<PAGE>
FORM 10Q
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 SEPTEMBER 30, 1996
Commission file number 2-66564
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________to ______________________
SPINNAKER INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 06-0544125
(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
(Registrant's telephone number, including area code)
N/A
(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 by 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
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
SPNI COMMON STOCK, NO PAR VALUE 3,074,598 SHARES
Class Outstanding at September 30, 1996
SPNI-A COMMON STOCK, NO PAR VALUE 3,074,598 SHARES
Class Outstanding at September 30, 1996
Page 1 of 15
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SPINNAKER INDUSTRIES, INC.
INDEX
- - -------------------------------------------------------------------------------
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
- - -------------------------------------------------------------------------------
Page 2 of 15
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------ ------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 3,163,000 $ 3,048,000
Accounts receivable (less allowance 26,471,000 24,789,000
of $1,138,000 and $1,234,000)
Inventories (net) 34,183,000 27,041,000
Prepaid expenses and other 2,614,000 2,248,000
Deferred income taxes 1,234,000 1,234,000
------------ ------------
Total current assets 67,665,000 58,360,000
Property plant and equipment
Land 583,000 583,000
Buildings and improvements 12,208,000 9,632,000
Machinery and equipment 50,803,000 45,372,000
Accumulated depreciation (7,766,000) (4,639,000)
------------ ------------
55,828,000 50,948,000
Goodwill 25,501,000 25,793,000
Other assets 3,507,000 2,483,000
------------ ------------
TOTAL ASSETS $152,501,000 $137,584,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 15,320,000 $12,699,000
Accrued liabilities 7,334,000 6,534,000
Current portion of long term debt 10,559,000 3,666,000
Working capital revolver 36,041,000 27,149,000
Other current liabilities 536,000 394,000
------------ ------------
Total current liabilities 69,790,000 50,442,000
Long term debt, less current portion 57,905,000 69,642,000
Deferred income taxes 7,164,000 7,164,000
Notes payable to related parties 1,737,000 1,583,000
Minority interest 1,990,000 1,691,000
Stockholders' equity
Common stock 3,124,000 3,124,000
Additional paid in capital 10,209,000 3,709,000
Retained earnings 694,000 341,000
Less: common stock in treasury (112,000) (112,000)
------------ ------------
Total stockholders' equity 13,915,000 7,062,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $152,501,000 $137,584,000
------------ ------------
------------ ------------
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 15
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SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
(UNAUDITED) (UNAUDITED)
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 62,114,000 $ 25,070,000 $ 184,358,000 $ 77,716,000
Cost of sales (54,310,000) (22,324,000) (159,163,000) (67,740,000)
------------ ------------ ------------- ------------
Gross margin 7,804,000 2,746,000 25,195,000 9,976,000
Selling, general and administrative expense (5,526,000) (2,467,000) (16,643,000) (7,473,000)
------------ ------------ ------------- ------------
Income from operations 2,278,000 279,000 8,552,000 2,503,000
Interest expense (2,363,000) (649,000) (7,020,000) (1,942,000)
Guarantee fee - - (375,000) -
Other income (expense), net (13,000) (15,000) (52,000) 13,000
------------ ------------ ------------- ------------
Income (loss) before income taxes
and minority interest (98,000) (385,000) 1,105,000 574,000
Income tax provision 40,000 157,000 (453,000) 43,000
Minority interest (109,000) 12,000 (299,000) (146,000)
------------ ------------ ------------- ------------
Net (loss) income $ (167,000) $ (216,000) $ 353,000 $ 471,000
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Weighted average shares and
common stock equivalents outstanding 6,149,000 5,432,000 6,959,000 6,761,000
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Net income (loss) per share $(0.03) $(0.04) $0.05 $0.07
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
which are an integral part of these financial statements.
Page 4 of 15
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SPINNAKER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITES
Net income
Adjustments to reconcile net income $ 353,000 $ 471,000
to net cash used in operating activities:
Depreciation 3,165,000 715,000
Amortization of goodwill 779,000 -
Amortization of deferred financing costs 287,000 54,000
Minority interest 299,000 146,000
Sales of short-term investments, net - 4,000
Accrued interest on notes payable to related parties 154,000 187,000
Changes in operating assets and liabilities
Accounts receivable (1,682,000) (1,348,000)
Inventories (7,142,000) (1,932,000)
Prepaid expenses and other assets (366,000) (1,087,000)
Accounts payable and accrued liabilities 3,563,000 3,636,000
----------- -----------
Net cash provided by (used in) operating activities (590,000) 846,000
----------- -----------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (7,260,000) (1,038,000)
Other 56,000 (2,000,000)
----------- -----------
Net cash used in investing activities (7,204,000) (3,038,000)
----------- -----------
FINANCING ACTIVITIES
Proceeds from working capital revolvers, net 8,892,000 2,651,000
Issuance of long term debt 8,500,000 28,000
Principal payments on long term debt and leases (8,252,000) (898,000)
Issuance of common stock 500,000 -
Deferred financing costs (1,731,000) (17,000)
Purchase of minority interest - (45,000)
----------- -----------
Net cash provided by financing activities 7,909,000 1,719,000
----------- -----------
Increase (decrease) in cash and cash equivalents 115,000 (473,000)
Cash and cash equivalents at beginning of period 3,048,000 484,000
----------- -----------
Cash and cash equivalents at end of period $ 3,163,000 $ 11,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
which are an integral part of these financial statements.
Page 5 of 15
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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"). On October
4, 1995, Central Products Acquisition Corporation acquired from Unisource
Worldwide, Inc. and Alco Standard Corporation ("Alco"), which was
Unisource's parent, the Central Products Company operating unit ("CPC").
The acquisition of CPC consisted of a purchase of the stock of Central
Products Company and of the assets of Unisource related to CPC's business.
The purchase price under the agreement was approximately $80 million.
Central Products Acquisition Corporation, subsequently renamed Central
Products Company, is a wholly-owned subsidiary of Spinnaker Industries,
Inc. and was formed to acquire CPC, which manufactures and sells adhesive-
backed materials, specifically water-activated and pressure-sensitive
carton sealing tapes.
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 CPC are included in the consolidated statements of
operations for the three month and nine month periods ended September 30,
1996, thus comparisons to corresponding 1995 periods are not necessarily
indicative of operating trends. The following pro forma information, which
is based on information currently available to the Registrant, shows the
results of the Registrant's operations presented as though the purchase of
CPC had been made at the beginning of 1995.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
------------------ ------------------
Net Sales $55,609,000 $168,985,000
Net Income (loss) $ (105,000) $ 201,000
Net Income (loss) Per Share $ (0.02) $ 0.03
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 September 30, 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
Page 6 of 15
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and footnotes thereto included in the Registrant's annual report on Form
10-K for the year ended December 31, 1995.
3. Of inventory values at September 30, 1996, and December 31, 1995,
approximately 47% and 48%, respectively, are valued using the last in,
first out method (LIFO), 49% and 47%, respectively, 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 September 30, 1996, and December 31, 1995:
1996 1995
---- ----
Finished goods $20,597,000 $14,476,000
Work-in-process 2,984,000 2,865,000
Raw materials and supplies 10,602,000 9,700,000
----------- -----------
Total $34,183,000 $27,041,000
----------- -----------
----------- -----------
4. The Registrant, as more fully described in Note 5 of the Condensed
Consolidated Financial Statements, issued $115 million of 10-3/4 percent
senior-secured debt subsequent to September 30, 1996 (see Note 5 of the
Notes to Condensed Consolidated Financial Statements). The proceeds from
the debt offering were primarily used to extinguish outstanding term and
revolver debt obligations described below, and satisfy debt issue costs.
At September 30, 1996, the Registrant maintained short-term lines of credit
with banks for working capital needs at each subsidiary that aggregated
$45.5 million. The Registrant had cash advances of approximately $36.0
million outstanding under the lines of credit. Credit availability under
these lines of credit at September 30, 1996 was $6.4 million. At September
30, 1996, the interest rates in effect ranged from 9.00% to 10.75%. Credit
availability is subject to certain variables, such as the amount of
inventory and receivables eligible to be included in a borrowing base.
Following is a summary of long term debt of Registrant at September 30,
1996, and December 31, 1995:
1996 1995
---- ----
Spinnaker Bridge Loan - due December 30, 1996, if $8,500,000 $ -
not paid, will convert to a five-year term loan.
Bears interest at the greater of LIBOR plus 5% or
treasury plus 5% for 90 days, incrementally
increasing 0.25% for each 90-day period thereafter.
Interest is payable in arrears October 15, 1996 and
January 15, 1997.
Page 7 of 15
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1996 1995
---- ----
Spinnaker convertible subordinated 7% note 7,000,000 -
due the earlier of April 5, 1997, or, if
the bridge loan is converted, six months
after the maturity of the converted bridge
loan. Interest is payable in arrears each
September 30 and March 31 during the term
of the note.
Spinnaker convertible subordinated 7% note 7,250,000 -
due the earlier of April 5, 1998, or
the first anniversary after the payment of
the $7.0 million subordinated note.
Interest is payable in arrears each
September 30 and March 31 during the term
of the note.
Spinnaker promissory note, interest free to 5,000,000 -
September 1996, and at an interest rate of
8% thereafter, principal payments of
$1,000,000 due December 1998 and $4,000,000
due December 1999 (unless senior debt still
outstanding, then $4,000,000 due December
2000).
Brown-Bridge Term Loan - secured by the 5,121,000 6,691,000
assets 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 974,000 992,000
in 1997 and secured by certain real
property of Entoleter.
Central Products Term Loan A - interest 18,500,000 19,625,000
rate is 9%, principal payments due
quarterly ranging from $375,000 to
$1,500,000 maturity in September 2000.
Central Products Term Loan B - interest 16,000,000 16,000,000
rate is 10%, $2,000,000 principal payments
due quarterly beginning December 2000.
Spinnaker subordinated note comprised of a - 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)
Page 8 of 15
<PAGE>
1996 1995
---- ----
Central Products subordinated promissory - 5,000,000
note due to Alco, interest free to
September 1996, and at an interest rate of
8% thereafter.
----------- -----------
Sub-Total 68,345,000 73,308,000
Less: Current Maturities 10,559,000 3,666,000
----------- -----------
Total Long Term Debt 57,786,000 69,642,000
Long Term Capital Lease relating
to Brown Bridge Industries 119,000 -
----------- -----------
Total Long Term Debt and Capital Leases $57,905,000 $69,642,000
----------- -----------
----------- -----------
On April 5, 1996, the Registrant refinanced the $25 and $5 million
subordinated notes and in connection with the refinancing borrowed
$8,500,000 ("Bridge Loan") from the bank. 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 a $750,000
balance owed on a warehouse facility acquired from Alco was restructured
into a series of new convertible subordinated notes aggregating $20.25
million ("Convertible Notes"). In May 1996, $6.0 million of the
Convertible Notes was converted into common stock of the Registrant at a
conversion price of approximately $35 per share.
5. On October 23, 1996, the Registrant completed the issuance of $115,000,000
of 10-3/4 percent senior-secured debt due 2006. The notes were issued in a
private placement under Rule 144A and have not been registered under the
Securities Act of 1933. The debt proceeds were primarily used to
recapitalize the Registrant and extinguish previously existing credit
facilities. In addition, the Registrant established a $40 million asset-
backed senior-secured revolving credit facility. As of November 14, 1996,
there is approximately $250,000 outstanding against the new revolver
facility.
The extinguishment of debt will result in an extraordinary charge to fourth
quarter earnings of approximately $1.6 million, on an after tax basis.
6. The Directors of the Registrant declared a 3-for-2 split of the
Registrant's common shares, effective as of December 29, 1995, and a stock
dividend, an effective 2-for-1 stock split on August 16, 1996. All
presentations of shares outstanding and amounts per share have been
restated to reflect the stock splits.
The August 16, 1996 stock dividend was paid through the issuance of one
share of common stock no par value (now referred to as "Common Stock") for
each outstanding share of its existing common stock (now referred to as
"Class A Common Stock" - NASDQ Small Cap.: SPNIA). The newly issued Common
Stock has a 1/10th vote per share, compared to one vote per share for Class
A Common Stock.
Page 9 of 15
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Approximately 3,075,000 shares of each class of stock was outstanding after
the split, for a total of approximately 6,150,000 shares.
During the nine month period ended September 30, 1996, the Registrant has
incurred approximately $200,000 of incremental stockholders expenses
compared to the corresponding period in 1995. The increased expenses are
primarily related to filing fees with the above described stock splits
and professional fees associated with additional Securities and Exchange
Commission filings.
7. In April 1996, Boyle, Fleming & Co., Inc. ("BF"), exercised Class A
Warrants, pursuant to which the Registrant has issued to BF 187,000 shares
of Common Stock and 187,000 shares of Class A Common Stock. Richard J.
Boyle and Ned N. Fleming, III, the Registrant's Chairman and Chief
Executive Officer, and President, respectively, are shareholders, directors
and officers of BF.
8. On October 23, 1996, concurrent with the issuance of the $115 million notes,
the Registrant acquired the approximately 19.9% minority interest in its
Brown-Bridge Industries subsidiary. The terms of the acquisition involved a
cash payment of approximately $2.3 million and the issuance of approximately
9,606 shares of the Registrant's Common Stock. In addition, as part of the
consideration for the shares of capital stock of Brown-Bridge, the minority
shareholders received the right to a contingent payment, which is
exercisable at any time during the period beginning October 1, 1998 and
ending September 30, 2000. The value of the contingent payment is equal to
the percentage of the capital stock of the former Brown-Bridge entity owned
by such stockholder at the time of merger multiplied by 75% of the fair
value of the capital stock of Brown-Bridge, as determined in accordance with
certain economic assumptions, as of the date such right is exercised, less
the consideration received at closing.
Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding during each period, after giving
effect to the 3-for-2 and 2-for-1 stock splits. Fully diluted earnings per
share did not differ significantly from primary earnings per share in any
period presented.
9. The Registrant has identified possible environmental issues related to
portions of its land in Hamden, Connecticut. The appropriate regulatory
agencies have been notified, but to date no action has been required by any
regulatory agency.
10. Certain reclassifications have been made to conform prior period data to
the current year's presentation.
Page 10 of 15
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ITEM-2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- - -------------------------------------------------------------------------------
ACQUISITIONS
On October 4, 1995 Central Products Acquisition Corporation, a wholly-owned
subsidiary of the Registrant, acquired CPC from Alco Standard Corporation,
which manufactures and sells adhesive-backed materials, specifically
water-activated and pressure sensitive carton sealing tapes. (See Note 1 to
Notes to Condensed Consolidated Financial Statements).
SALES
Net sales were $62,114,000 for the three-month period ended September 30,
1996, versus $25,070,000 for the comparable 1995 period, an increase of
$37,044,000. The acquisition of CPC accounted for $31,702,000 of the increase
with the balance attributable to Brown-Bridge. For the first nine months of
1996 net sales increased $106,642,000. Of the increase, $95,074,000 relates
to the acquisition of CPC and its improved marketing efforts as evidenced by
a 9 percent increase in net sales on a pro forma basis. The remainder of the
increase is attributable to new business activity at Brown-Bridge, including
the previously announced postage stamp stock contracts for the U.S. Postal
Service's pressure-sensitive stamps.
COST OF SALES
Cost of sales for the three month period ended September 30, 1996, increased
by $31,986,000 compared with the corresponding period in 1995. The addition
of CPC accounted for approximately $26,882,000 of the net increase. The
remainder of the increase is directly attributable to the growth in sales
volume at Brown-Bridge.
Gross margins for the three month and nine month periods ended September 30,
1996, improved from comparable 1995 periods. This growth in margins was
driven by improved manufacturing efficiencies and product mix. However,
these improvements were partially offset by unfavorable material cost
variances at CPC and Brown-Bridge resulting from capacity constraints and new
business activity. At Brown-Bridge in particular, demand for
pressure-sensitive products required the company to purchase certain coated
materials from suppliers at a premium over the cost of internally
manufacturing. These cost premiums affected margins by approximately $650,000
and $1,700,000, respectively, for the three and nine month periods ended
September 30, 1996. Brown-Bridge anticipates completing the construction and
implementation of a new flexible silicon and adhesive coater in the fourth
quarter which will increase capacity allowing it to internally satisfy all of
its coating requirements. The new coater is expected to become operational
in the fourth quarter of 1996.
The material variances at CPC, like Brown-Bridge, are a result of outsourcing
premiums at times when internal capacity for certain product has reached its
limit. The timing of acrylic orders forced CPC to fulfill the orders with
alternative outsourced product.
Page 11 of 15
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses ("SG&A") as a percentage of net
sales for the three month period decreased to 8.9 percent at September 30,
1996, from 9.8 percent at September 30, 1995. However, in relative dollars,
the acquisition of CPC increased SG&A $2,549,000 offset by lower expenses at
Brown-Bridge ($226,000) and slightly higher expenses at Entoleter and
Corporate.
For the nine months ended September 30, 1996, SG&A as a percentage of net
sales decreased to 9.0 percent from 9.6 percent in the comparable 1995
period. In relative dollars, like the three-month results, the acquisition
of CPC increased SG&A $8,003,000 offset by lower expenses at Brown-Bridge
($750,000) and slightly higher expenses at Entoleter and Corporate.
INTEREST EXPENSE
Interest expense for the three and nine month periods ended September 30,
1996 increased by $1,714,000 and $5,078,000, respectively, when compared with
the corresponding periods for 1995. The increase is primarily attributable
to the additional debt incurred in the acquisition of CPC. These increases
were partially reduced by lower interest expense at Brown-Bridge through the
reduction of outstanding principal when compared to 1995.
GUARANTEE FEE
As part of the acquisition of CPC, the Registrant's parent (Lynch
Corporation) agreed to guarantee a $25,000,000 note to Alco at a rate of 0.5%
of the principal amount per month ($125,000). This guarantee ended on March
31, 1996, upon the completion of the refinancing of the Alco notes.
INCOME TAXES
The 1996 and 1995 income tax provision provides for federal and state income
taxes at an effective rate of 41%. However, the 1995 income tax provision for
the nine months ended September 30, 1995 was 7.5% because of a one-time
reduction of $279,000 due to the reversal of the Registrant's valuation
allowance related to net deferred tax assets.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Registrant used $590,000 in net cash for operating activities during the
nine months ended September 30, 1996, compared to $846,000 in net cash
generation in the corresponding period in 1995. The change in cash from
operations is attributable to increased working capital demands, primarily in
inventories, due to a growing revenue base. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the nine months ended September 30,
1996 was $12,919,000 compared to $3,272,000 in the comparable 1995 period. Net
working capital at September 30, 1996 was negative $2,125,000 versus $7,918,000
at December 31, 1995, a decrease of $10,043,000. This decrease is directly
attributable to the current classification of $7.0 million subordinated note due
April 5, 1997 and borrowings against the Registrant's working capital revolver.
Cash utilized in
Page 12 of 15
<PAGE>
investing activities were for capital improvements at Brown-Bridge,
principally a silicon and adhesive coater, and the acquisition of a warehouse
facility in Brighton, Colorado utilized by CPC. In addition to investing in
capacity increases, the cash generated through debt and working capital
revolver borrowings were partially utilized to fund financing costs
associated with the Registrant's October 23, 1996 issuance of $115 million of
10-3/4 percent senior-secured debt (See Note 5 to Condensed Consolidated
Financial Statements).
In connection with the acquisition of CPC, the Registrant and CPC issued
subordinated notes to Alco in the amounts of $25 million and $5 million,
respectively. On April 5, 1996, the Registrant refinanced these notes 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 10.5% at September 30, 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
$7.50 million, of which $5.5 million was a principal payment on the $25
million subordinated notes, approximately $1 million related to accrued
interest, and $1 million was applied toward the purchase price of a warehouse
facility. The unpaid balance of the original $25 million subordinated notes,
together with the balance due on the warehouse facility was restructured into
a series of new convertible subordinated notes aggregating $20.25 million
("Convertible Notes"). In May 1996, $6.0 million of the Convertible Notes
were converted into common stock of the Registrant at a conversion price of
approximately $35 per share.
The Registrant's subsidiaries have credit facilities available for future
use, including revolving credit agreements with maximum availability of
$45,500,000 and outstanding borrowings of $36,041,000 at September 30, 1996.
In connection with the Registrant's $115 million debt issuance, the
outstanding balances on the then outstanding revolver borrowings were
extinguished. The Registrant established a new asset-backed senior-secured
revolving credit facility simultaneous with the private debt placement. As
of November 14, 1996, there is approximately $250,000 outstanding against the
new resolver facility. The interest rate in effect under the new revolver
facility is 10%. 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.
OTHER
The extinguishment of the previously outstanding debt obligations of the
Registrant will result in an extraordinary charge, net of federal income
taxes, to fourth quarter earnings of approximately $1.6 million.
Page 13 of 15
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PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11. Statement of Computation of Per Share Earnings.
(B) REPORTS ON FORM 8-K
1. On November 7, 1996, the Registrant filed a Current Report
on Form 8-K, which in accordance with "Item 5. Other Events"
reported the Registrant's placement of $115 million of its 10 3/4%
Senior Secured Notes due 2006 and the establishment of a revolving
credit facility for the Registrant's wholly owned subsidiaries in
the aggregate amount of up to $40 million.
Page 14 of 15
<PAGE>
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, thereunto duly authorized.
SPINNAKER INDUSTRIES, INC.
(Registrant)
/s/ NED N. FLEMING, III
-------------------------------
Ned N. Fleming, III, President
Date: November 14, 1996
Page 15 of 15
<PAGE>
EXHIBIT INDEX
Sequential
EXHIBIT PAGE NO.
- - ------- ----------
11. Statement of Computation of Per Share Earnings 16
-----
<PAGE>
Exhibit 11 - Computation of Per Share Earnings
(in thousands, except per share amounts)
Three months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Primary
Average shares outstanding 6,149 5,432 5,862 5,432
Net effect of dilutive stock options --
based on the treasury stock method
using average market price -0- -0- 1,097 1,329
------ ------ ----- -----
Total 6,149 5,432 6,959 6,761
------ ------ ----- -----
------ ------ ----- -----
Net income (loss) $(167) $(216) $ 353 $ 471
------ ------ ----- -----
------ ------ ----- -----
Per share amount $(0.03) $(0.04) $0.05 $0.07
------ ------ ----- -----
------ ------ ----- -----
Fully diluted
Average shares outstanding 6,149 5,432 5,862 5,432
Net effect of dilutive stock options --
based on the treasury stock method
using the period-end market price, if
higher than average market price -0- -0- 1,108 1,329
------ ------ ----- -----
Total 6,149 5,432 6,970 6,761
------ ------ ----- -----
------ ------ ----- -----
Net income (loss) $(167) $(216) $ 353 $ 471
------ ------ ----- -----
------ ------ ----- -----
Per share amount $(0.03) $(0.04) $0.05 $0.07
------ ------ ----- -----
------ ------ ----- -----
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,163
<SECURITIES> 0
<RECEIVABLES> 27,609
<ALLOWANCES> 1,138
<INVENTORY> 34,183
<CURRENT-ASSETS> 67,665
<PP&E> 63,594
<DEPRECIATION> 7,766
<TOTAL-ASSETS> 152,501
<CURRENT-LIABILITIES> 69,790
<BONDS> 0
0
0
<COMMON> 3,124
<OTHER-SE> 10,791
<TOTAL-LIABILITY-AND-EQUITY> 152,501
<SALES> 62,114
<TOTAL-REVENUES> 62,114
<CGS> 54,310
<TOTAL-COSTS> 5,526
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,363
<INCOME-PRETAX> (98)
<INCOME-TAX> (40)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (167)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
