<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 18, 1997
SPINNAKER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-09559 06-0544125
(State of (Commission File (IRS Employer
incorporation) Number) Identification No.)
600 N. PEARL STREET, SUITE 2160
DALLAS, TEXAS 75201
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 214-855-0322
Exhibit Index on page 5
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ITEM 5. OTHER EVENTS
On November 18, 1997, Spinnaker Industries, Inc., a Delaware corporation
(the "Registrant") entered into an Asset Purchase Agreement (the "Asset
Purchase Agreement") with S. D. Warren Company ("Seller") to purchase
Seller's pressure sensitive business (the "Pressure Sensitive Business")
located next to Seller's paper mill in Westbrook, Maine (the "Acquisition").
Seller is a large pulp and paper producer owned by an indirect wholly owned
subsidiary of SAPPI, Ltd., a public South African conglomerate.
The Pressure Sensitive Business is a major manufacturer and marketer of
pressure sensitive adhesive-backed label stock primarily for the electronic
data processing ("EDP") segment of the label stock market. The Pressure
Sensitive Business generated $62.1 million of net sales in the fiscal year
ended October 1, 1997, which, on a pro forma basis, accounted for 21% of the
Registrant's net sales for the twelve months ended September 30, 1997.
The Acquisition is consistent with the Registrant's long-term strategy for
expanding its presence in the market for adhesive-backed label stock. The
Registrant believes the addition of the Pressure Sensitive Business to
Brown-Bridge's adhesive-backed label stock business will make the Registrant
the fifth largest producer of label stock and the second largest provider
of EDP label stock. Management of the Registrant believes that the strategic
benefits of the Acquisition will be primarily derived from cross-selling
opportunities, overhead reduction, manufacturing efficiencies and purchasing
savings.
Pursuant to the Asset Purchase Agreement, the Registrant agreed to
purchase from Seller substantially all of the assets (other than real
property) relating to the Pressure Sensitive Business. In connection with
its purchase of the Pressure Sensitive Business, the Registrant intends to
enter into a Site Lease, pursuant to which the Registrant will lease from
Seller a portion of the Westbrook facility for a term of 99 years at a
nominal rent of $1.00 per year, and a Site Separation and Services Agreement
pursuant to which the Registrant shall obtain utility, supply shipping,
storage, maintenance and administrative services from the Seller. The
Registrant will also enter into a Space Lease, whereby it will temporarily
lease certain industrial space from Seller for the operation of the Pressure
Sensitive Business. The purchase price to be paid by the Registrant for the
Pressure Sensitive Business is approximately $52.8 million, plus the
assumption of certain liabilities, subject to a working capital adjustment.
The Registrant is also filing a report on Form 8-K pertaining to the
Registrant's announcement of its proposed sale of approximately 1,000,000
shares of a newly created class of convertible preferred stock (the
"Preferred Stock"). The Registrant anticipates funding the purchase price
with new borrowings under its existing Revolving Credit Facility with Bankers
Trust Company (which is being amended to increase the available credit line
thereunder to an aggregate $60 million) and approximately $23.6 million in
net proceeds from the sale of the Preferred Stock.
The Pressure Sensitive Business' plant, which is highly automated and
efficient, specializes in manufacturing pressure sensitive materials
2
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with a focus on electronic data processing products for large accounts.
Because of initial post-acquisition costs and interest expense related to the
Acquisition, the Pressure Sensitive Business is not expected to contribute
materially to Registrant's profitability in fiscal 1998.
Registrant also has a letter of intent to acquire substantially all of
the assets of an industrial tape manufacturer for approximately $20 million.
Consummation of that transaction is subject to various conditions, including
without limitation due diligence, execution of a definitive agreement and
Board approval. The business generated net sales of approximately $20.0
million in 1996, on an unaudited basis.
There can be no assurance that either of the above transactions will be
consummated.
------------------
This document contains certain forward looking information. Such
information is based on certain assumptions and estimates and, accordingly, may
be subject to risk, uncertainty and inaccuracy.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS.
99.1 Summary Historical and Unaudited Pro Forma Consolidated Financial Data
3
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SPINNAKER INDUSTRIES, INC.
Date: February 5, 1998 By: /s/ Craig J. Jennings
--------------------------------
Craig J. Jennings
Vice President, Finance and Treasurer
4
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INDEX TO EXHIBITS
99.1 - Summary Historical and Unaudited Proforma Consolidated Financial Data
5
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UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial information of
the Registrant is based on the historical consolidated financial statements
of the Registrant and has been prepared to illustrate the effects of the
offering of the Preferred Stock (the "Offering") and the acquisition by the
Registrant from S.D. Warren Company (the "Seller") of the Seller's pressure
sensitive label stock business (the "Pressure Sensitive Business") located in
Westbrook, Maine (the "Acquisition") as though both had occurred as of the
beginning of each period presented for the pro forma statements of operations
and as if they had occurred on September 30, 1997 for the pro forma balance
sheet.
The pro forma adjustments include, in the opinion of management, all
adjustments necessary to give pro forma effect to the Offering and the
Acquisition as though such transactions had occurred as of the beginning of each
period presented for the pro forma statements of operations and as if they had
occurred on September 30, 1997 for the pro forma balance sheet.
The unaudited pro forma consolidated financial information is not
necessarily indicative of how the Registrant's balance sheet and results of
operations would have been presented had the Offering and the Acquisition
actually been consummated at the assumed dates, nor is it necessarily
indicative of presentation of the Registrant's balance sheet and results of
operations for any future period.
The pro forma adjustments are based upon available information. These
adjustments are directly attributable to the Offering and the Acquisition and
are expected to have a continuing impact on the Registrant's business,
results of operations and financial position. The Acquisition will be
accounted for using the purchase method of accounting, pursuant to which the
total purchase cost of the Acquisition will be allocated to the tangible and
intangible assets and liabilities acquired based upon their estimated fair
values. The final allocation of the purchase price will be based upon the
fair market valuation of the acquired assets and the assumed liabilities;
however, such allocation is not expected to differ materially from the
preliminary allocation.
(i)
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 2,
YEAR ENDED 1996 PRO FORMA
DECEMBER 31, (PRESSURE YEAR ENDED
1996 SENSITIVE PRO FORMA DECEMBER 31,
(REGISTRANT) BUSINESS) ADJUSTMENTS 1996
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.............................................. $246,536 $68,655 $ -- $315,191
Cost of sales.......................................... 213,942 61,744 (1,190)(2) 275,871
1,375 (3)
-------- ------- ------- --------
Gross profit........................................... 32,594 6,911 (185) 39,320
Selling, general and administrative.................... 22,372 3,159 (1,415)(4) 24,602
486 (5)
-------- ------- ------- --------
Income from operations................................. 10,222 3,752 744 14,718
Interest expense....................................... 9,872 -- 2,109 (6) 11,981
Other income (expense)................................. (713) -- -- (713)
Income tax provision (benefit)......................... (37) 1,538 (560)(7) 941
Minority interest...................................... (299) -- -- (299)
-------- ------- ------- --------
Income (loss) before extraordinary charge.............. (625) 2,214 (805) 784
Preferred stock dividend............................... -- -- 2,115 (8) 2,115
-------- ------- ------- --------
Income (loss) before extraordinary charge attributable
to common shareholders............................... $ (625) $ 2,214 $(2,920) $ (1,331)
-------- ------- ------- --------
-------- ------- ------- --------
Income (loss) before extraordinary charge per share of
common stock......................................... $ (0.11) $ (0.22)
Weighted average shares and common stock equivalents
outstanding.......................................... 5,931 5,931
Other Data:
EBITDA............................................... $ 16,334 $ 4,115 $ 2,605 $ 23,054
Depreciation and amortization........................ 6,112 363 1,861 8,336
Capital expenditures................................. 8,979 353 -- 9,332
</TABLE>
See accompanying notes.
(ii)
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------
PRESSURE
SENSITIVE PRO FORMA
REGISTRANT BUSINESS ADJUSTMENTS PRO FORMA
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................................... $234,933 $62,080 $ -- $297,013
Cost of sales........................................... 203,339 53,222 (1,012)(2) 256,908
1,359 (3)
-------- ------- ------- --------
Gross profit............................................ 31,594 8,858 (347) 40,105
Selling, general and administrative..................... 22,194 3,015 (1,150)(4) 24,545
486 (5)
-------- ------- ------- --------
Income from operations.................................. 9,400 5,843 317 15,560
Interest expense........................................ 12,567 -- 2,109 (6) 14,676
Other income (expense).................................. (390) -- -- (390)
Income tax provision (benefit).......................... (1,155) 2,396 (735)(7) 506
-------- ------- ------- --------
Income (loss) before extraordinary charge............... (2,402) 3,447 (1,057) (12)
Preferred stock dividend................................ -- -- 2,115 (8) 2,115
-------- ------- ------- --------
Income (loss) before extraordinary charge attributable
to common shareholders................................ $ (2,402) $ 3,447 $(3,172) $ (2,127)
-------- ------- ------- --------
-------- ------- ------- --------
Income (loss) before extraordinary charge per share of
common stock.......................................... $ (0.39) $ (0.34)
Weighted average shares and common stock equivalents
outstanding........................................... 6,199 6,199
Other Data:
EBITDA................................................ $ 16,249 $ 6,222 $ 2,162 $ 24,633
Depreciation and amortization......................... 6,849 379 1,845 9,073
Capital expenditures.................................. 7,684 97 -- 7,781
</TABLE>
See accompanying notes.
(iii)
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------
PRESSURE
SENSITIVE PRO FORMA
REGISTRANT BUSINESS ADJUSTMENTS PRO FORMA
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................................ $172,755 $49,321 $ -- $222,076
Cost of sales........................................ 148,560 42,165 (759)(2) 190,986
1,020 (3)
-------- ------- ------- --------
Gross profit......................................... 24,195 7,156 (261) 31,090
Selling, general and administrative.................. 16,465 2,275 (863)(4) 18,242
365 (5)
-------- ------- ------- --------
Income from operations............................... 7,730 4,881 237 12,848
Interest expense..................................... 9,715 -- 1,582 (6) 11,297
Other income (expense)............................... (104) -- -- (104)
Income tax provision (benefit)....................... (665) 2,002 (551)(7) 786
-------- ------- ------- --------
Income (loss) before extraordinary charge............ (1,424) 2,879 (794) 661
Preferred stock dividend............................. -- -- 1,586 (8) 1,586
-------- ------- ------- --------
Income (loss) before extraordinary charge
attributable to common shareholders................ $ (1,424) $ 2,879 $(2,380) $ (925)
-------- ------- ------- --------
-------- ------- ------- --------
Income (loss) before extraordinary charge per share
of common stock.................................... $ (0.23) $ (0.15)
Weighted average shares and common stock equivalent
outstanding........................................ 6,211 6,211
Other Data:
EBITDA............................................. $ 12,808 $ 5,165 $ 1,622 $ 19,595
Depreciation and amortization...................... 5,078 284 1,385 6,747
Capital expenditures............................... 5,965 73 -- 6,038
</TABLE>
See accompanying notes.
(iv)
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------
PRESSURE
SENSITIVE PRO FORMA
REGISTRANT BUSINESS ADJUSTMENTS PRO FORMA
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 6,584 $ -- $ -- $ 6,584
Accounts receivable, net............................. 26,085 1,262 4,705 (9) 32,052
Inventories, net..................................... 31,551 9,709 (273)(10) 40,987
Prepaid expenses and other........................... 2,278 95 -- 2,373
Deferred income taxes................................ 1,590 339 (339)(11) 1,590
-------- ------ -------- --------
Total current assets............................... 68,088 11,405 4,093 83,586
Property plant and equipment, net...................... 59,074 2,045 17,955 (12) 79,074
Goodwill, net.......................................... 24,250 1,755 18,837 (1) 44,842
Other assets........................................... 6,308 1,722 (1,322)(12) 6,708
-------- ------ -------- --------
Total assets....................................... $157,720 $16,927 $ 39,563 $214,210
-------- ------ -------- --------
-------- ------ -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 13,092 $ 1,555 $ (1,514)(11) $ 13,133
Accrued liabilities.................................. 6,093 833 872 (13) 7,798
Current portion of long term debt.................... 831 -- -- 831
Working capital revolver............................. 333 -- 28,870 (15) 29,203
Other current liabilities............................ 5,829 1,091 -- 6,920
-------- ------ -------- --------
Total current liabilities.......................... 26,178 3,479 28,228 57,885
Long term debt, less current portion................... 115,117 -- -- 115,117
Other noncurrent liabilities........................... -- 2,553 (1,395)(11) 1,158
Deferred income taxes.................................. 5,911 740 (740)(11) 5,911
Preferred Stock........................................ -- -- 23,625 (14) 23,625
Stockholders' equity:
Common Stock and Class A Common Stock................ 3,124 -- -- 3,124
Additional paid in capital........................... 11,333 10,155 (10,155)(16) 11,333
Retained earnings (deficit).......................... (3,551) -- -- (3,551)
Minimum pension liability............................ (280) -- -- (280)
Less: Common Stock and Class A Common Stock in
treasury........................................... (112) -- -- (112)
-------- ------ -------- --------
Total stockholders' equity............................. 10,514 10,155 (10,155) 10,514
-------- ------ -------- --------
Total liabilities and stockholders' equity......... $157,720 $16,927 $ 39,563 $214,210
-------- ------ -------- --------
-------- ------ -------- --------
</TABLE>
See accompanying notes.
(v)
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NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
SEPTEMBER 30, 1997
(1) The Acquisition is to be accounted for as a purchase combination. The
purchase price, including acquisition costs, is estimated to be $53.1
million and has been allocated as follows (in thousands):
Tangible assets purchased................................... $ 35,498
Liabilities assumed......................................... 2,995
Purchase price in excess of net tangible assets (goodwill).. 20,592
(2) Represents the elimination of maintenance, material handling, and security
costs previously allocated by the Seller, which the Pressure Sensitive
Business will not be subject to under the Site Separation and Service
Agreement to be entered into by the Registrant and the Seller in connection
with the Acquisition, as only the direct charges for such services will be
charged under this agreement.
(3) Represents incremental depreciation expense related to acquired property,
plant and equipment.
(4) Represents the elimination of corporate overhead previously allocated by
the Seller. The services included executive, legal, accounting, purchasing
and other corporate overhead functions which will be provided by the
Registrant under its current corporate structure.
(5) Represents amortization of goodwill from the Acquisition. Amortization
period of goodwill is thirty years.
(6) Interest expense on the Registrant's borrowings under its revolving
credit facility with BT Commercial Corporation (the "Revolving Credit
Facility") in connection with the Acquisition and amortization of
deferred financing costs associated the amendment to the Revolving
Credit Facility. Interest is calculated based on an assumed rate of 8.5%.
A 1% change in the interest rate would change interest expense on the
Acquisition borrowings approximately $289 annually.
(7) Represents income tax impact on purchase accounting adjustments based on
statutory federal and state tax rates.
(8) Represents accrued dividends at an assumed 8% annual rate on the Preferred
Stock and the periodic accretion of the difference between redemption value
and the carrying value of the Preferred Stock.
(9) Represents off balance sheet Pressure Sensitive Business receivables
previously sold, to an affiliate of the Seller under a receivable sales
agreement. In connection with the Acquisition, the agreement will be
terminated.
(10) Inventory valuation adjustment to reflect finished goods at estimated
selling price, less costs of disposal and reasonable profit allowance.
(11) Adjustment reflects assets and liabilities retained by the Seller.
(12) Adjustment to property, plant and equipment, and other assets based on the
Registrant's preliminary estimate of fair market value.
(13) Represents accrual of estimated Acquisition related costs and expenses.
(14) Represents the issuance of 1,000,000 shares of Preferred Stock at $25.00
per share pursuant to the Offering, net of estimated issuance costs.
(15) Represents borrowings under the Revolving Credit Facility in connection
with the Acquisition and deferred financing costs associated with the
amendment to increase available credit under the Revolving Credit Facility
to an aggregate $60 million.
(16) Elimination of Pressure Sensitive Business equity.
(vi)
