all stock options having an exercise price less than
the average market price of the common stock using the treasury stock method.
Fully diluted earnings per share reflect the effect, where dilutive, of the
debentures when outstanding and the exercise of all stock options having an
exercise price less than the greater of the average or the closing market price
of the Common Stock of the Company at the end of the period using the treasury
stock method.
Accounting for Long-Term Contracts: Lynch Machinery, Inc., a 90% owned
subsidiary of the Company, produces specialized machines under long-term
contracts. Because of the specialized nature of these machines and the period
of time needed to complete production and shipping, Lynch Machinery accounts for
these contracts using the percentage of completion method.
Impairments: In 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which is effective for fiscal years
beginning after December 15, 1995. The Company is studying this Statement but
does not believe its adoption will have a material impact on the financial
statements.
Stock Based Compensation: Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation was issued in October 1995 and is
effective for fiscal years beginning after December 15, 1995. The Statement
establishes financial accounting and reporting standards for stock based
compensation plans. Companies may elect to account for such plans under the fair
value method or to continue previous accounting and disclose proforma net
earnings and earnings per share as if the fair value method was applied. The
Company has not yet determined the potential financial statement impact of this
Statement, nor has it determined how it will initially adopt this Statement.
Fair Value of 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 amount 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 all other
long-term obligations approximate cost based on discounted cash flows using the
Company's incremental borrowing rate for similar instruments.
Reclassifications: Certain amounts in the 1994 and 1993 financial statements
have been reclassified to conform to the 1995 presentation.
2. Acquisitions
On October 4, 1995, Central Products Acquisition Corp., a wholly-owned
subsidiary of Spinnaker Industries, Inc. (an 83% owned subsidiary of Lynch)
acquired from Alco Standard Corporation ("Alco"), the assets and stock of
Central Products Company. Central Products manufactures and markets a wide
variety of carton sealing tapes and related equipment. The cost of the
acquisition was $80.0 million. As a result of this transaction, the Company
recorded $27.2 million in goodwill which is being amortized over 25 years.
On September 26, 1994, Lynch Telephone Corporation VII, a wholly-owned
subsidiary of Lynch, acquired all of the outstanding shares of Haviland
Telephone Company, Inc. a local exchange Company in Kansas, from InterDigital
Communications Corporation. The total cost of this transaction was $13.4
million. As a result of this transaction, the Company recorded $8.2 million
in goodwill which is being amortized over 25 years.
On September 19, 1994, Brown-Bridge Industries, Inc., an 80.1% owned subsidiary
of Spinnaker Industries, Inc., acquired from Kimberly-Clark Corporation the net
assets associated with its Brown-Bridge operation, a manufacturer of adhesive
coated stock for labels and related applications. The cost of the transaction
was $29.1 million, plus $6.9 million in current liabilities assumed.
On March 1, 1994, Capital Communications Corporation, 49% owned by Lynch,
acquired certain assets associated with the operations of Station WOI-TV from
Iowa State University. Station WOI is an ABC affiliate serving the Des Moines,
Iowa market. The total cost of the transaction was $13.0 million.
On November 30, 1993, Lynch Telephone VI ("Lynch Tel VI"), a 98% owned
subsidiary of Lynch, acquired all of the outstanding shares of J.B.N. Telephone
Company, Inc. ("JBN"), a local exchange Company in Kansas from GTE Corporation.
The total cost of the transaction was $9.4 million.
All of the above transactions were accounted for as purchases, and accordingly,
the assets acquired and liabilities assumed were recorded at their estimated
fair market values.
The operating results of the acquired companies are included in the consolidated
statements of income from their respective acquisition dates. The following
unaudited combined pro forma information shows the results of the Company's
operations presented as though the purchases of Central Products were made at
the beginning of 1994, and Haviland, Brown-Bridge, Station WOI-TV and JBN had
been made at the beginning of 1993.
<TABLE>
<CAPTION>
Year Ended
December 31
1995 1994 1993
------ ------ ------
(In Thousands,
Except per Share Data)
<S> <C> <C> <C>
Sales and revenues $429,435 $364,388 $216,331
Income before extraordinary
item and cumulative effect
of accounting change 5,186 2,525 5,176
Net income 5,186 2,261 4,013
Income per share before
extraordinary item and
cumulative effect of
accounting change 3.69 1.89 4.22
Net income per share 3.69 1.69 3.27
</TABLE>
On January 25, 1995, a contract was signed for $4.7 million with US West
Communications Inc. to acquire 1,400 access lines in North Dakota. On November
4, 1995, a contract was signed for $22.0 million, subject to certain conditions,
to acquire Dunkirk & Fredonia Telephone Co., a local exchange Company in New
York, with 10,700 access lines. These transactions are expected to close during
1996.
3. Inventories
Inventories are stated at the lower of cost or market value. Inventories valued
using the last-in, first-out (LIFO) method comprised approximately 58% and 23%
of consolidated inventories at December 31, 1995 and 1994. Inventories at
Brown-Bridge, 38% and 68% of inventories at December 31, 1995 and 1994, are
valued using the specific identification method. The balance of inventories are
valued using the first-in first-out (FIFO) method.
<TABLE>
<CAPTION>
December 31
1995 1994
------ ------
(In Thousands)
<S> <C> <C>
Raw materials and supplies $ 10,676 $ 5,560
Work in process 10,286 7,745
Finished goods 12,273 5,650
______ _____
Total $ 33,235 $18,955
======== ========
</TABLE>
Current cost exceeded the LIFO value of inventories by $905,000 and $961,000 at
December 31, 1995 and 1994, respectively.
4. Investment in and Advances to Affiliated Companies Certain subsidiaries of
Lynch are limited partners with a 49.9% equity interest in five partnerships
which filed applications on November 6, 1995 with the Federal Communications
Commission to bid in the FCC's C-Block Auction on Basic Trading Area licenses
for 30 MHZ of spectrum to be used for broadband wireless personal communications
services ("PCS"). Lynch has advances outstanding to these partnerships of $7.0
million on December 31, 1995. The Company has also committed to loan these
partnerships an additional $35.3 million over the next seven years, based on the
outcome of the Auction.
Lynch Entertainment Corporation ("LENCO"), a wholly-owned subsidiary of the
Company, has a 20% investment in Coronet Communications Company ("Coronet"),
which operates television station WHBF-TV, a CBS affiliate in Rock Island,
Illinois. Lynch Entertainment Corporation II ("LENCO II"), a wholly-owned
subsidiary of the Company, has a 49% investment in Capital Communications
Company ("Capital"), which operates television station WOI-TV, an ABC affiliate
in Des Moines, Iowa, which it acquired on March 1, 1994. The following
represents condensed financial information of Coronet as of and for the years
ended December 31, 1995, 1994 and 1993 and of Capital for the years ended
December 31, 1995 and 1994, both derived from audited financial statements of
the respective companies:
<TABLE>
<CAPTION>
Coronet
1995 1994 1993
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Current assets $ 4,670 $ 3,892 $ 2,627
Property and
other assets 6,842 7,108 7,134
------- ------- -------
Total assets $11,512 $11,000 $ 9,761
======= ======= =======
Current liabilities,
including current
portion of
long-term debt $ 4,752 $ 3,681 $ 2,481
Long-term debt and
other liabilities 16,186 17,555 18,442
Partners' equity (deficit) (9,426) (10,236) (11,162)
------- ------- -------
$11,512 $11,000 $ 9,761
======= ======= =======
Revenues $ 7,195 $ 7,069 $ 5,951
Expenses (6,385) (6,144) (6,299)
------- -------- -------
Income (loss) $ 810 $ 925 $ (348)
======= ======== =======
</TABLE>
Coronet's results include depreciation and amortization expense of $389,193,
$364,377, and $493,088 for 1995, 1994, and 1993, respectively.
<TABLE>
<CAPTION>
Capital
1995 1994
------ ------
(In Thousands)
<S> <C> <C>
Current assets $ 5,045 $ 3,961
Property and other assets 9,837 11,361
------- -------
Total assets $14,882 $15,322
======= =======
Current liabilities,
including current
portion of
long-term debt 2,818 1,996
Long-term debt
and other liabilities 13,052 12,738
Shareholder's equity (deficit) (988) 588
------- -------
$14,882 $15,322
======= =======
Revenues $ 9,217 $ 7,034
Expenses (9,704) (8,549)
------- -------
Loss before taxes (487) (1,515)
Tax benefit 98 606
------- -------
Net loss $ (389) $ (909)
======= =======
</TABLE>
Capital's results include depreciation and amortization expense of $1,842,684
and $2,153,000 for 1995 and 1994, respectively. The long-term debt of Coronet
at December 31, 1995 is comprised of $14.5 million due to a third party lender
and $2.8 million due to LENCO. The third party debt is due in February 1997, and
is at an average interest rate of 9.26%. The debt to LENCO is due June 15, 1997
and is at a fixed rate of 10%, composed of a quarterly cash payment of 6% and
a payment-in-kind of 4%, compounded annually. The Company recorded interest
income on this debt of $276,000, $265,000, and $261,000 for the years ended
December 31, 1995, 1994, and 1993, respectively. LENCO has a $980,000 net
investment in Coronet at December 31, 1995 and has guaranteed $4.0 million of
$11.7 million of Coronet's third party debt. The subordinated debt and Preferred
Stock A provided by LENCO II to acquire the assets of Station WOI-TV on March
1, 1994, was fully paid off on December 15, 1995. The third party financing
agreement between Capital Communications, Inc. ("Capital") was refinanced
during 1995 with the principal sum increasing to $14 million. The loan is to
be paid off in consecutive, quarterly principal payments until December 31,
2002 at which time the remaining balance of the debt, $5.0 million becomes
due. Interest shall be paid at a rate per annum equal to the Prime Rate
adjusted monthly on the first business day of each month. The interest rate
at December 31, 1995 was 8.75%. LENCO II also owns $10,000 of Preferred Stock
B of Capital, which is convertible at any time into the Common Stock of Capital
in a sufficient amount to bring LENCO II's ownership to 50%. LENCO II's
investment in Capital at December 31, 1995 has been reduced to zero as its share
of net losses would have exceeded its net investment.
On October 31, 1993, Tremont Advisers, Inc. ("Tremont") exercised its option to
acquire 1,000,000 shares of Tremont's Class B Common Stock, $.01 par value, from
Lynch at $.40 per share. This sale and the proceeds from the option resulted
in a gain of $475,000, for which there is no tax provision, or $.39 per share
which is included in the 1993 gain on sale of subsidiary and affiliate stock.
5. Intangible Assets
Intangible assets include acquisition intangibles of $53.1 million and $26.4
million, net of accumulated amortization of $5.5 million and $2.9 million, at
December 31, 1995 and 1994, respectively.
6. Notes Payable and Long-term Debt
The Company maintains lines of credit with banks which aggregate $35.8 million,
of which $18.5 million was available at December 31, 1995. These lines are
secured by operating assets of the related subsidiaries ($38.1 million). The
line of credit agreements expire in 1996, are renewable annually, and are at
interest rates ranging from prime less .25%, to prime plus 1%. The Company's
outstanding balances under these lines of credit and standby letters of credit
totaled approximately $5.9 million at December 31, 1995, securing various
insurance obligations and customer advances. Several of the credit agreements
contain covenants restricting distributions. At December 31, 1995 and 1994, $5.6
million and $5.7 million, respectively, of subsidiaries' retained earnings were
restricted under these agreements.
Spinnaker Industries, Inc. also maintains lines of credit with banks for working
capital needs at each subsidiary which aggregate $45.5 million. Spinnaker had
cash advances of $27 million outstanding under the lines of credit as of
December 31, 1995. Interest on all outstanding borrowings bear interest at
variable rates related to the prime interest rate or the lender's base rate. At
December 31, 1995, the interest rates in effect ranged from 8.5% to 11%. Credit
availability under the lines of credit are subject to certain variables, such
as the amount of inventory and receivables eligible to be included in the
borrowing base. These lines are secured by the operating assets of certain
Spinnaker subsidiaries. Spinnaker is required to comply with various covenants
including a limitation on capital expenditures, interest and fixed charge
coverage, and minimum levels of operating earnings, as well as various other
financial covenants. Certain of the lines of credit require the payment of a fee
based upon the face amount of each letter of credit issued. The line of credit
agreements expire in 1997 for Entoleter, 2000 for CPC, and 1997 for Brown-Bridge
and are renewable annually.
Long-term debt consists of (all interest rates at December 31, 1995):
<TABLE>
<CAPTION>
December 31
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Rural Utilities Service and
Rural Telephone Bank notes payable
in equal quarterly installments through
2023 at fixed interest rates ranging
from 2% to 7% (3.0% weighted aver-
age), secured by assets of the tele-
phone companies of $67.1 million $ 27,543 $ 24,283
Bank credit facilities utilized by certain
telephone and telephone holding
companies through 2010, $17.4 million
at a fixed interest rate averaging 10.4%
and $10.9 million at variable
interest rates averaging 8.6% 28,255 24,158
Unsecured notes issued in connec-
tion with telephone company
acquisitions at an interest rate
of 10% due from 1996 to 2003 16,149 16,266
Bank Debt associated with Central Products:
Revolving line of credit at interest
rate of (9.75%) expiring in 2000 14,126 --
Term loan at interest rate of (9.5%), due
in installments through 2002 19,625 --
Term loan at interest rate of (10.5%), due
in installments through 2002 16,000 --
Notes issued to seller:
Term loan due 2003 at fixed
interest rates of (8%) see below 15,000 --
Term loan due in installments through
2002 at fixed interest rate of (11%)
see below 10,000 --
Subordinated loan due in installments
through 1998 at fixed interest rate of (0%) 5,000 --
Bank debt associated with Brown-Bridge:
Revolving line of credit at interest
rate of prime plus 1.25% (9.75%)
expiring in 1999 12,646 13,180
Term loan at interest rate of prime
plus 1.25% (9.75%), due in install-
ments through 1999 6,691 9,000
Other 6,702 5,403
------- -------
177,737 92,290
Current maturities (45,208) (29,545)
-------- --------
$132,529 $ 62,745
======== ========
</TABLE>
As part of Spinnaker's acquisition of Central Products Company from Alco
Standard on October 4, 1995 (see note 2), Alco provided two loans totaling $25
million and received the right to sell these notes to Spinnaker and demand
payment (the "Put Agreements"). Lynch agreed to guarantee the notes and
provide funds for the Put Agreement. As of January 2, 1996, Alco exercised
its rights under the Put Agreements to sell the notes back to Spinnaker and
in connection therewith, as described below, Spinnaker entered into a new
financing agreement with the seller and a third party to make a partial
principal payment on the note and replace the balance with a new financing
arrangement.
On April 5, 1996, Spinnaker entered into an agreement with a third party for an
$8.5 million bridge loan. The bridge loan is due on December 30, 1996 and if not
paid will convert into a 5 year term loan. The third party will be entitled to
receive a warrant to purchase 2.5% of the common equity of Spinnaker for each
quarter the term loan is outstanding up to 20% on a fully diluted basis, of the
common equity of Spinnaker. The bridge loans bears interest at the greater of
the LIBOR reference rate or the Treasury rate plus 5% for the first 90 days,
then incrementally increasing by .25% for every subsequent 90 day period.
On April 5, 1996 the rate in effect was 10.4%. Spinnaker may also fix the rate
at 18% if the floating rate increases to or above that rate. The bridge loan and
term loan include a payment in kind ("PIK") feature that allows Spinnaker to pay
any interest in excess of 16% (the maximum cash interest) by issuing additional
bridge notes. Also on April 5, 1996, an entity affiliated with Richard J. Boyle
and Ned N. Fleming III ("BF"), the Company's Chairman and Chief Executive
Officer and President, respectively, exercised warrants to purchase 187,467
shares of Spinnaker's common stock resulting in proceeds of $500,000 which will
be used by the Company to make scheduled interest payments on the bridge and
term loans. The agreement requires BF to continue to exercise its warrants to
provide funds to satisfy the outstanding interest that will be due on the bridge
and term loans. Spinnaker is pursuing actively various alternatives to
refinance the indebtedness of Spinnaker and its subsidiaries, including
refinancing the bridge loan before it matures. There can be no assurance that
Spinnaker can successfully complete any such refinancing.
Concurrently with the closing of the bridge loan, Spinnaker paid Alco $7.5
million of which $5.5 million was a principal payment on the $25 million note,
approximately $1.0 million related to accrued interest, and $1.0 million was
applied toward a $1.75 million purchase price for a warehouse facility in
Denver, Colorado. The unpaid balance of the $25 million note, together with the
balance due on the warehouse facility was restructured into a series of new
convertible subordinated notes consisting of the following:
(a) A 7%, $6 million convertible subordinated note that automatically converts
including accrued interest, into Spinnaker common stock 30 days after the
execution of the note at a conversion price per share of approximately $35.
After conversion, Alco is entitled to sell the shares. If the proceeds of this
sale are less than $6 million, Spinnaker is required to pay the difference
between $6 million and the sales proceeds to Alco either in cash or an
equivalent number of common shares;
(b) A 7%, $7 million convertible subordinated note due April 1997. The note
contains a PIK feature that allows Spinnaker, at its option, to satisfy the
interest by increasing the principal amount of the note. However, if Spinnaker
selects the PIK option, the interest rate on the note is 9%. All or any part of
this note can be converted at Alco's option into shares of Spinnaker's common
stock after April 1, 1997 at the then market price; and (c) A 7%, $7.25 million
convertible subordinated note due April 1998. The note contains a PIK feature
that allows Spinnaker, at its option, to satisfy the interest by increasing the
principal amount of the note. However, if Spinnaker selects the PIK option,
the interest rate on the note is 9%. All or any part of this note can be
converted at Alco's option into shares of Spinnaker's stock after April 1, 1998
at the then current market price.
The Company has pledged its shares of Spinnaker stock to secure the new
convertible subordinated notes and bridge loan. Based on the terms of the
bridge loan and the restructured subordinated notes with Alco, the Company has
classified the $25 million subordinated notes to Alco as long-term.
RUS debt of $27.5 million bearing interest at 2% has been reduced by a purchase
price allocation of $3.6 million reflecting an imputed interest rate of 5%.
Unsecured notes issued in connection with the telephone company acquisitions are
predominantly held by members of management of the telephone operating
companies.
In July 1986, the Company issued $23.0 million principal amount of 8%
convertible subordinated debentures. These debentures were unsecured obligations
of the Company and were convertible into Common Stock at a price of $31 per
share prior to maturity. Through September 21, 1994, the Company had either
purchased on the open market or redeemed $11.2 million of the original
issuance. At that date, in accordance with the terms of the debenture indenture,
the Company called for redemption all of the remaining debentures outstanding,
at 101.6% of their face amount plus accrued interest. The redemption was
completed on October 24, 1994, and $10,195,000 of the debentures were redeemed
and $1.6 million were converted into 52,881 shares of Common Stock at $31 per
share before allocation of related expenses. As a result of the redemption, the
Company recognized in 1994 an extraordinary loss of $264,000, net of taxes. On
October 18, 1993, the Company redeemed $6.0 million principal amount of
debentures at 102.4% of face value plus accrued interest to that date. As a
result of this redemption, the Company recognized in 1993 an extraordinary loss
of $206,000, net of taxes.
Cash payments for interest were $10.6 million, $6.2 million and $5.5 million for
the years ended December 31, 1995, 1994 and 1993, respectively.
Aggregate principal maturities of long-term debt for each of the next five years
are as follows: 1996 - $64.7 million, 1997 - $8.9 million; 1998 - $11.6 million,
1999 - $11.8 million, and 2000 - 14.1 million.
7. Minority Interests and Related Party Transactions
In October 1989, Lynch Telephone Corporation, an 80.1% owned subsidiary,
purchased 100% of the capital stock of Western New Mexico Telephone Company,
Inc. ("Western"), an independent local telephone company serving southwestern
New Mexico. The sellers of Western own 19.9% of Lynch Telephone Corporation and
have been granted an option to acquire stock equal to an additional 30.1%
interest of the shares currently outstanding, which was extended in 1993 to
become exercisable during a three month period commencing October 19, 1996, at
a formula price. In addition, during 1993, Lynch secured the right to acquire
stock equal to 15% of Lynch Telephone Corporation at terms similar to the
sellers' option.
On July 22, 1993, Morgan completed an initial public offering ("IPO") of
1,100,000 shares of its Class A Common Stock, $.015 par value, at $9.00 per
share. In accordance with Lynch's policy of recognizing a gain or loss on the
sale of stock by a subsidiary, a pre-tax gain of approximately $3.9 million
($2.2 million after tax, $1.84 per share) was recorded in connection with
Morgan's IPO. Lynch's ownership of 150,000 Class A shares (acquired during 1995)
and 1,200,000 Class B shares of Morgan entitles it to a voting control and,
therefore, Lynch consolidates Morgan's results in its financial statements.
In accordance with FASB Statement No. 109, a deferred tax liability is
recognized for the difference between the financial reporting basis and the
tax basis of the Company's investment in Morgan. On June 4, 1993, the Board
of Directors of Morgan approved the adoption of a stock option plan which
provides for the granting of incentive or nonqualified stock options to
purchase up to 200,000 shares of Class A Common Stock to officers, including
members of Morgan's Board of Directors, and other key employees. No options
may be granted under this plan at less than the fair market value of the
Common Stock at the date of the grant, except for certain nonemployee
directors. Three nonemployee directors were granted nonqualified stock
options to purchase a total of 24,000 shares of Class A Common Stock at
prices ranging from $6.80 to $9.00 per share. Although the exercise period is
determined when options are actually granted, an option shall not be exercised
later than 10 years and one day after it is granted. Stock options granted will
terminate if the grantee's employment terminates prior to exercise for reasons
other than retirement, death, or disability. Employees have been granted
nonqualified stock options to purchase 163,500 shares of Class A Common Stock
at an exercise price from $7.50 to $8.75 per share. These options will vest over
a four year period pursuant to the terms of the plan. As of December 31, 1995,
options to purchase 61,000 shares were exercisable.
On June 13, 1994, Spinnaker entered into a series of agreements with Boyle,
Fleming & Co., Inc. ("BF"), of whom a former Director of the Corporation is a
principal, for BF to assume the management of Spinnaker. As part of these
arrangements, BF received warrants to purchase 678,945 shares of Spinnaker
Common Stock (equating to a 20% ownership of Spinnaker) at a price of $2.67
per share (adjusted for a 3 for 2 stock split which was effective December 29,
1995) at any time prior to or before June 10, 1999, subject to certain
conditions. On April 5, BF exercised warrants to purchase 187,476 shares of
Spinnaker's Common Stock at the 2.67 per share. BF may also, on the occurrence
of an equity offering by Spinnaker Industries, Inc., receive warrants to acquire
additional shares of Spinnaker at terms to be determined at the time of the
offering.
During 1994, Brown-Bridge granted certain of its key executives options to
purchase up to 71,065 shares of Brown-Bridge's common stock at various prices
between $7.16 and $14.69 per share. Brown-Bridge currently has 1,000,000 common
shares outstanding. The options become exercisable (i) in cumulative
installments of one-fifth each year if certain levels of profitability, as
defined in the plan, are met, or (ii) seven years from the date of grant. The
options were issued at not less than 100% of the fair market value of the common
stock at the date of grant. The Company, pursuant to Indiana law and the
Company's Articles of Incorporation, has reimbursed its Chairman and Chief
Executive Officer, for $392,000 of legal fees incurred in connection with a
regulatory inquiry. Amounts relating to this reimbursement were charged to the
Company's results of operations for the years ended December 31, 1994 ($317,000)
and 1993 ($75,000).
On January 19, 1994, Lynch sold 100,000 shares of common stock held in its
treasury to its Chairman and Chief Executive Officer at $22.875 per share, the
closing price in trading of Lynch common stock on The American Stock Exchange
on that date. The transaction was approved by the Company's shareholders at its
annual meeting held on May 5, 1994.
8. Shareholders' Equity
In 1987, 1988 and 1992, the Board of Directors authorized the purchase of up to
300,000 shares of Common Stock. Through December 31, 1995, 230,861 shares had
been purchased at an average cost of $13.15 per share. In January 1994, two
officers were granted stock options to purchase up to 86,000 shares of Lynch
common stock. Approximately 24,500 options were granted at an exercise price of
$23.125, the closing price on the American Stock Exchange on January 18, 1994.
These options are fully vested and outstanding. During 1995, the balance of the
options were canceled.
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 is
fixed, and the conversion to common stock is based upon the market price at the
end of the previous year. In February, 1996, the Company awarded 1,428 shares
under this program. Such shares will vest during 1996.
On February 29, 1996, the Company adopted a Phantom Stock Option Plan for
certain employees. To date, 7,400 of Phantom Stock Options ("PSO") have been
granted at a price of $63 per share. Upon the exercise of a PSO, the holder is
entitled to receive an amount equal to the amount by which the market value of
the Company's common stock on the exercisable date exceeds the exercise price
of the PSO.
9. Income Taxes
The Company changed its method of accounting for income taxes in 1993 from the
deferred method to the liability method required by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") The
adoption of SFAS 109, which resulted in a cumulative effect charge of $957,000
or $.78 per share, is reported in the 1993 Consolidated Statement of Income.
Accordingly, prior years' financial statements have not been restated to apply
the provisions of SFAS 109.
Deferred income taxes 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 carry forwards at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Deferred Tax Deferred Tax
Asset Liability Asset Liability
------ --------- ------ --------
(In Thousands)
<S> <C> <C> <C> <C>
Inventory reserve $ 485 -- $ 500 --
Fixed assets written
up under purchase
accounting and tax
over book depreciation -- $12,438 -- $ 5,622
Discount on long-term debt -- 1,398 -- 1,511
Basis difference in
subsidiary and
affiliate stock 85 1,750 165 1,686
Partnership tax losses in
excess of book losses -- 1,249 -- 1,139
Other reserves and
accruals 2,620 -- 2,331 --
Other
952 1,077 154 439
------- ------- ------- -------
4,142 17,912 3,150 10,397
Valuation allowance (198) -- (278) --
------- ------- ------- -------
Total deferred
income taxes $3,944 $17,912 $2,872 $10,397
======= ======= ======= =======
</TABLE>
The provision for income taxes is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(In Thousands)
Current payable taxes:
<S> <C> <C> <C>
Federal $4,235 $3,203 $1,239
State and local 957 954 455
------ ------ ------
5,192 4,157 1,694
------ ------ ------
Deferred taxes:
Federal (446) (1,223) 397
State and local (60) (282) 357
------ ------ -------
(506) (1,505) 754
------ ------- -------
$4,686 $2,652 $2,448
====== ======= =======
</TABLE>
A reconciliation of the provision for income taxes and the amount computed by
applying the statutory federal income tax rate to income before income taxes,
minority interest, extraordinary item, and cumulative effect of accounting
change follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Tax at statutory rate $4,063 $2,245 $2,482
Increases (decreases):
State and local taxes,
net of federal benefit 592 449 536
Amortization of excess
of acquired net assets
cost, net 64 1 (1)
Unremitted earnings of
domestic subsidiary 91 109 50
Deferred tax asset
recognized from
prior years -- -- (262)
Sale of subsidiary stock -- (65) (193)
Losses of unconsolidated
affiliates -- 224 --
Reduction attributable
to special election by
captive insurance
company (223) (202) (300)
Other 99 (109) 136
------ ------ ------
$4,686 $2,652 $2,448
====== ====== ======
</TABLE>
Net cash payments for income taxes were $4.2 million, $2.3 million and $1.8
million for the years ended December 31, 1995, 1994 and 1993, respectively.
10. Contingencies
Lynch has pending claims incurred in the normal course of business. Management
believes that the ultimate resolution of these claims will not have a material
adverse effect on the consolidated financial position or the results of
operations of Lynch.
Pursuant to the Acquisition Agreement with Alco (see Note 2), Central Products
assumed sponsorship of a defined benefit pension plan for union employees.
Central Products also agreed to establish a new defined benefit plan for its
non-union employees. Alco retained the defined benefit pension obligation for
non-union retirees as of September 30, 1995 and any non-union employees not
hired by Central Products.
The agreement requires Alco to transfer assets to Central's plans equal to the
present value of accrued benefits as of September 30, 1995, as defined in the
Agreement plus a defined rate of interest to the transfer date.
Central Products' management believes that it was the intent of Alco that the
defined benefit pension obligations for the union and non-union employees be
"fully funded" by Alco. Accordingly, Central Products has not recorded the
unfunded projected benefit obligation of $1.5 million as a liability when
recording the purchase accounting entries.
11. Segment Information
The Company is principally engaged in three business segments: multimedia,
services and manufacturing. All businesses are located domestically, and export
sales were approximately $41 million in 1995, $16.5 million in 1994 and $9.3
million in 1993. The Company does not believe it is dependent on any single
customer. The multimedia segment includes local telephone companies and
investments in two network-affiliated television stations. The services segment
includes transportation and related services. $11.8 million of the Company's
accounts receivable are related to the services segment and are principally due
from companies in the mobile home and recreational vehicle industry located
throughout the United States, including several located in the Midwest and
Southeast. Services provided to one major mobile home manufacturer accounted for
approximately $29.4 million, $27.5 million, and $18.8 million in revenues of the
services segment for the years ended December 31, 1995, 1994, and 1993,
respectively. The manufacturing segment includes the manufacture and sale of
adhesive coated stock for labels and related applications, glass forming, impact
milling, adhesive tapes, and other machinery and related replacement parts, as
well as quartz crystals and oscillators. There were no intersegment sales or
transfers.
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 $965,000, $790,000 and $657,000 during the years ended
December 31 1995, 1994 and 1993, 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.
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
----- ------ ------
(In Thousands)
Revenues
<S> <C> <C> <C>
Multimedia $ 23,597 $ 20,144 $ 16,206
Services 122,303 101,880 82,829
Manufacturing 192,266 66,678 28,004
-------- -------- --------
$338,166 $188,702 $127,039
======== ======== ========
Operating profit
Multimedia $ 4,938 $ 5,164 $ 4,520
Services 3,371 3,434 2,270
Manufacturing 13,880 3,675 1,209
Unallocated corporate
expense (2,874) (1,478) (1,381)
-------- -------- --------
$ 19,315 $ 10,795 $ 6,618
======== ======== ========
Capital expenditures
Multimedia $ 14,051 $ 8,410 $ 2,138
Services 2,135 1,434 1,393
Manufacturing 3,373 1,743 825
General corporate 10 11 --
-------- -------- --------
$ 19,569 $ 11,598 $ 4,356
======== ======== ========
Depreciation and
amortization
Multimedia $ 7,350 $ 5,651 $ 4,400
Services 1,264 915 803
Manufacturing 2,662 931 690
-------- -------- --------
$ 11,276 $ 7,497 $ 5,893
======== ======== ========
Assets
Multimedia $102,998 $ 92,151 $ 73,043
Services 30,796 28,978 24,519
Manufacturing 162,819 62,260 18,349
General corporate 5,826 2,521 14,061
-------- -------- --------
$302,439 $185,910 $129,972
======== ======== ========
</TABLE>
12. Quarterly Results of Operations (unaudited) The following is a summary of
the quarterly results of operations for the years ended December 31, 1995 and
1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 Three Months Ended
--------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales and revenues $69,788 $76,874 $81,546 $109,958
Operating profit 4,034 4,278 4,763 6,240
Net income 1,125 1,156 1,293 1,571
Primary earnings per share:
Net income .80 .82 .92 1.13
Fully diluted earnings
per share:
Net income .80 . 82 .92 1.13
1994 Three Months Ended
---------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
Sales and revenues $36,071 $39,678 $44,687 $68,265
Operating profit 1,740 2,351 3,011 3,693
Income before
extraordinary item
and cumulative effect
of accounting change 641 206 835 910
Net income 641 206 571 910
Primary earnings per share:
Income before
extraordinary item and
cumulative effect of
accounting change .49 .15 .63 .66
Net income .49 .15 .43 .66
Fully diluted earnings
per share:
Income before
extraordinary item and
cumulative effect of
accounting change .47 .15 .52 .64
Net income .47 .15 .38 .64
</TABLE>
MARKET PRICE INFORMATION AND
COMMON STOCK OWNERSHIP (UNAUDITED)
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 past two years are as follows:
<TABLE>
<CAPTION>
Three Months Ended 1995
1995 March 31 June 30 Sept 30 Dec 31
---- ------- ------- ------- ------
<S> <C> <C> <C> <C>
High 39 1/8 47 3/4 84 3/4 80 1/8
Low 30 1/8 35 1/2 46 1/8 57 3/4
1994
----
High 25 1/8 26 7/8 30 1/8 32 7/8
Low 22 3/4 25 1/8 25 1/8 28 5/8
</TABLE>
At March 15, 1996, the Company had 1,060 shareholders of record.
<PAGE>
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") as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Central Products Company, a wholly-owned subsidiary of Spinnaker Industries,
Inc. (an 83% owned subsidiary of Lynch Manufacturing, a wholly-owned subsidiary
of Lynch Corporation), which statements reflect total assets of $94,492,000 as
of December 31, 1995 and total revenues of $30,581,000 for the three month
period ended December 31, 1995 and the financial statements of The Morgan Group,
Inc. and subsidiaries, a subsidiary in which the Company has a 64% voting
interest, which statements reflect total assets of $30,796,000 and $28,978,000
as of December 31, 1995 and 1994, respectively and total revenues of
$122,303,000 and $101,880,000 for the years then ended and the financial
statements of Coronet Communications Company and Capital Communications
Company, Inc. (corporations in which the Company has a 20% and 49% interest,
respectively). Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to data
included for Central Products Company, The Morgan Group, Inc. and subsidiaries,
Coronet Communications Company and Capital Communications Company, Inc., is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the reports of other auditors provide a
reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated February 29, 1996,
which report contained an explanatory paragraph regarding the Company's ability
to continue as a going concern, the Company, as discussed in Note 6, has
completed a debt financing arrangement to refinance the $25 million subordinated
notes on a long-term basis. Therefore, the conditions that raised substantial
doubt about whether the Company will continue as a going concern no longer
exist.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Lynch Corporation and subsidiaries at
December 31, 1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1994 the Company changed
its method of accounting for marketable securities.
As discussed in Note 9 to the financial statements, in 1993 the Company changed
its method of accounting for income taxes.
February 29, 1996, except for Note 6,
as to which the date is April 8, 1996
