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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): July 30, 1999
SPINNAKER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-09559 06-0544125
(State of ---------------- (IRS Employer
incorporation) (Commission File Identification No.)
1700 PACIFIC AVENUE, SUITE 1600
DALLAS, TEXAS 75201
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 214-855-0322
Exhibit Index on page 3
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 9, 1999, Spinnaker Industries, Inc., a Delaware corporation (the
"Registrant"), entered into a Stock Purchase Agreement with Intertape Polymer
Group, Inc. ("Intertape") for the sale of its main industrial tape
subsidiary, Central Products Company ("Central") and concurrently entered
into an Asset Purchase Agreement with Intertape providing for the sale of
substantially all of the assets of its other industrial tape unit, Spinnaker
Electrical Tape Company ("Electrical", and together with Central, the
"Industrial Tape Businesses"). Intertape, headquartered in Montreal, Quebec,
develops, manufactures and markets a wide variety of specialized plastic and
paper based packaging products and packaging systems for industrial uses.
The disposition by the Registrant of the Industrial Tape Businesses (the
"Disposition") was completed with the sale of Central effective as of August
9, 1999. The sale of the assets of Electrical closed on July 30, 1999. The
Industrial Tape Businesses generated $121.8 million, $119.7 million and
$124.1 million of net sales for fiscal years ended December 31, 1998, 1997
and 1996, respectively, and $53.5 million and $57.9 million for the six month
periods ended June 30, 1999 and 1998, respectively.
General corporate office expenses related to finance and administrative
functions including public company compliance reporting, bank and investor
relations, taxes other than income taxes and holding company payroll,
historically allocated and charged to the industrial tape segment were
reversed and allocated back to continuing operations. These expenses were not
considered to be directly attributed to the Industrial Tape Businesses and
remain an expense of the continuing operations of the Registrant.
The purchase price paid by Intertape to the Registrant for the Industrial
Tape Businesses was allocated as follows: approximately $81,450,000 in cash
and five-year warrants to purchase 300,000 shares of Intertape common stock
at a strike price of $29.50 per share for Central and $23,000,000 in cash for
Electrical. Intertape is a publicly traded company with its common shares
listed on the American Stock Exchange and the Toronto Stock Exchange under
the stock symbol "ITP". Intertape's common stock closed at approximately $28
per share on August 6, 1999.
Proceeds from the sale of Central were first used to satisfy related
transaction costs and to repay $18.1 million of working capital revolver
debt, which included all amounts owed by Central under the Registrant's $60
million revolving credit facility. The balance of the proceeds, estimated to
be approximately $60 million, are available to invest in any business,
capital expenditure, or other tangible asset in the "Permitted Businesses",
as defined in the Indenture. Any proceeds not so invested within 270 days
after the closing of the sale of Central or not used to permanently reduce
indebtedness (other than subordinated debt) shall be used to repurchase the
Registrant's 10 3/4% Senior Secured Notes (the "Senior Notes") on a pro rata
basis as required by the Indenture. The proceeds from the sale of the
Electrical assets, an unrestricted subsidiary, were used to repay certain
term debt and working capital revolver debt collateralized by the assets of
Electrical. The remaining proceeds, estimated to be approximately $16
million, will be available
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for general purposes or investments, which may include purchasing Senior
Notes in the open market. Senior Notes currently trade at a substantial
discount from the principal amount. This document contains certain forward
looking information.
It should be recognized that such information represents estimates or
forecasts based upon various assumptions, including the matters referred to
therein, as well as meeting the Registrant's internal performance assumptions
regarding expected operating performance and the expected performance of the
economy as it impacts Registrant's businesses. As a result, such information
is subject to various uncertainties, inaccuracies and risks.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION. Unaudited pro forma financial
statements of the Registrant and the Industrial Tape Businesses
as of June 30, 1999 and the six month period then ended. Unaudited
pro forma statement of operations for the year ended December 31,
1998.
(c) EXHIBITS
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: August 16, 1999 By: /s/ Craig J. Jennings
---------------------------
Craig J. Jennings
Vice President, Finance
and Treasurer
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UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma 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 Disposition as though
it had occurred as of the beginning of the period presented for the pro forma
statement of operations. Defined terms herein have the meanings given to them
in the Form 8-K of which this is a part.
The pro forma adjustments include, in the opinion of management, all
adjustments necessary to give pro forma effect to the Disposition as though
such transaction had occurred as of the beginning of the period presented for
the pro forma statement of operations and as if it had occurred on June 30,
1999 for the pro forma balance sheet.
The unaudited pro forma financial information is not necessarily indicative
of how the Registrant's balance sheet and results of operations would have
been presented had the Disposition actually been consummated at the assumed
date, nor is it necessarily indicative of presentation of the Registrant's
balance sheet and results of operations for any future period. The unaudited
pro forma financial information should be read in conjunction with the
historical consolidated financial statements and related notes thereto
included in the Registrant's Annual Report on Form 10-K for the period ended
December 31, 1998 and the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1999.
The pro forma adjustments are based upon available information. These
adjustments are directly attributable to the Disposition and are expected to
have a continuing impact on the Registrant's business, results of operations,
and financial position.
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SPINNAKER INDUSTRIES, INC
UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
DISPOSITION
OF INDUSTRIAL PRO FORMA PRO FORMA
JUNE 30, 1999 TAPE BUSINESS ADJUSTMENTS JUNE 30, 1999
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ -- $ -- $ 75,512 (1) $ 75,512
Accounts receivable, net 19,428 -- -- 19,428
Inventories, net 26,197 -- -- 26,197
Prepaid expenses and other 2,016 -- -- 2,016
Net current assets of discontinued
operations 31,986 (31,986) -- --
--------- --------- -------- --------
Total current 79,627 (31,986) 75,512 123,153
Property, plant and equipment, net 39,531 -- -- 39,531
Other assets, net 28,279 -- 3,000 (2) 31,279
Net non-current assets of discontinued
operations 69,491 (69,491) -- --
--------- --------- -------- --------
TOTAL ASSETS $ 216,928 $(101,477) $ 78,512 $193,963
--------- --------- -------- --------
--------- --------- -------- --------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable & accrued liabilities $ 22,188 $ -- $ -- $ 22,188
Current portion of long term debt 1,862 -- (1,143)(3) 719
Working capital revolver 38,332 -- (20,095)(4) 18,237
Net current liabilities of discontinued
operations 15,338 (15,338) -- --
--------- --------- -------- --------
Total current liabilities 77,720 (15,338) (21,238) 41,144
Long term debt, less current portion 125,762 -- (3,750)(3) 122,012
Deferred income taxes & pension liabilities 2,334 -- 7,728 (5) 10,062
Net non-current liabilities of discontinued
operations 6,280 (6,280) -- --
Stockholders' equity 4,832 (79,859) 95,772 20,745
--------- --------- -------- --------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 216,928 $(101,477) $ 78,512 $193,963
--------- --------- -------- --------
--------- --------- -------- --------
</TABLE>
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SPINNAKER INDUSTRIES, INC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
DISPOSITION PRO FORMA
YEAR ENDED OF INDUSTRIAL PRO FORMA YEAR ENDED
12/31/98 TAPE BUSINESS ADJUSTMENTS 12/31/98
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $280,941 $121,806 $ -- $159,135
Cost of sales 247,071 105,641 -- 141,430
-------- -------- ------- --------
Gross margin 33,870 16,165 -- 17,705
Selling, general and administrative expense 25,303 12,876 -- 12,427
-------- -------- ------- --------
Income (loss) from operations 8,567 3,289 -- 5,278
Interest expense 16,976 -- (1,755)(6) 15,221
Interest income -- -- 3,625 (7) 3,625
Other income (expense) - net (86) (21) -- (65)
-------- -------- ------- --------
Loss from continuing operations before
income taxes (8,495) 3,268 5,470 (6,383)
Income tax provision (benefit) (1,876) 722 256 (8) (1,410)
-------- -------- ------- --------
Net loss from continuing operations $ (6,619) $ 2,546 $ 5,214 $ (4,973)
-------- -------- ------- --------
-------- -------- ------- --------
Earnings per common share-
loss from continuing operations $ (0.92) $ (0.69)
-------- --------
-------- --------
</TABLE>
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SPINNAKER INDUSTRIES, INC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS SIX MONTHS
ENDED PRO FORMA ENDED
6/30/99 ADJUSTMENTS 6/30/99
---------- ----------- ----------
<S> <C> <C> <C>
Net sales $79,740 $ -- $79,740
Cost of sales 73,031 -- 73,031
---------- ----------- ----------
Gross margin 6,709 -- 6,709
Selling, general and administrative expense 5,976 -- 5,976
---------- ----------- ----------
Income (loss) from operations 733 -- 733
Interest expense 4,383 3,497 (9) 7,880
Interest income -- 1,812 (7) 1,812
Other income (expense) - net 850 -- 850
---------- ----------- ----------
Loss from continuing operations before
income taxes (2,800) (1,685) (4,465)
Income tax provision (benefit) (724) (431)(8) (1,155)
---------- ----------- ----------
Net loss from continuing operations $(2,076) $(1,254) $(3,310)
---------- ----------- ----------
---------- ----------- ----------
Earnings per common share-
Loss from continuing operations $ (0.28) $ (0.45)
---------- ----------
---------- ----------
</TABLE>
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SPINNAKER INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
GENERAL
The Registrant's unaudited pro forma statement of operations for the year
ended December 31, 1998 is based the statement of operations represented in
the Registrant's annual report on Form 10-K and has not been restated to
present the industrial tape segment as a discontinued operation. The
Registrant's unaudited pro forma statement of operations for the six months
ended June 30, 1999 is based on the statement of operations presented in the
Registrant's June 30, 1999 Form 10-Q and has been presented as a discontinued
operation since the April 9, 1999 measurement date.
The Registrant has not determined whether it will retire a pro rata portion
of indebtedness related to the Industrial Tape Business, other than the
repayment of certain borrowings under the Registrant's $60 million revolving
credit facility ("Spinnaker Credit Facility") and borrowings under the
Electrical revolving credit facility at closing.
Net proceeds from the Central sale are available to invest in any business,
capital expenditure or other tangible asset in the Permitted Businesses, as
defined in the Indenture. Any proceeds not so invested within 270 days after
the closing of the sale of Central or not used to permanently reduce
indebtedness shall be used to repurchase the Senior Notes on a pro rata basis
as required by the Indenture.
Interest expense attributed to the Senior Notes and related deferred
financing has historically been allocated based on the pro rata share of
subsidiary debt obligations retired with the proceeds from the issuance of
the Senior Notes to total debt obligations retired. The Senior Notes proceeds
were used to extinguish certain outstanding term and revolver obligations in
October 1996. As a result, interest expense, as presented on a historical
basis, may not necessarily be indicative of interest expense of continuing
operations. Interest expenses charged to the discontinued industrial tape
segment total $4.2 million in the six month period ended June 30, 1999 and
$9.2 million for the year ended December 31, 1999.
(1) Represents estimated net cash proceeds from the disposition of the
Industrial Tape Businesses, calculated as follows:
<TABLE>
<CAPTION>
($ in millions)
Central Electrical
------- ----------
<S> <C> <C>
Cash purchase price $ 81.5 $ 23.0
Less: Estimated expenses, fees and taxes 3.5 .5
Repayment of debt at closing 18.1 6.9
------ ------
Net cash proceeds $ 59.9 $ 15.6
------ ------
------ ------
</TABLE>
(2) Represents estimated value of five-year warrants to purchase 300,000 shares
of Intertape common stock at a strike price of $29.50 per share.
(3) Represents repayment of Electrical term debt with an original principal
amount of $4.5 million and the Registrant's subordinated note with an
original principal amount of $0.5 million.
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(4) Represents repayment of certain borrowings under Spinnaker Credit Facility
and approximately $2.0 million for repayment of borrowings under the
Electrical revolving credit facility.
(5) Represents deferred taxes on the sale of Industrial Tape Business.
(6) Represents the elimination of working capital revolver interest associated
with repayments of certain borrowings under the Spinnaker Credit Facility
and $2.0 million under the Electrical revolving credit facility at closing.
(7) Represents interest income earned on net proceeds invested in institutional
money market funds, yielding an average return of 4.80%.
(8) Represents income tax adjustment required to reflect the estimated
effective tax rate for continuing operations.
(9) Represents the adjustment required to reverse and allocate back to
continuing operations Senior Note interest historically allocated to
Central based on the pro rata share of Central's debt obligations retired
with the proceeds from the issuance of the Senior Notes, to total debt
obligations retired.
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