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FORM 8-K/A - CURRENT REPORT
United States
Securities and Exchange Commission
Washington DC 20549
CURRENT REPORT
Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934
Date of Report: July 27, 1998
SOVEREIGN SPECIALTY CHEMICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
36-4176637
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification No.)
225 W. Washington St. - Ste. 2200, Chicago, IL
60606
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 419-7100
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Item 2
On April 21, 1998, Sovereign Specialty Chemicals, Inc. consummated a stock
purchase agreement for the sale of its Mercer Products Company, Inc.,
subsidiary to Burke Industries, Inc. Net cash proceeds from the sale were
approximately $35.3 million (sales price of $36.2 million less selling expenses
of $850,000). Proceeds from the sale were used by the Company to pay down $30
million of senior bank debt and for general corporate purposes.
Mercer is a leading manufacturer of extruded vinyl flooring profiles and
related products for the commercial and residential construction and renovation
markets. Mercer was acquired in August 1997, as part of Sovereign's
acquisition of the Adhesives, Sealants & Coatings - North America Division of
Laporte plc. Mercer is located in Eustis, Florida.
The following unaudited pro forma financial statements are based upon the
historical financial statements of the Company included in the Company's 1997
Form 10-K. The unaudited pro forma balance sheet has been prepared to give
effect to the sale of Mercer Products Company, Inc. as though it had been
consummated on December 31, 1997.
The unaudited pro forma statement of operations for the year ended December 31,
1997 gives effect to 1997 acquisitions as though they were consummated on
January 1, 1997. In addition, the unaudited pro forma statement of operations
gives effect to the sale of Mercer Products Company, Inc. and the use of the
sale proceeds as though the sale had been consummated on January 1, 1997.
The unaudited pro forma financial statements do not purport to be indicative of
the results that would have been obtained had such transactions described above
occurred as of the assumed dates. In addition, the pro forma statement of
operations does not purport to reflect the actual results that would have
occurred had the transactions consummated on January 1, 1997 or project the
Company's results of operations for any future period.
The unaudited pro forma statement of operations should be read in conjunction
with the consolidated financial statements of the Company and Subsidiaries and
the notes thereto as included in the Company's 1997 Form 10-K and included in
the Company's Registration Statement on Form S-4 (File No. 333-39373) as
amended, filed on April 24, 1998.
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SOVEREIGN SPECIALTY CHEMICALS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
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<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,413 $ 5,345(3) $ 11,758
Accounts receivable, net........................... 26,824 (2,305)(1) 24,519
Inventories........................................ 21,042 (2,920)(1) 18,122
Other current assets............................... 5,483 (220)(1) 5,263
-------- -------- --------
Total current assets....................... 59,762 (870) 59,662
Property, plant and equipment, net................... 48,308 (4,952)(1) 43,356
Goodwill, net........................................ 123,177 (27,520)(1) 95,657
Other assets......................................... 11,512 (770)(1) 10,742
-------- -------- --------
Total assets............................... $242,759 $(33,342) $209,417
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................... $ 13,008 $ (1,276)(1) $ 11,732
Accrued and other current liabilities.............. 14,023 (806)(1) 12,783
(434)(2)
Current portion of long-term obligations........... 2,520 -- 2,520
-------- -------- --------
Total current liabilities.................. 29,551 (2516) 27,035
Long-term obligations, less current portion.......... 156,757 (30,000)(3) 126,757
Other long-term liabilities.......................... 4,398 (175)(1) 4,223
Stockholder's equity:
Common stock....................................... -- -- --
Additional paid-in capital......................... 52,479 -- 52,479
Retained earnings (accumulated deficit)............ (522) (651)(2) (1,173)
Currency translation adjustment.................... 96 -- 96
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Total stockholder's equity................. 52,053 (651) 51,402
-------- -------- --------
Total liabilities and stockholder's
equity................................... $242,759 $(33,342) $209,417
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</TABLE>
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(1) Gives effect to the elimination of the book value of the net assets of
Mercer that were sold ($36,430).
(2) Adjustment gives effect to the sale of the net assets of Mercer as follows:
<TABLE>
<S> <C>
Sales price................................................. $36,201
Expenses associated with the sale........................... 856
-------
Net proceeds........................................... 35,345
Book value of net assets sold............................... 36,430
-------
(1085)
Income taxes at 40%......................................... (434)
-------
Loss on sale........................................... $ (651)
=======
</TABLE>
(3) Adjustment gives effect to the application of the proceeds from the sale of
Mercer to repay the outstanding indebtedness under the Company's credit
facility of $30 million with the remaining $5,345 as an increase in cash.
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SOVEREIGN SPECIALTY CHEMICALS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SALE OF SALE OF MERCER
THE COMPANY THE ACQUIRED MERCER, PERIOD ENDED PRO FORMA
HISTORICAL COMPANIES HISTORICAL AUGUST 4, 1997 ADJUSTMENTS TOTAL
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<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $134,771 $73,574 $(9,945)(1) (14,954)(6) $ -- $183,446
Cost of goods sold............ 92,889 49,726 (6,921)(1) (9,578)(6) -- 126,116
-------- ------- ------- ------- ------- --------
Gross profit.................. 41,882 23,848 (3,024) (5,376) -- 57,330
Selling, general and
administrative expenses..... 30,131 15,618 (1,899)(1) (2,904)(6) 962(2) 41,908
-------- ------- ------- ------- ------- --------
Operating income.............. 11,751 8,230 (1,125) (2,472) (962) 15,422
Interest expense.............. 9,080 2,296 (1,117)(1) (544)(6) 5,102(3) 13,459
(1,358)(4)
Foreign exchange loss......... 163 -- -- -- -- 163
-------- ------- ------- ------- ------- --------
Income before income taxes.... 2,508 5,934 (8) (1,928) (4,706) 1,800
Income taxes.................. 1,315 2,380 (6)(1) (771)(6) (1,406)(5) 1,512
-------- ------- ------- ------- ------- --------
Income before discontinued
operations and extraordinary
losses...................... $ 1,193 $ 3,554 $ (2) (1,157) $(3,300) $ 288
======== ======= ======= ======= ======= ========
</TABLE>
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(1) Adjustment gives effect to the sale of Mercer to remove its results of
operations for the period from August 5, 1997 to December 31, 1997.
(2) Adjustment gives effect to the increased amortization of goodwill resulting
from $108 million of goodwill from the acquisitions which is being amortized
over a period of 25 years ($2,514). The increase in the amortization of
goodwill is partially offset by the elimination of historical goodwill
amortization of the Acquired Companies prior to the acquisitions ($1,552).
(3) Adjustment gives effect to increased interest expense from (i) the offering
of $125 million of Senior Subordinated Notes due 2007 at 9.5% ($6,927), (ii)
the term loan of $30 million under the Senior Credit Facility at 8.25%
($1,444), and (iii) the amortization of $12,672 of capitalized deferred
financing costs over 10 years ($739). The increase in interest expense has
been partially offset by (x) the elimination of pre acquisition interest
expense of the acquired companies on indebtedness to parent not acquired
($1,796), (y) the elimination of interest on $41.4 million of historical
debt of the Company refinanced in the Transactions ($2,137), and (z) the
elimination of amortization of deferred financing costs associated with debt
refinanced in the Transactions ($75).
(4) Adjustment gives effect to the additional decrease in interest expense
attributable to the payment of the $30 million Senior Credit Facility.
Adjustment reflects a reduction of interest expense of $2,475 less the
amount of interest expense recognized by Mercer of $1,117 and eliminated in
pro forma adjustment #1.
(5) Adjustment gives effect to the income tax benefit resulting from the pro
forma adjustments (net of nondeductible goodwill amortization) at an
effective rate of 40%.
(6) Adjustment gives effect to the sale of Mercer to remove its results of
operations for the period ended August 4, 1997 (the period prior to the
Company's acquisition of Mercer).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date July 27, 1998 Sovereign Specialty Chemicals, Inc.
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(Registrant)
/s/ Lowell D. Johnson
-----------------------------
Lowell D. Johnson, Vice President
and Chief Financial Officer
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EXHIBITS
Exhibit
No. Description
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1. Stock Purchase Agreement, dated March 5, 1998, by and among Burke
Industries, Inc., Mercer and the Company. (Exhibit 10.20 to the
Company's Registration Statement on Form S-4 (File No. 333-39373) as
amended, filed on April 24, 1998, incorporated by reference).
