<PAGE>
FORM 10Q/A(1)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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Commission file number 2-66564
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Spinnaker Industries, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 06-0544125
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(State or other jurisdiction of (I.R.S. Employer Identification No.
600 N. Pearl St., #2160, L.B. 100, Dallas, TX 75201
- --------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(214) 855-0322
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate check mark whether the Registrant (1) has filed all reports required
to be filed be Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
Common Stock, No Par Value 2,903,170 shares
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Class Outstanding at April 30, 1996
Page 1 of 8
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Item 1. Financial Statements
Financial Statements as amended August 12, 1996 to revise Note 1
(Acquisition of Central Products - Pro Forma Information).
SIGNATURE
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.
Spinnaker Industries, Inc.
/s/ James W. Toman
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James W. Toman
Controller
Date: August 12, 1996
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Page 2 of 8
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PART I - FINANCIAL INFORMATION
Item 1. - FINANCIAL STATEMENTS
SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,305,000 $ 3,048,000
Accounts receivable (less allowance 26,545,000 24,789,000
of $972,000 and $1,234,000)
Inventories (Net) 28,399,000 27,041,000
Prepaid expenses and other 2,468,000 2,318,000
Deferred income taxes 1,234,000 1,234,000
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Total current assets 60,951,000 58,430,000
Property plant and equipment
Land 598,000 583,000
Buildings and improvements 10,384,000 9,632,000
Machinery and equipment 45,030,000 44,485,000
Accumulated depreciation (5,619,000) (4,639,000)
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50,393,000 50,061,000
Goodwill 25,613,000 25,793,000
Other assets 4,112,000 3,300,000
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TOTAL ASSETS $141,069,000 $137,584,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,950,000 $ 12,699,000
Accrued liabilities 7,371,000 6,534,000
Current portion of long term debt 3,559,000 3,666,000
Working capital revolver 26,167,000 27,149,000
Other current liabilities 407,000 394,000
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Total current liabilities 54,454,000 50,442,000
Long term debt and capital lease, less
current portion 68,790,000 69,642,000
Deferred income taxes 7,164,000 7,164,000
Notes payable to related parties 1,618,000 1,583,000
Minority interest 1,792,000 1,691,000
Stockholders' equity
Common stock 3,124,000 3,124,000
Additional paid in capital 3,709,000 3,709,000
Retained earnings 530,000 341,000
Less: common stock in treasury (112,000) (112,000)
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Total stockholders' equity 7,251,000 7,062,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $141,069,000 $137,584,000
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</TABLE>
NOTE: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements which are
an integral part of these financial statements.
Page 3 of 8
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SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED RESULTS OF INCOME - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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(UNAUDITED)
1996 1995
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<S> <C> <C>
Net sales $ 62,003,000 $ 25,961,000
Cost of sales (53,211,000) (22,360,000)
Gross margin 8,792,000 3,601,000
Selling, general and administrative
expense (5,569,000) (2,499,000)
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Income from operations 3,223,000 1,102,000
Interest expense (2,323,000) (646,000)
Guarantee fee (375,000) -
Other income (expense)-Net (33,000) 33,000
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Income before income taxes and
minority interest 492,000 489,000
Income tax provision (202,000) (187,000)
Minority interest (101,000) (74,000)
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Net income $ 189,000 $ 228,000
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Weighted average shares and common stock
equivalents outstanding 3,348,000 3,224,000
Net income per share $0.06 $0.07
</TABLE>
See accompanying notes to condensed consolidated financial statements which
are an integral part of these financial statements.
Page 4 of 8
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SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1996 1995
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<S> <C> <C>
Operating activities $ 189,000 $ 228,000
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,022,000 256,000
Sales of short-term investments, net - 4,000
Minority interest 101,000 74,000
Amortization of goodwill 240,000 -
Amortization of deferred financing costs 118,000 -
Accrued interest on notes payable to related parties 35,000 61,000
Changes in operating assets and liabilities
Accounts receivable (1,756,000) (29,000)
Inventories (1,358,000) (1,381,000)
Prepaid expenses and other assets (150,000) (140,000)
Accounts payable and accrued liabilities 5,088,000 3,471,000
Other current liabilities 13,000 (290,000)
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Net cash provided by operating activities 3,542,000 2,254,000
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Investing activities
Purchases of plant and property (1,312,000) (519,000)
Additions to other assets (1,032,000) -
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Net cash used in investing activities (2,344,000) (519,000)
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Financing activities
Working capital revolver (982,000) (1,885,000)
Principal payments on long-term debt (1,058,000) (5,000)
Long term capital leases 99,000 0
Purchase of minority interest - (41,000)
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Net cash used in financing activities (1,941,000) (1,931,000)
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Decrease in cash and cash equivalents (743,000) (196,000)
Cash and cash equivalents at beginning of period 3,048,000 484,000
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Cash and cash equivalents at end of period $ 2,305,000 $ 288,000
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</TABLE>
See accompanying notes to condensed consolidated financial statements which are
an integral part of these financial statements.
Page 5 of 8
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SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying condensed consolidated financial statements include
Spinnaker Industries, Inc. and its operating subsidiaries, Central
Products Company (100% owned), Brown-Bridge Industries, Inc. (80.1%
owned) and Entoleter, Inc. (100.0% owned) (collectively the
"Registrant"). Effective October 4, 1995, Central Products Acquisition
Corporation entered into a Stock and Asset Purchase Agreement with
Unisource Worldwide, Inc. and Alco Standard Corporation ("Alco"), which
is Unisource's parent. Central Products Acquisition Corporation,
subsequently renamed Central Products Company, is a wholly-owned
subsidiary of Spinnaker Industries, Inc. and was formed to acquire
Central Products Company ("CPC"), which manufactures and sells
water-activated and pressure-sensitive carton sealing tapes. The
purchase price under the agreement was approximately $80 million.
The acquisition was accounted for as a purchase with the purchase price
(subject to adjustment upon finalization of certain acquisition costs)
allocated to the assets acquired and the liabilities assumed.
The operating results of Central Products Company are included in the
consolidated statements of operations for the first-quarter ended March
31, 1996. The following pro forma information, which is based on
information currently available to the Company, shows the results of the
Registrant's operations presented as though the purchase of Central
Products Company had been made at the beginning of 1995.
FIRST QUARTER ENDED
MARCH 31, 1995
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Sales and Revenues $56,971,000
Net Income $ 225,000
Net Income Per Share $ 0.07
2. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period ended
March 31, 1996, are not necessarily indicative of the results that may
be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's annual report on Form
10-K for the year ended December 31, 1995.
Page 6 of 8
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3. Of inventory values at March 31, 1996, and December 31, 1995, 48% are
valued using the last in, first out method (LIFO), 47% are valued using
a specific identification method with the remaining inventories valued
using the first-in, first-out method (FIFO). Inventories consist of the
following at March 31, 1996, and December 31, 1995:
1996 1995
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Finished goods $ 9,267,000 $ 8,291,000
Work-in-process 9,679,000 9,459,000
Raw materials 9,453,000 9,291,000
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Total $28,399,000 $27,041,000
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4. The Registrant maintains short-term lines of credit with banks for
working capital needs at each subsidiary that aggregate $45.5 million.
The Registrant had cash advances of approximately $26.2 million
outstanding under the lines of credit as of March 31, 1996. Credit
availability under these lines of credit at March 31, 1996 was $11.7
million. At March 31, 1996, the interest rates in effect ranged from
9.25% to 10.75%. Credit availability under these lines of credit is
subject to certain variables, such as the amount of inventory and
receivables eligible to be included in the borrowing base.
Following is a summary of long term debt of Registrant at March 31,
1996, and December 31, 1995:
1996 1995
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Spinnaker subordinated note is comprised of a $25,000,000 $25,000,000
$15 million subordinated convertible note and a
$10 million subordinated convertible note, both
due to Alco. ($15 million note is carried at an
8% interest rate, $10 million note carried at an
11% interest rate)
Brown-Bridge Term Loan - secured by the assets 6,013,000 6,691,000
of Brown-Bridge at an interest rate of prime plus
1.25%, payable over five years maturing in 1999.
Entoleter mortgage note - payable on demand 987,000 992,000
in 1997 and secured by certain real property of
Entoleter.
Central Products Term Loan A - held by Central 19,250,000 19,625,000
Products at an interest rate 9.5%, principal payable
quarterly ranging from $375,000 to $1,500,000
maturing in September 2000.
Page 7 of 8
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Central Products Term Loan B - held at an 16,000,000 16,000,000
interest rate of 10%, principal payable in quarterly
installments of $2,000,000 from December
2000 to September 2002.
Central Products subordinated promissory note 5,000,000 5,000,000
due to Alco, interest free to September 1996, and
at an interest rate of 8% thereafter, principal pay-
ment of $1,000,000 due December 1998 and
$4,000,000 due December 1999 (unless senior debt
is still outstanding, then $4,000,000 due December
2000)
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Sub-Total $72,250,000 $73,308,000
Less: Current Maturities 3,559,000 3,666,000
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Total Long Term Debt $68,691,000 $69,642,000
Long Term Capital Lease relating
to Brown Bridge Industries 99,000 -0-
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Total Long Term Debt and Capital Lease $68,790,000 $69,642,000
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On April 5, 1996, the Registrant refinanced the $25,000,000 notes due to
Alco and in connection with this transaction borrowed $8,500,000 from a
bank. The outstanding principal of this bank loan bears interest at an
adjustable rate (approximately 10.4% at April 5, 1996) and converts into a
five-year term loan if it is not paid in full on the December 1996 due date.
Concurrently with the closing of the bridge loan, the Registrant paid Alco
$7.5 million. The unpaid balance of the original $25 million subordinated
notes, together with the balance due on a warehouse facility newly acquired
from Alco was restructured into a series of new convertible subordinated
notes aggregating $20.25 million ("Convertible Notes"). In early May 1996,
$6 million of the Convertible Notes was converted into common stock of
the Registrant at a conversion price of approximately $35 per share.
5. The Directors of the Registrant declared a 3-for-2 stock split of
the Registrant's common shares, effective as of December 29, 1995. All
presentations of shares outstanding and amounts per share have been
restated to reflect the stock split.
Earnings per share is based on the weighted average number of common and
common equivalent shares outstanding during each year, after giving
effect to the 3-for-2 stock split. Fully diluted earnings per share did
not differ significantly from primary earnings per share in any period
presented.
Page 8 of 8
