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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): NOVEMBER 18, 1997
LYNCH CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
INDIANA 1-106 33-1799862
(State of (Commission File (IRS Employer
incorporation) Number) Identification No.)
</TABLE>
8 Sound Shore Drive, Suite 290, Greenwich, CT 06830
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-629-3333
Exhibit Index on page 5
ITEM 5. OTHER EVENTS
On November 18, 1997, Registrant's majority owned subsidiary, Spinnaker
Industries, Inc., a Delaware corporation ("Spinnaker") 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")
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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
Spinnaker's net sales for the twelve months ended September 30, 1997.
The Acquisition is consistent with Spinnaker's long-term strategy for
expanding its presence in the market for adhesive-backed label stock. The
Spinnaker believes the addition of the Pressure Sensitive Business to
Brown-Bridge's adhesive-backed label stock business will make Spinnaker the
fifth largest producer of label stock and the second largest provider of EDP
label stock. Management of Spinnaker 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, Spinnaker 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, Spinnaker intends to enter into a Site
Lease, pursuant to which Spinnaker 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 Spinnaker shall
obtain utility, supply shipping, storage, maintenance and administrative
services from the Seller. The Spinnaker 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
Spinnaker 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
Spinnaker's announcement of its proposed sale of approximately 1,000,000 shares
of a newly created class of convertible preferred stock (the "Preferred
Stock"). Spinnaker 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 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
Spinnaker's profitability in fiscal 1998.
Spinnaker also has a letter of intent to acquire substantially all of
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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
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
LYNCH CORPORATION
Date: February 11, 1998 By: /s/ Robert E. Dolan
------------------------------
Robert E. Dolan
Chief Financial Officer
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INDEX TO EXHIBITS
99.1 - Summary Historical and Unaudited Proforma Consolidated Financial
Data
<PAGE> 1
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial information of
Spinnaker is based on the historical consolidated financial statements of
Spinnaker and has been prepared to illustrate the effects of the offering of
the Preferred Stock (the "Offering") and the acquisition by the Spinnaker 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 of
Spinnaker, 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 Spinnaker'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 Spinnaker's balance sheet and results of
operations for any future period.
The pro forma adjustments are based upon available information to
Spinnaker. These adjustments are directly attributable to the Offering and the
Acquisition and are expected to have a continuing impact on Spinnaker'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)
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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS OF SPINNAKER
(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,
(SPINNAKER) 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)
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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS OF SPINNAKER
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------
PRESSURE
SENSITIVE PRO FORMA
Spinnaker 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)
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UNAUDITED PRO FORMA STATEMENT OF OPERATIONS OF SPINNAKER
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------
PRESSURE
SENSITIVE PRO FORMA
Spinnaker 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)
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UNAUDITED PRO FORMA BALANCE SHEET OF SPINNAKER
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------
PRESSURE
SENSITIVE PRO FORMA
Spinnaker BUSINESS ADJUSTMENTS PRO FORMA
---------- -------- ---------- ---------
ASSETS
<S> <C> <C> <C> <C>
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
-------- ------ -------- --------
-------- ------ -------- --------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
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>
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See accompanying notes.
(v)
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION OF SPINNAKER
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):
<TABLE>
<S> <C>
Tangible assets purchased................................... $ 35,498
Liabilities assumed......................................... 2,995
Purchase price in excess of net tangible assets (goodwill).. 20,592
</TABLE>
(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 Spinnaker 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
Spinnaker under its current corporate structure.
(5) Represents amortization of goodwill from the Acquisition. Amortization
period of goodwill is thirty years.
(6) Interest expense on Spinnaker'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.
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(12) Adjustment to property, plant and equipment, and other assets based on the
Spinnaker'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 of
Spinnaker 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)