SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 1-106
----------------
A: Full title of Plan:
LYNCH CORPORATION 401(k) SAVINGS PLAN
B: Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
Lynch Corporation
401 Theodore Fremd Avenue
Rye, NY 10580
<PAGE>
Audited Financial Statements
and Supplemental Schedules
Lynch Corporation 401(k) Savings Plan
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE>
Lynch Corporation 401(k) Savings Plan
Audited Financial Statements
and Supplemental Schedules
Years ended December 31, 1997 and 1996
Contents
Report of Independent Auditors...............................................1
Audited Financial Statements
Statement of Net Assets Available for Benefits...............................2
Statement of Changes in Net Assets Available for Benefits....................4
Notes to the Audited Financial Statements....................................6
Supplemental Schedules
Schedule of Assets Held for Investment Purposes.............................11
Schedule of Reportable Transactions.........................................12
<PAGE>
Report of Independent Auditors
Board of Directors
Lynch Corporation
We have audited the accompanying statements of net assets available for benefits
of the Lynch Corporation 401(k) Savings Plan as of December 31, 1997 and 1996,
and the related statements of changes in net assets available for benefits for
the years then ended. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1997 and 1996, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules
of assets held for investment purposes as of December 31, 1997, and reportable
transactions for the year then ended, are presented for purposes of complying
with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the basic financial statements. The Fund Information in
the statements of net assets available for benefits and the statements of
changes in net assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets available for benefits
and changes in net assets available for benefits of each fund. The supplemental
schedules and Fund Information have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/Ernst & Young LLP
September 30, 1998
<PAGE>
Lynch Corporation 401(k) Savings Plan
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1997
<TABLE>
<CAPTION>
Fund Information
-----------------------------------------------------------
Hancock Stable Galaxy
Value Fund U.S. Mutual Mutual
Treasury Qualified Discovery
Fund Fund Fund
-----------------------------------------------------------
Assets
Investments:
John Hancock Mutual Life Insurance Company:
<S> <C> <C> <C> <C>
Unallocated Guaranteed Investment Contracts $ 262,826 -- -- --
Fleet Investment Management:
Fleet Stable Asset Fund ................... 723,344 -- -- --
Mutual Qualified Fund ..................... -- -- $ 1,023,054 --
Galaxy U.S. Treasury Fund ................. -- $ 329,610 -- --
Mutual Discovery Fund ..................... -- -- -- $ 145,473
Lynch Corporation Stock Fund .............. -- -- -- --
Participant notes receivable ............... -- -- -- --
Short-term investments ...................... 21,820 -- -- --
---------- ---------- ---------- ----------
Total investments ............................ 1,007,990 329,610 1,023,054 145,473
Receivables:
Participants' contributions ............... 4,001 597 5,644 737
Employer's contribution ................... 6,979 3,557 7,693 1,304
Other ..................................... -- -- -- --
---------- ---------- ---------- ----------
Total assets ................................. 1,018,970 333,764 1,036,391 147,514
---------- ---------- ---------- ----------
Liabilities
Excess contributions payable ................. (17) -- (644) --
Other liabilities ............................ (173) -- -- --
---------- ---------- ---------- ---------
Total liabilities ............................ (190) -- (644) --
---------- ---------- ---------- ---------
Net assets available for benefits ............ $ 1,018,780 $ 333,764 $ 1,035,747 $ 147,514
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Fund Information
---------------------------------------------------
Lynch
Corporation Loan
Stock Fund Fund Total
---------------------------------------------------
Assets
Investments:
John Hancock Mutual Life Insurance Company:
<S> <C> <C> <C>
Unallocated Guaranteed Investment Contracts -- -- $ 262,826
Fleet Investment Management:
Fleet Stable Asset Fund ................... -- -- 723,344
Mutual Qualified Fund ..................... -- -- 1,023,054
Galaxy U.S. Treasury Fund ................. -- -- 329,610
Mutual Discovery Fund ..................... -- -- 145,473
Lynch Corporation Stock Fund .............. 418,154 -- 418,154
Participant notes receivable ............... -- $ 90,118 90,118
Short-term investments ...................... 12,119 -- 33,939
---------- ---------- ----------
Total investments ............................ 430,273 90,118 3,026,518
Receivables:
Participants' contributions ............... 1,333 -- 12,312
Employer's contribution ................... 1,953 -- 21,486
Other ..................................... 4,729 -- 4,729
---------- ---------- -----------
Total assets ................................. 438,288 90,118 3,065,045
---------- ---------- -----------
Liabilities
Excess contributions payable ................. (72) -- (733)
Other liabilities ............................ -- -- (173)
---------- ---------- -----------
Total liabilities ............................ (72) -- (906)
---------- ---------- -----------
Net assets available for benefits ............ $ 438,216 $ 90,118 $ 3,064,139
=========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Statement of Net Assets Available for Benefits, With Fund Information
December 31, 1996
<TABLE>
<CAPTION>
Fund Information
-------------------------------------------------------------------------------
Vanguard Vanguard Tweedy
Hancock Stable U.S. Convertible Mutual Browne
Value Fund Treasury Securities Qualified Global
Fund Fund Fund Value Fund
--------------------------------------------------------------------------------
Assets
Investments:
John Hancock Mutual Life Insurance Company:
<S> <C> <C> <C> <C> <C>
Unallocated Guaranteed Investment Contracts $ 580,962 -- -- -- --
Fleet Investment Management:
Fleet Stable Return Fund .................. 372,274 -- -- -- --
Mutual Qualified Fund ..................... -- -- -- $ 980,660 --
Vanguard U.S. Treasury Fund ............... -- $ 382,210 -- -- --
Vanguard Convertible Securities Fund ...... -- -- $ 57,683 -- --
Tweedy Browne Global Value Fund ........... -- -- -- -- $ 64,744
Lynch Corporation Stock Fund .............. -- -- -- -- --
Participant notes receivable ............... -- -- -- -- --
Short-term investments ...................... (18,348) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total investments ............................ 934,888 382,210 57,683 980,660 64,744
Receivables:
Participants' contributions ............... 189 599 94 928 758
Employer's contribution ................... 3,197 1,205 301 2,991 217
Other ..................................... 3,152 -- 54 942 72
---------- ---------- ---------- ---------- ----------
Total assets ................................. 941,426 384,014 58,132 985,521 65,791
---------- ---------- ---------- ---------- ----------
Liabilities
Excess contributions payable ................. (808) (810) (9) (24,866) (3,586)
Other liabilities ............................ (543) (841) -- (108) --
---------- ---------- ---------- ---------- ----------
Total liabilities ............................ (1,351) (1,651) (9) (24,974) (3,586)
---------- ---------- ---------- ---------- ----------
Net assets available for benefits ............ $ 940,075 $ 382,363 $ 58,123 $ 960,547 $ 62,205
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Fund Information
-----------------------------------------------
Lynch
Corporation Loan
Stock Fund Fund Total
-----------------------------------------------
Assets
Investments:
John Hancock Mutual Life Insurance Company:
<S> <C> <C> <C>
Unallocated Guaranteed Investment Contracts -- -- $ 580,962
Fleet Investment Management:
Fleet Stable Return Fund .................. -- -- 372,274
Mutual Qualified Fund ..................... -- -- 980,660
Vanguard U.S. Treasury Fund ............... -- -- 382,210
Vanguard Convertible Securities Fund ...... -- -- 57,683
Tweedy Browne Global Value Fund ........... -- -- 64,744
Lynch Corporation Stock Fund .............. $ 338,823 -- 338,823
Participant notes receivable ............... -- $ 71,887 71,887
Short-term investments ...................... 24,997 -- 6,649
---------- ---------- ----------
Total investments ............................ 363,820 71,887 2,855,892
Receivables:
Participants' contributions ............... 171 -- 2,739
Employer's contribution ................... 677 -- 8,588
Other ..................................... 4,942 -- 9,162
---------- ---------- ----------
Total assets ................................. 369,610 71,887 2,876,381
---------- ---------- ----------
Liabilities
Excess contributions payable ................. (651) -- (30,730)
Other liabilities ............................ -- -- (1,492)
---------- ---------- ----------
Total liabilities ............................ (651) -- (32,222)
---------- ---------- ----------
Net assets available for benefits ............ $ 368,959 $ 71,887 $ 2,844,159
=========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Statement of Changes in Net Assets Available
for Benefits, With Fund Information
Year ended December 31, 1997
<TABLE>
<CAPTION>
Fund Information
--------------------------------------------------------------------------
Vanguard Galaxy Vanguard
Hancock U.S. U.S. Convertible Mutual
Stable Value Treasury Treasury Securities Qualified
Fund Fund Fund Fund Fund
---------------------------------------------------------------------------
Additions to net assets attributed
to:
Investment income
<S> <C> <C> <C> <C> <C>
Net appreciation
(depreciation) in fair value ..... $ $ $ $ (1,021) $ 106,251
of investments ................... -- -- -- --
Interest ........................... 23,648 -- -- -- --
Dividends .......................... 33,667 6,525 12,016 544 102,250
--------- --------- --------- --------- ----------
Total investment income .............. 57,315 6,525 12,016 (477) 208,501
Contributions:
Participants ....................... 77,746 6,659 34,709 10,682 124,470
Employer ........................... 7,479 -- 3,837 -- 8,463
--------- --------- --------- --------- ----------
Total contributions .................. 85,225 6,659 38,546 10,682 132,933
--------- --------- --------- --------- ----------
Total additions ......................... 142,540 13,184 50,562 10,205 341,434
Deductions from net assets attributed to:
Benefits paid to participants ........ (91,020) (39,554) (42,470) (1,468) (308,678)
Excess contributions and
related investment income........... -- -- -- -- (386)
--------- --------- --------- --------- ----------
Total deductions ........................ (91,020) (39,554) (42,470) (1,468) (309,064)
Net increase (decrease) prior to
interfund transfers ..................... 51,520 (26,370) 8,092 8,737 32,370
Interfund transfers (net) ............... 27,185 (355,993) 325,672 (66,860) 42,830
--------- --------- --------- --------- ----------
Net increase (decrease) ................. 78,705 (382,363) 333,764 (58,123) 75,200
Net assets available for benefits
at beginning of year ................. 940,075 382,363 -- 58,123 960,547
--------- --------- --------- --------- ----------
Net assets available for benefits
at end of year ....................... $ 1,018,780 $ -- $ 333,764 $ -- $ 1,035,747
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Fund Information
--------------------------------------------------------------------------
Tweedy
Browne Mutual Lynch
Global Discovery Corporation Loan
Value Fund Fund Stock Fund Fund Total
--------------------------------------------------------------------------
Additions to net assets attributed
to:
Investment income
<S> <C> <C> <C> <C> <C>
Net appreciation
(depreciation) in fair value ..... $ 5,662 $ 3,175 $ 56,541 $ -- $ 170,608
of investments ...................
Interest ........................... -- -- 1,387 6,025 31,060
Dividends .......................... -- 14,808 -- -- 169,810
--------- --------- --------- --------- ----------
Total investment income .............. 5,662 17,983 57,928 6,025 371,478
Contributions:
Participants ....................... 9,873 20,062 39,111 -- 323,312
Employer ........................... -- 1,534 2,373 -- 23,686
--------- --------- --------- --------- ----------
Total contributions .................. 9,873 21,596 41,484 -- 346,998
--------- --------- --------- --------- ----------
Total additions ......................... 15,535 39,579 99,412 6,025 718,476
Deductions from net assets attributed to:
Benefits paid to participants ........ -- (3,780) (8,073) (2,680) (497,723)
Excess contributions and
related investment income............ (387) -- -- -- (773)
--------- --------- --------- --------- ----------
Total deductions......................... (387) (3,780) (8,073) (2,680) (498,496)
Net increase (decrease) prior to
interfund transfers ..................... 15,148 35,799 91,339 3,345 219,980
Interfund transfers (net) ............... (77,353) 111,715 (22,082) 14,886 --
--------- --------- --------- --------- ----------
Net increase (decrease) ................. (62,205) 147,514 69,257 18,231 219,980
Net assets available for benefits
at beginning of year ................. 62,205 -- 368,959 71,887 2,844,159
--------- --------- --------- --------- ----------
Net assets available for benefits
at end of year ....................... $ -- $ 147,514 $ 438,216 $ 90,118 $ 3,064,139
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Statement of Changes in Net Assets Available
for Benefits, With Fund Information
Year ended December 31, 1996
<TABLE>
<CAPTION>
Fund Information
-------------------------------------------------------------------------
Vanguard Vanguard
Hancock U.S. Convertible Mutual
Stable Value Equities Treasury Securities Qualified
Fund Fund Fund Fund Fund
-------------------------------------------------------------------------
Additions to net assets attributed to:
Investment income
<S> <C> <C> <C> <C> <C>
Net appreciation (depreciation) in
fair value of investments ........ $ -- $ 5,929 $ -- $ (1,676) $ 122,000
Interest ........................... 53,490 -- -- -- --
Dividends .......................... 17,120 -- 2,084 7,016 92,295
---------- ---------- --------- ---------- ---------
Total investment income .............. 70,610 5,929 2,084 5,340 214,295
Contributions:
Participants ....................... 84,737 28 24,026 22,345 147,404
Employer ........................... 6,718 -- 2,275 1,208 7,424
---------- ---------- --------- ---------- ---------
Total contributions .................. 91,455 28 26,301 23,553 154,828
---------- ---------- --------- ---------- ---------
Total additions ......................... 162,065 5,957 28,385 28,893 369,123
Deductions from net assets attributed to:
Benefits paid to participants ........ (194,494) (54,850) (4,509) (1,599) (148,355)
Excess contributions and related
investment income .................. (106) -- (810) (9) (22,167)
Transfer to the Entoleter, Inc. 401(k) (92,825) (16,600) (480) (1,126) (30,292)
plan
---------- ---------- --------- ---------- ---------
Total deductions ........................ (287,425) (71,450) (5,799) (2,734) (200,814)
Net increase (decrease) prior to
interfund transfers .................. (125,360) (65,493) 22,586 26,159 168,309
Interfund transfers (net) ............... (241,844) (881,169) 333,016 12,323 651,562
---------- ---------- --------- ---------- ---------
Net increase (decrease) ................. (367,204) (946,662) 355,602 38,482 819,871
Net assets available for benefits at
beginning of year .................... 1,307,279 946,662 26,761 19,641 140,676
---------- ---------- --------- ---------- ---------
Net assets available for benefits at end
of year .............................. $ 940,075 $ -- $ 382,363 $ 58,123 $ 960,547
=========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Fund Information
--------------------------------------------------------
Tweedy
Browne Lynch
Global Corporation Loan
Value Fund Stock Fund Fund Total
-------------------------------------------------------
Additions to net assets attributed to:
Investment income
<S> <C> <C> <C> <C>
Net appreciation (depreciation) in
fair value of investments ........ $ 1,251 $ 63,130 $ $ 190,634
Interest ........................... -- 199 2,411 56,100
Dividends .......................... 4,667 -- -- 123,182
--------- ----------- ---------- ------------
Total investment income .............. 5,918 63,329 2,411 369,916
Contributions:
Participants ....................... 27,486 37,488 -- 343,514
Employer ........................... 1,114 1,937 -- 20,676
--------- ----------- ---------- ------------
Total contributions .................. 28,600 39,425 -- 364,190
--------- ----------- ---------- ------------
Total additions ......................... 34,518 102,754 2,411 734,106
Deductions from net assets attributed to:
Benefits paid to participants ........ (2,083) (36,037) (920) (442,847)
Excess contributions and related
investment income .................. (3,586) (579) -- (27,257)
Transfer to the Entoleter, Inc. 401(k) (420) (5,793) -- (147,536)
plan
--------- ----------- ---------- ------------
Total deductions ........................ (6,089) (42,409) (920) (617,640)
Net increase (decrease) prior to
interfund transfers .................. 28,429 60,345 1,491 116,466
Interfund transfers (net) ............... 17,996 37,720 70,396 --
--------- ----------- ---------- ------------
Net increase (decrease) ................. 46,425 98,065 71,887 116,466
Net assets available for benefits at
beginning of year .................... 15,780 270,894 -- 2,727,693
--------- ----------- ---------- ------------
Net assets available for benefits at end
of year .............................. $ 62,205 $ 368,959 $ 71,887 $ 2,844,159
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Notes to the Audited Financial Statements
Years ended December 31, 1997 and 1996
1. Description of Plan
- ----------------------
The following description of the Lynch Corporation (the "Company") 401(k)
Savings Plan (the "Plan") provides only general information. For a more complete
description of the Plan's provisions, participants should refer to the Summary
Plan Description which is available from the Company.
General
- -------
The Plan is a defined contribution plan covering substantially all non-union
employees of the Company and the employees of certain of its subsidiaries who
are at least 18 years of age and who have completed 1,000 hours of service
during a consecutive twelve-month period. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 ("ERISA").
Effective January 1, 1996, one of the Company's subsidiaries, Entoleter, Inc.
("Entoleter") established its own defined contribution 401(k) savings plan. The
participant balances attributable to Entoleter employees ($147,536), were
transferred from the Plan in May 1996 to the new Entoleter, Inc. 401(k) Savings
Plan.
Contributions
- -------------
Eligible employees may elect to contribute, on a pre-tax basis, between 1% and
15% of their total annual compensation to the Plan up to the maximum allowed
under the Internal Revenue Code ($9,500 in 1997 and 1996). An annual mandatory
employer matching contribution is made to each participant's account equal to
25% of the first $800 of the participant's contribution, generally on or about
the closing date of the Plan year. In addition, the employer may make a
discretionary matching contribution of up to 75% of the first $800 of the
participant's contribution. No such discretionary contribution was made in 1997
or 1996.
Participants' Accounts
- ----------------------
Each participant's account is credited with the participant's contributions,
Company's contributions and Plan earnings. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's account.
Vesting
- -------
Participants are vested immediately in all contributions to their accounts,
including the Company's matching contributions (mandatory and discretionary, if
any) and investment earnings.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Notes to the Audited Financial Statements (continued)
Years ended December 31, 1997 and 1996
1. Description of Plan (continued)
- ----------------------------------
Payment of Benefits
- -------------------
Participant benefits are paid as soon as practicable in accordance with the
terms of the Plan following termination of employment, total permanent
disability, retirement, death or upon termination of the Plan. All benefit
payments are made in lump sum payments for an amount equal to the fair value of
their vested account balance.
Investment Options
- ------------------
Upon enrollment in the Plan, a participant may direct employer and participant
contributions in 1% increments of the amount contributed as follows:
Hancock Stable Value Fund - Funds are invested in the following: 1)
unallocated guaranteed investment contracts through John Hancock Mutual
Life Insurance Company ("Hancock") and; 2) a pooled account (Fleet Stable
Asset Fund) which invests primarily in unallocated guaranteed investment
contracts.
Vanguard U.S. Treasury Fund - Funds are invested in securities backed by
the full faith and credit of the U.S. Government.
Vanguard Convertible Securities Fund - Funds are primarily invested in
convertible securities but may also be invested in non-convertible
corporate debt, U.S. Government debt, common stocks, and money markets.
Mutual Qualified Fund - Funds are invested in common stocks, U.S.
Government and government agency obligations, bonds, and other equity
securities.
Tweedy Browne Global Value Fund - Funds are invested in domestic and
foreign equities, including government and other organization debt.
Lynch Corporation Stock Fund - Funds are invested in the common stock of
the Company.
Effective April 11, 1997, the Fleet Stable Return Fund changed its name to the
Fleet Stable Asset Fund (part of the Hancock Stable Value Fund investment
option). In connection with the name change, the assets of the Fleet Stable
Return Fund were sold and repurchased into the Fleet Stable Asset Fund. The Fund
still invests in guaranteed investment contracts.
In April 1997, funds invested by participants in the Vanguard U.S. Treasury Fund
and the Vanguard Convertible Securities Fund were transferred to the Galaxy U.S.
Treasury Fund and all funds invested in the Tweedy Browne Global Value Fund were
transferred to the Mutual Discovery Fund. These funds invest in the following:
Galaxy U.S. Treasury Fund - Funds are invested in securities issued by the
U.S. Government or by its agencies or instrumentalities.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Notes to the Audited Financial Statements (continued)
Years ended December 31, 1997 and 1996
1. Description of Plan (continued)
- ----------------------------------
Mutual Discovery Fund - Funds are invested in the common stock and
preferred stock, as well as debt securities and securities convertible into
common stock, of foreign companies and smaller capitalized companies.
Participants may change their investment options daily.
Participant Notes Receivable
- ----------------------------
Participants may borrow from their fund accounts a minimum of $1,000 or up to
50% of their account balance (not to exceed $50,000). All loans must, by their
terms, require repayment over a period not to exceed five years, unless for the
purchase of the participant's primary residence for which the term shall be
determined by the Company. Loan transactions are treated as a transfer between
the investment fund and the loan fund. The loans are secured by 50% of the
balance in the participant's account and bear interest at a reasonable rate as
determined by the Plan administrator in accordance with the Internal Revenue
Service (the "IRS") and Department of Labor ("DOL") regulations. A participant's
loan shall immediately become due and payable upon termination of employment or
failure to make a principal and/or interest payment as provided in the loan
agreement.
Plan Termination
- ----------------
Although it has not expressed any intent to do so, the Company has the right
under the Plan to change or discontinue its contributions at any time and to
terminate the Plan, subject to the provisions of ERISA. In the event of Plan
termination, or if contributions to the Plan cease, the Plan must distribute the
assets to the participants in an amount equal to the fair value of their
participants' accounts and pay any related expenses.
Expenses
- --------
Substantially all of the administrative expenses of the Plan were paid by the
Company.
2. Significant Accounting Policies
- ----------------------------------
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Investment Valuation
- --------------------
Investments, except for the unallocated guaranteed investment contracts, in the
Plan are stated at fair value. The shares of registered investment companies
(i.e., mutual funds) are valued at quoted market prices which represent the net
asset values of shares held by the Plan at year-end. The participant notes
receivable are valued at their outstanding balances, which approximate fair
value.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Notes to the Audited Financial Statements (continued)
Years ended December 31, 1997 and 1996
2. Significant Accounting Policies (continued)
- ----------------------------------------------
The unallocated guaranteed investment contracts are valued at contract value
which approximates fair value as estimated by Hancock. Contract value represents
contributions made under the contract, plus interest at the contract rate, less
funds used to pay retirement benefits and certain administrative expenses.
Lynch Corporation common stock is valued at the last reported sales price on the
last business day of the year.
Purchases and sales of securities are recorded on a trade-date basis. Historical
cost of the Plan's investments are determined by the weighed average method.
Interest income is recorded as earned on the accrual basis. Dividends are
recorded on the ex-dividend date.
Net appreciation (depreciation) reflected in the statement of changes in net
assets available for benefits includes the change in the difference between fair
value and the cost of investments, as well as the realized gains and losses
associated with the sale of investments.
3. Investments
- --------------
The fair value of individual investments that represent 5% or more of the Plan's
net assets are as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
----------------------------
John Hancock Mutual Life Insurance Company
<S> <C> <C>
Unallocated Guaranteed Investment Contracts $ 262,826 $ 580,962
Fleet Stable Return Fund .................... 723,344 372,274
Mutual Qualified Fund ....................... 1,023,054 980,660
Galaxy U.S. Treasury Fund ................... 329,610 --
Vanguard U.S. Treasury Fund ................. -- 382,210
Lynch Corporation Stock Fund ................ 418,154 338,823
</TABLE>
Tremont Advisers, Inc., an affiliate of the Company, provided investment
advisory services for the Equities Fund until the dissolution of the Fund in
1996. The fees for such services were paid by the Company.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Notes to the Financial Statements (continued)
Years ended December 31, 1997 and 1996
4. Contracts with Insurance Company
- -----------------------------------
During 1997 and 1996, the Plan held unallocated guaranteed investment contracts
with maturities in 1996 through 1999 with Hancock. Contributions from the Plan
were accepted by Hancock throughout the first year of each contract and interest
is earned over the contract lives at guaranteed annual rates ranging from 5.39%
to 8.68%.
5. Income Tax Status
- --------------------
On April 1, 1995, the Company implemented a prototype nonstandardized plan
developed by Fleet. The Fleet prototype plan has secured a favorable opinion
letter from the Internal Revenue Service ("IRS") stating that the form of the
underlying prototype plan document is qualified under Section 401(a) of the
Internal Revenue Code ("Code"). The Company intends to file for a determination
letter. The Plan is required to operate in conformity with the Code to be a
qualified plan under Section 401(a) of the Code. The Plan Administrator and
management of the Company plan to take the necessary steps, if any, to maintain
the Plan's qualified status.
6. Year 2000 Issue (unaudited)
- ------------------------------
The Company has developed a plan to modify its internal information technology
to be ready for the year 2000 and has begun converting critical data processing
systems. The project also includes determining whether third party service
providers have reasonable plans in place to become year 2000 compliant. The
Company currently expects the project to be substantially complete by early
1999. The Company does not expect this project to have a significant effect on
plan operations.
<PAGE>
Supplemental Schedules
----------------------
<PAGE>
Lynch Corporation 401(k) Savings Plan
Schedule of Assets Held for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
Description of Investment, Including Current or
Identity of Issue, Borrower, Maturity Date, Rate of Interest, Par or Contract Value
Lessor or Similar Party Maturity Value Cost
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hancock Stable Value Fund
John Hancock Mutual Life Insurance Company
Unallocated Guaranteed Group Annuity Contract Number
Investment Contracts 4551, Association 287, 5.39%
due May 29, 1998 $ 216,818 $ 216,818
Group Annuity Contract Number 9008, 6.56%
due June 30, 1999 46,008 46,008
Fleet Stable Asset Fund ................... 72,334 shares 723,344 723,344
Galaxy U.S. Treasury Fund..................... 329,610 shares 329,610 329,610
Mutual Qualified Fund ........................ 56,274 shares 910,252 1,023,054
Mutual Discovery Fund ........................ 7,701 shares 143,409 145,473
Lynch Corporation Stock Fund:
Lynch Corporation Common Stock* ........... 5,038 shares 196,421 418,154
Participant notes receivable ................. Loans bear interest at 8.25% -- 90,118
Short-term investments....................... -- 33,939 33,939
-------- --------
$2,599,801 $3,026,518
========== ==========
</TABLE>
* Indicates party-in-interest to the Plan.
<PAGE>
Lynch Corporation 401(k) Savings Plan
Schedule of Reportable Transactions
Year ended December 31, 1997
<TABLE>
<CAPTION>
Current Value
of Asset on
Purchase Selling Cost of Transaction Net Gain/
Identity of Party Involved Description of Assets Price Price Asset Date (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
Category (i)--A single transaction in excess of 5% of the current value of plan assets
<S> <C> <C> <C> <C> <C> <C>
John Hancock Mutual Life Insurance Company
Guaranteed Investment Contracts
341,377 shares ............. $ -- $341,377 $341,377 $341,377 $ --
Fleet Investment Management Fleet Stable Asset Fund........
36,765 shares .............. 367,650 -- 367,650 367,650 --
34,137 shares .............. 341,377 -- 341,377 341,377 --
Fleet Stable Return Fund
367,650 shares ............. -- 367,650 367,650 367,650 --
Galaxy U.S. Treasury Fund
462,584 shares ............. 462,584 -- 462,584 462,584 --
Vanguard U.S. Treasury Fund
403,168 shares ............. -- 403,168 403,168 403,168 --
</TABLE>
<PAGE>
Lynch Corporation 401(k) Savings Plan
Schedule of Reportable Transactions (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Current Value
of Asset on
Purchase Selling Cost of Transaction Net Gain/
Identity of Party Involved Description of Assets Price Price Asset Date (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
Category (iii)--A series of transactions in excess of 5% of plan assets
<S> <C> <C> <C> <C> <C> <C>
John Hancock Mutual Life Insurance Company
Guaranteed Investment Contracts
23,241 shares .............. $ 23,241 $ -- $ 23,241 $ 23,241 $ --
341,377 shares ............. -- 341,377 341,377 341,377 --
Fleet Investment Management
Fleet Stable Asset Fund
73,634 shares .............. 736,344 -- 736,344 736,344 --
1,300 shares ............... -- 13,000 13,000 13,000 --
Fleet Stable Return Fund
7,418 shares ............... 7,418 -- 7,418 7,418 --
379,692 shares ............. -- 379,692 379,692 379,692 --
Vanguard U.S. Treasury Fund
112,400 shares ............. 112,400 -- 112,400 112,400 --
494,610 shares ............. -- 494,610 494,610 494,610 --
Galaxy U.S. Treasury Fund
661,909 shares ............. 661,909 -- 661,909 661,909 --
332,299 shares ............. -- 332,299 332,299 332,299 --
</TABLE>
<PAGE>
Lynch Corporation 401(k) Savings Plan
Schedule of Reportable Transactions (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Current Value
of Asset on
Purchase Selling Cost of Transaction Net Gain/
Identity of Party Involved Description of Assets Price Price Asset Date (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
Category (iii)--A series of transactions in excess of 5% of plan assets (continued)
<S> <C> <C> <C> <C> <C> <C>
Fleet Investment Management (continued)
Mutual Qualified Fund
25,341 shares .............. $470,809 $ -- $470,809 $470,809 $ --
28,812 shares .............. -- 534,666 453,216 534,666 81,450
Tweedy Browne Global Value Fund
4,563 shares ............... 69,226 -- 69,226 69,226 --
9,043 shares ............... -- 139,632 132,551 139,632 7,081
Mutual Discovery Fund
8,474 shares ............... 157,705 -- 157,705 157,705 --
773 shares ................. -- 15,407 14,296 15,407 1,111
Short-term investments
210,425 shares ............. 210,425 -- 210,425 210,425 --
201,605 shares ............. -- 183,135 183,135 183,135 --
</TABLE>
There were no Category (ii) or (iv) reportable transactions during 1997.
"Lease Rental" and "Expenses Incurred with Transaction" columns were not
applicable during 1997.
<PAGE>
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the 401(k) Plan Committee has duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
LYNCH CORPORATION 401(k) SAVINGS PLAN
By: s/Robert E. Dolan
Robert E. Dolan
Member of the 401(k) Plan Committee
Dated: December 10, 1998
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-46953) pertaining to the Lynch Corporation 401(k) Savings Plan of our
report dated September 30, 1998, with respect to the financial statements and
schedules of the Lynch Corporation 401(k) Savings Plan included in this Annual
Report (Form 11-K) for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
December 4, 1998
