SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
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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
LYNCH CORPORATION
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(Exact name of Registrant as specified in its charter)
Indiana 1-106 38-1799862
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(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
401 Theodore Fremd Avenue, Rye, New York 10580
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914/921-7601
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<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 9, 1999, Spinnaker Industries, Inc. ("Spinnaker"), Registrant's
approximately 61% owned subsidiary (AMEX:SKK, SKK.A) entered into a Stock
Purchase Agreement with Intertape Polymer Group, Inc. ("Intertape") for the sale
of Spinnaker's 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 Spinnaker of the Industrial Tape businesses (the
"Disposition") was completed with the sale of Central effective on August 10,
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.
The purchase price paid by Intertape to Spinnaker 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 publically 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 Spinnaker'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 Spinnaker's
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 Spinnaker'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 for general
purposes or investments of Spinnaker, which may include purchasing Spinnaker
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. Such information is based on certain assumptions and
estimates and, accordingly, may be subject to risk, uncertainty and inaccuracy,
which could be material.
<PAGE>
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 months periods ended June 30, 1999. Unaudited
pro forma statement of operations for the year ended December 31, 1998.
(c) EXHIBITS
2.1 Stock Purchase Agreement between Spinnaker and Intertape Polymer Group Inc.
dated April 9, 1999 (incorporated by reference to Exhibit 2.1 to
Spinnaker's Form 8-K dated August 16, 1999)
2.2 Asset Purchase Agreement by and among Registrant Spinnaker Electrical Tape
Company and Intertape Polymer Group Inc. dated April 9, 1999 (incorporated
by reference to Exhibit 2.2 to Spinnaker's Form 8-K dated August 16, 1999)
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.
LYNCH CORPORATION
Date: August 16, 1999 By: /s/ Robert E. Dolan
Robert E. Dolan
Chief Financial Officer
<PAGE>
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.
<PAGE>
<TABLE>
LYNCH CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands,
Except per Share Amounts)
<CAPTION>
Pro Forma
Six Months Six Months
Ended Pro Forma Ended
06/30/99 Adjustments 06/30/99 Notes
-------- ----------- -------- -----
SALES AND REVENUES:
<S> <C> <C> <C> <C>
Manufacturing ......................... $ 93,774 - 93,774
-------- ------
93,774 0 93,774
------ - ------
COSTS AND EXPENSES:
Manufacturing ......................... 82,785 - 82,785
Selling and administrative ............ 10,594 - 10,594
------ ------
OPERATING PROFIT .......................... 395 0 395
Other income (expense):
Investment Income ..................... 7 1,812 1,819 (6)
Interest expense ...................... (4,529) (3,497) (8,026) (4,5)
------ ------ ------
(4,522) (1,685) (6,207)
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INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, MINORITY INTERESTS .. (4,127) (1,685) (5,812)
Benefit (provision) for income taxes ..... 1,637 674 2,311 (9)
Minority interests ........................ 1,015 657 1,672 (10)
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NET INCOME(LOSS) FROM CONTINUING OPERATIONS ($ 1,475) ($ 354) ($ 1,829)
======== ======== ========
Weighted average shares outstanding 1,417,000 1,417,000
Basic and Diluted earnings per share:
NET INCOME ($1.03) ($1.28)
</TABLE>
<PAGE>
<TABLE>
LYNCH CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands,
Except per Share Amounts)
<CAPTION>
Disposition Pro Forma
Year ended of Industrial Pro Forma Year ended
12/31/98 Tape Business Adjustments 12/31/98 Notes
-------- ------------- ----------- --------- -----
SALES AND REVENUES:
<S> <C> <C> <C> <C> <C>
Multumedia ................................ $ 54,622 -- -- $ 54,622
Services .................................. 150,454 -- -- $ 150,454
Manufacturing ............................. 309,450 $(121,806) -- $ 187,644
------- --------- ------- ---------
514,526 $(121,806) 0 392,720
------- --------- ------- -------
COSTS AND EXPENSES:
Multumedia ................................ 38,176 -- -- $ 38,176
Services .................................. 138,193 -- -- $ 138,193
Manufacturing ............................. 268,376 (105,641) -- $ 162,735
Selling and administrative ................ 45,761 (12,897) -- $ 32,864
------ ------- ------- ---------
OPERATING PROFIT .............................. 24,020 (3,268) 0 20,752
Other income (expense):
Investment Income ......................... 2,064 -- 3,625 $ 5,689 (6)
Interest expense .......................... (27,722) -- 1,845 ($ 25,877) (4)
Equity in earnings of afflaited companies . 317 -- -- $ 317
Gain on sales of subsidiary stock and other
operating assets ...................... 4,778 -- -- $ 4,778
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(20,563) 0 5,470 (15,093)
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INCOME (LOSS) FROM OPERATIONS BEFORE
INCOME TAXES, MINORITY INTERESTS DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM ............. 3,457 (3,268) 5,470 $ 5,659
>
Benefit (provision) for income taxes ......... (1,412) 722 (1,603) ($ 2,293) (9)
Minority interests ............................ 1,312 -- (1,001) $ 311 (10)
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NET INCOME(LOSS) .............................. $ 3,357 ($ 2,546) $ 2,866 $ 3,677
========= ========= ========= =========
Weighted average shares outstanding 1,418,000 1,418,000
Basic and Diluted earnings per share:
NET INCOME $2.37 $2.59
</TABLE>
<PAGE>
<TABLE>
LYNCH CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
<CAPTION>
Disposition
of Industrial Pro Forma Pro Forma
06/30/99 Tape Business Adjustments 06/30/99 Notes
-------- ------------- ----------- -------- -----
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents .................................... $ 145 -- 75,512 $ 75,657 (1)
Receivables,less Allowances of $353 and $395 ................. 24,309 -- -- 24,309
Inventories .................................................. 31,477 -- -- 31,477
Deferred income tax benefits ................................. 8,717 -- -- 8,717
Other current assets ......................................... 809 -- -- 809
Current assets of subsidiaries to be distributed to
shareholders .............................................. 50,304 -- -- 50,304
Current assets of discontinued operations .................... 31,986 (31,986) -- 0
------ ------- ------ -------
TOTAL CURRENT ASSETS ...................................... 147,749 (31,986) 75,512 191,273
PROPERTY,PLANT AND EQUIPMENT:
Land ................................................................. 672 -- -- 672
Buildings and Improvements ................................... 10,833 -- -- 10,833
Machinery and Equipment ...................................... 53,177 -- -- 53,177
------ ------ ------ -------
64,682 0 0 64,682
Accumulated Depreciation ..................................... (19,690) -- -- (19,690)
------- ------ ------ -------
44,992 0 0 44,992
------ ------- ------ -------
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED, NET .................................. 22,472 -- -- 22,472
OTHER ASSETS ................................................. 6,415 -- 3,000 9,415 (8)
NON-CURRENT ASSETS OF SUBSIDIARIES ........................... -- -- -- 0
TO BE DISTRIBUTED TO SHAREHOLDERS ......................... 151,677 -- -- 151,677
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS ................ 69,491 (69,491) -- 0
------ ------- ------- -------
TOTAL ASSETS ............................................ $ 442,794 ($101,477) $78,512 $419,829
========= ========= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks .................................... $48,078 -- (20,095) 27,983 (2)
Trade accounts payable .................................... 19,392 -- -- 19,392
Accrued interest payable .................................. 2,590 -- -- 2,590
Accrued liabilities ....................................... 2,454 -- -- 2,454
Customer advances ......................................... 2,714 -- -- 2,714
Current maturities of long - term debt .................... 2,198 -- (1,143) 1,055 (3)
Current liabilites of subsidiaries to be distributed to
shareholders ........................................... 36,272 -- -- 36,272
Current liabilites of discontinued operations ............. 15,338 (15,338) -- 0
------ ------- ------ ------
TOTAL CURRENT LIABILITIES ............................. 129,036 (15,338) (21,238) 92,460
LONG-TERM DEBT ............................................... 126,380 -- (3,750) 122,630 (3)
DEFERRED INCOME TAXES ........................................ 8,854 -- 7,728 16,582 (7)
OTHER LONG TERM LIABILITIES .................................. 1,901 -- -- 1,901
NON-CURRENT LIABILITIES OF SUBSIDIARIES
TO BE DISTRIBUTED TO SHAREHOLDERS ......................... 139,682 -- -- 139,682
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS .......... 6,280 (6,280) -- 0
MINORITY INTERESTS ........................................... 2,010 -- 8,335 10,345 (10)
SHAREHOLDERS' EQUITY
COMMON STOCK,NO PAR VALUE-10,000,000 SHARES
AUTHORIZED; 1,471,191 shares issued (at stated value) ... 5,139 -- -- 5,139
ADDITIONAL PAID - IN CAPITAL 8,298 ........................ -- -- 8,298
RETAINED EARNINGS ......................................... 16,207 (79,859) 87,437 23,785
ACCUMULATED OTHER COMPREHENSIVE INCOME .................... 211 -- -- 211
TREASURY STOCK OF 58,873 and 52,943 SHARES,
AT COST ................................................ (1,204) -- -- (1,204)
------ ------- ------- ------
TOTAL SHAREHOLDERS' EQUITY ............................... 28,651 (79,859) 87,437 36,229
------ ------- ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $442,794 ($101,477) $78,512 $419,829
======== ========= ======= ========
</TABLE>
<PAGE>
Lynch Corporation
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(dollars in millions, except per share)
General
Spinnaker 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 Spinnaker'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 of Spinnaker in the Permitted
Businesses, as defined in the Spinnaker Indenture. Any proceeds not so invested
within 270 days after the closing of the sale of Central or not used to
permanently reducer 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 ans $9.2 million for the year ended
December 31, 1999.
General corporate office expenses incurred by Spinnaker related to finance and
administrative functions including public company compliance reporting, bank and
investor relations, taxes other than income taxes and holding company payroll,
historically allocated and charged to the industrial tape segment were reversed
and allocated back to continuing operations. These expenses were not considered
to be directly attributed to the Industrial Tape businesses and remain an
expense of the continuing operations of Spinnaker.
(1) Represents estimated net cash proceeds from the disposition of the
Industrial Tape Businesses, calculated as follows:
<PAGE>
<TABLE>
<CAPTION>
($ 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 ....... 18.1 6.9
Net cash proceeds ............ $ 59.9 $ 15.6
</TABLE>
(2) Represents repayment of certain borrowings under Spinnaker's $60
million revolving credit facility and approximately $2.0 million for
repayment of borrowings under the Electrical's revolving credit
facility.
(3) Represents repayment of Electrical term debt with an original principal
amount of $4.5 million and Spinnaker's subordinated note with an
original principal amount o $0.5 million.
(4) 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.
(5) 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.
(6) Represents interest income earned on net proceeds invested in
institutional money market funds, yielding an average return of 4.80%.
(7) Represents statutory deferred taxes on the sale of Industrial Tape
Business.
(8) 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.
(9) Represents income tax adjustment to reflect Registrant's effective tax
rate from continuing operations.
(10) Represents minority interest effects of Disposition of Industrial Tape
Business and Pro Forma Adjustments.
