1
EXHIBIT 13.1
PRICE RANGE AND DIVIDENDS OF COMMON STOCK
AND PREFERRED STOCK
The Company's Common Stock and Preferred Stock are both listed on the New York
Stock Exchange. As of February 23, 1994, there were approximately 1,135 and 188
holders of record of the Company's Common Stock and Preferred Stock,
respectively. The following table summarizes the prices of the Common Stock
and Preferred Stock on the New York Stock Exchange Composite Tape and quarterly
cash dividends:
Common Stock Preferred Stock
-------------------------------- ---------------------------------
Cash Cash
Calendar Year High Low Dividends High Low Dividends
- - ------------- ------ ------ --------- ------- ------ ---------
1993
First Quarter $8 7/8 $6 1/2 $ -- $21 1/4 $18 3/4 $.425
Second Quarter 9 1/4 6 3/4 -- 21 1/2 19 7/8 .425
Third Quarter 8 3/4 6 3/8 -- 22 3/8 20 .425
Fourth Quarter 9 1/4 7 7/8 -- 22 3/8 20 1/4 .425
------ ------ ----- ------- ------- -----
1992
First Quarter $7 3/4 $6 1/4 $ -- $19 $16 1/2 $.425
Second Quarter 6 3/4 4 3/4 -- 18 1/2 16 3/4 .425
Third Quarter 5 1/2 4 3/8 -- 18 1/2 16 .425
Fourth Quarter 6 3/4 4 1/2 -- 20 17 1/8 .425
====== ====== ===== ======= ======= =====
The annual cumulative Preferred Stock dividend requirement as of December 31,
1993, was $829,000. The payment of Common Stock dividends is restricted by the
Company's Senior Note agreement. Under the most restrictive covenant of such
agreement, $500,000 was available for the payment of dividends on Common Stock
as of December 31, 1993.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Kerr Group, Inc.:
We have audited the accompanying consolidated balance sheets of Kerr Group,
Inc. (Kerr) as of December 31, 1993 and 1992, and the related consolidated
statements of earnings (loss), common stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kerr at December
31, 1993 and 1992, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Notes 1 and 3 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions and income taxes in 1993, and new machine repair parts in 1991.
KPMG PEAT MARWICK
- - ------------------------------------
Los Angeles, California
February 23, 1994
12
2
FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Years Ended December 31, 1993 1992 1991
- - ------------------------ --------- -------- --------
(in thousands, except per share amounts)
Net sales $ 127,372 $126,610 $125,598
Cost of sales 88,922 88,730 91,192
--------- -------- --------
Gross profit 38,450 37,880 34,406
Selling, warehouse, general and administrative expenses 30,095 28,945 29,093
Loss on plant relocation 4,500 -- --
Interest expense 5,680 5,815 5,086
Interest and other income (858) (1,293) (867)
--------- -------- --------
Earnings (loss) from continuing operations before income taxes (967) 4,413 1,094
Provision (benefit) for income taxes (634) 1,826 700
--------- -------- --------
Earnings (loss) from continuing operations (333) 2,587 394
Loss from discontinued operations, after applicable income
tax benefit of $2,104 in 1992, and $1,607 in 1991 -- (5,284) (2,973)
Extraordinary loss on retirement of debt, after
applicable income tax benefit of $632 (1,300) -- --
--------- -------- --------
Net loss (1,633) (2,697) (2,579)
Preferred stock dividends 829 829 829
--------- -------- --------
Net loss applicable to common stockholders $ (2,462) $ (3,526) $ (3,408)
========= ======== ========
Earnings (loss) per common share:
Earnings (loss) per common share from continuing operations $ (0.32) $ 0.48 $ (0.12)
Loss per common share from discontinued operations -- (1.44) (0.81)
Extraordinary loss per common share on retirement of debt (0.35) -- --
--------- -------- -------
Net loss per common share $ (0.67) $ (0.96) $ (0.93)
========= ======== ========
See accompanying notes to consolidated financial statements.
13
3
CONSOLIDATED BALANCE SHEETS
Years Ended December 31, 1993 1992
-------- --------
(in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 11,329 $ 19,251
Receivables -- primarily trade accounts, less allowance for doubtful accounts
of $578 in 1993 and $645 in 1992 13,533 11,347
Inventories
Raw materials and work in process 8,906 6,485
Finished goods 19,126 15,835
-------- --------
Total inventories 28,032 22,320
Prepaid expenses and other current assets 2,527 2,081
-------- --------
Total current assets 55,421 54,999
-------- --------
Property, plant and equipment, at cost
Land 427 436
Buildings and improvements 12,476 12,535
Machinery and equipment 74,748 67,965
Furniture and office equipment 3,001 3,024
-------- --------
90,652 83,960
Accumulated depreciation and amortization (50,228) (47,577)
-------- --------
Net property, plant and equipment 40,424 36,383
Deferred income taxes 6,629 --
Goodwill and other intangibles, net of amortization of $2,122 in 1993 and
$3,454 in 1992 6,645 7,064
Other assets 4,201 2,477
Non-current net assets related to discontinued operations 4,029 4,309
-------- --------
$117,349 $105,232
======== ========
See accompanying notes to consolidated financial statements.
14
4
CONSOLIDATED BALANCE SHEETS (continued)
Years Ended December 31, 1993 1992
-------- --------
(in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ -- $ 1,000
Accounts payable 9,573 8,844
Accrued expenses 9,089 9,517
-------- --------
Total current liabilities 18,662 19,361
-------- --------
Pension liability 18,321 7,919
Other long-term liabilities 2,302 1,488
Senior long-term debt 50,000 --
Subordinated long-term debt -- 40,000
Stockholders' equity
Preferred Stock, 487 shares authorized and issued,
at liquidation value of $20 per share 9,748 9,748
Common Stock, $.50 par value per share,
20,000 shares authorized, 4,210 shares issued 2,105 2,105
Additional paid-in capital 27,145 27,113
Retained earnings 9,420 11,882
Treasury Stock, at cost, 543 shares in 1993 and 535 shares in 1992 (12,803) (12,737)
Excess of additional pension liability over unrecognized
prior service cost, net of tax benefits (6,835) --
Notes receivable from ESOP Trusts (716) (1,647)
-------- --------
Total stockholders' equity 28,064 36,464
-------- --------
$117,349 $105,232
======== ========
See accompanying notes to consolidated financial statements.
15
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993 1992 1991
------- -------- -------
(in thousands)
CASH FLOW PROVIDED (USED) BY OPERATIONS
Continuing operations:
Earnings (loss) from continuing operations $ (333) $ 2,587 $ 394
Add (deduct) noncash items included in earnings (loss)
from continuing operations
Depreciation and amortization 7,364 6,651 6,209
Reserve for loss on plant relocation, net of tax 2,754 -- --
Change in deferred income taxes 159 (225) (293)
Reduction in accrued long-term pension liability, net (1,116) (2,413) (844)
Other, net (624) (355) (26)
Changes in other operating working capital
Receivables (2,186) (555) 180
Inventories (5,712) 1,422 2,189
Prepaid expenses (885) (1,279) (60)
Accounts payable 729 1,384 (2,640)
Accrued expenses (541) (508) (930)
------- ------- -------
Cash flow provided (used) by continuing operations (391) 6,709 4,179
Cash flow provided (used) by discontinued operations -- (3,121) 14,237
------- ------- -------
Total cash flow provided (used) by operations (391) 3,588 18,416
------- ------- -------
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES
Continuing operations:
Capital expenditures (11,256) (8,359) (4,391)
Proceeds from liquidation of long-term certificate of deposit -- 5,000 --
Other, net (1,338) 256 (226)
Discontinued operations:
Proceeds from the sale of the Commercial Glass Container
Business -- 67,719 --
Proceeds from the sale of the Metal Crown Business -- 7,208 --
Collection of accounts receivable, and payment of accounts payable
and accrued and other expenses (2,500) (7,974) --
Capital expenditures -- (2,510) (10,607)
Other, net -- (43) (16)
------- ------- -------
Cash flow provided (used) by investing activities (15,094) 61,297 (15,240)
------- ------- -------
CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES
Issuance of senior debt 50,000 -- --
Extinguishment of subordinated debt (41,131) -- --
Borrowings (repayments) under Bank Credit Agreements, net -- (53,000) 4,600
Other long-term debt retirements (1,000) (3,207) (1,536)
Payments received on ESOP Trusts notes receivable 931 1,560 1,536
Dividends paid (829) (829) (829)
Other, net (408) (717) (250)
------- ------- -------
Cash flow provided (used) by financing activities 7,563 (56,193) 3,521
------- ------- ------
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year (7,922) 8,692 6,697
Balance at beginning of the year 19,251 10,559 3,862
------- ------- -------
Balance at end of the year $11,329 $19,251 $10,559
======= ======= =======
See accompanying notes to consolidated financial statements.
16
6
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
Excess of
Additional
Pension
Number Of Liability
Shares Of Over Notes
Common Additional Unrecognized Receivable
Stock Common Paid-In Retained Treasury Prior From ESOP
Outstanding Stock Capital Earnings Stock Service Cost Trusts
------------ ------ --------- -------- --------- ------------ ----------
(in thousands)
Balance, December 31, 1990 3,675 $ 2,105 $ 26,902 $18,816 $(12,737) $ -- $ (4,743)
Net loss -- -- -- (2,579) -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Repayments on ESOP Trusts
notes receivable -- -- -- -- -- -- 1,536
Restricted Stock Plan -- -- 119 -- -- -- --
----- ------- -------- ------- -------- ------- ---------
Balance, December 31, 1991 3,675 2,105 27,021 15,408 (12,737) -- (3,207)
----- ------- -------- ------- -------- -------- --------
Net loss -- -- -- (2,697) -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Repayments on ESOP Trusts
notes receivable -- -- -- -- -- -- 1,560
Restricted Stock Plan -- -- 92 -- -- -- --
----- ------- -------- ------- -------- ------- --------
Balance, December 31, 1992 3,675 2,105 27,113 11,882 (12,737) -- (1,647)
----- ------- -------- ------- -------- ------- --------
Net loss -- -- -- (1,633) -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Pension adjustment -- -- -- -- -- (6,835) --
Repayments on ESOP Trusts
notes receivable -- -- -- -- -- -- 931
Purchase of common stock (8) -- -- -- (66) -- --
Restricted Stock Plan -- -- 32 -- -- -- --
----- ------- -------- ------- -------- ------- --------
Balance, December 31, 1993 3,667 $ 2,105 $ 27,145 $ 9,420 $(12,803) $(6,835) $ (716)
===== ======= ======== ======= ======== ======= ========
See accompanying notes to consolidated financial statements.
17
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Presentation
The consolidated financial statements include the accounts of Kerr Group, Inc.,
formerly Kerr Glass Manufacturing Corporation, and its wholly owned subsidiary,
collectively referred to as the Company. All material intercompany balances and
transactions are eliminated in consolidation.
Cash Equivalents
Cash equivalents consist only of investments that have an original maturity of
three months or less, are readily convertible to known amounts of cash and have
insignificant risk of changes in value because of changes in interest rates.
Inventories
Inventories are valued at the lower of cost or market, determined by the use of
the first-in, first-out method.
Depreciation, Maintenance And Repairs
Depreciation of property, plant and equipment is provided primarily by the use
of the straight-line method over the estimated useful lives of the assets. The
principal estimated useful lives used in computing the depreciation provisions
are as follows:
Buildings and improvements 5 to 30 years
Machinery and equipment 2 to 15 years
Furniture and equipment 3 to 10 years
The policy of the Company is to charge amounts expended for maintenance and
repairs to expense and to capitalize expenditures for major replacements and
betterments.
Goodwill And Other Intangibles
The excess of cost over net tangible assets of the business acquired during
1987 is amortized on a straight-line basis over 40 years. Other intangible
assets are being amortized by the use of the straight-line method over their
respective initial estimated lives ranging from 5 to 10 years.
Revenue Recognition
The Company recognizes revenue as product is shipped. A reserve is provided for
estimated end of season returns of home canning supplies as sales are recorded.
Postretirement Benefits Other Than Pensions
Prior to 1993, the Company accounted for retiree health care and life insurance
benefits on a pay-as-you-go basis. Effective January 1, 1993, the Company
adopted Financial Accounting Standards Board Statement No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions (FASB No. 106). As
more fully described in Note 6, the Company has elected to amortize the impact
of FASB No. 106 ratably over 20 years.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, Accounting for Income Taxes (FASB No. 109). Under the asset and liability
method of FASB No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under FASB
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted FASB No. 109. The cumulative and
pro forma effect of the change in accounting was not material. The Company
previously used the asset and liability method for accounting for income taxes
under FASB No. 96.
Earnings (Loss) Per Common Share
Primary net earnings (loss) per common share are based on the weighted average
number of common shares outstanding and are after Preferred Stock dividends.
Fully diluted net earnings (loss) per common share reflect when dilutive 1) the
incremental common shares issuable upon the assumed exercise of outstanding
stock options and 2) the assumed conversion of the Preferred Stock and the
elimination of the related Preferred Stock dividends. Antidilution occurred in
1993, 1992 and 1991.
18
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Statement Reclassification And Presentation
Certain reclassifications have been made to prior years' financial statements
to conform to the 1993 presentation.
NOTE 2 - LOSS ON PLANT RELOCATION
During the fourth quarter of 1993, the Company recorded a pre-tax loss of
approximately $4,500,000 ($2,754,000 after-tax or $0.75 per common share) for
the expected costs associated with the relocation of its home canning cap and
lid manufacturing operations from Chicago, Illinois to a new manufacturing
facility in Jackson, Tennessee. The pre-tax loss consists primarily of accruals
for i) the early recognition of retiree health care and pension expense,
severance, workers' compensation costs and insurance continuation costs of
approximately $2,500,000, ii) asset retirement and related facility closing
costs of approximately $1,000,000, and iii) moving and relocation costs of
approximately $700,000. The relocation of the home canning cap and lid
operations is expected to be completed by the end of 1994.
NOTE 3 - DISCONTINUED OPERATIONS
On December 11, 1992, the Company sold its Metal Crown Business for a cash
payment of approximately $7,200,000. The sale of the Metal Crown Business
resulted in a pre-tax loss of $3,000,000 ($2,600,000 after-tax or $0.71 per
common share).
On February 28, 1992, the Company sold its Commercial Glass Container Business
for a cash payment of approximately $68,000,000. The sale of the Commercial
Glass Container Business resulted in a pre-tax loss of $4,859,000 ($2,982,000
after-tax or $0.81 per common share).
The results of the discontinued operations have been reported separately in the
Consolidated Statements of Earnings (Loss). Summarized results of the
discontinued operations are as follows:
Years Ended December 31, 1993 1992 1991
- - ----------------------- ------ ------- --------
(in thousands)
Net sales $ -- $37,690 $167,970
Costs and expenses -- 41,352 164,365
Allocated interest expense -- 726 4,764
------ ------- --------
Loss before income taxes -- (4,388) (1,159)
Benefit for income taxes -- (1,704) (282)
------ ------- --------
Loss from discontinued operations -- (2,684) (877)
Loss on sale of Metal Crown Business -- (2,600) --
Loss on sale of Commercial Glass Container Business -- -- (2,982)
Cumulative effect of change in accounting related to
Commercial Glass Container Business -- -- 886
------ ------- --------
Total loss related to discontinued operations $ -- $(5,284) $ (2,973)
====== ======= ========
Effective January 1, 1991, the Company changed its method of accounting for new
machine repair parts related to the discontinued Commercial Glass Container
Business. The cumulative effect of this change increased pre-tax earnings of
the discontinued operations for the year ending December 31, 1991, by
$1,438,000 ($886,000 after-tax or $0.24 per common share).
Interest expense was allocated to the Commercial Glass Container Business based
upon the ratio of the Commercial Glass Container Business net assets to total
Company net assets.
The remaining assets of the discontinued Commercial Glass Container Business
consist primarily of land and buildings, used in connection with a former glass
container manufacturing plant, that are being held for sale. Such assets are
recorded at their estimated net realizable value.
19
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - INCOME TAXES
As discussed in Note 1, the Company adopted FASB No. 109, Accounting for Income
Taxes, effective January 1, 1993. The cumulative effect of such change in the
method of accounting for income taxes was not material.
Total income tax benefit for the year ended December 31, 1993 was allocated as
follows:
(in thousands)
Loss from continuing operations $ (634)
Extraordinary item (632)
Stockholders' equity, related to excess of pension liability
over unrecognized prior service costs (4,340)
-------
$(5,606)
=======
The provision (benefit) for income taxes related to continuing operations
consists of the following:
Years Ended December 31, 1993 1992 1991
- - ------------------------ ------- ------- -------
(in thousands)
Current
U.S. Federal $ 119 $1,426 $ 2,288
State -- 493 362
------ ------ -------
Total current 119 1,919 2,650
------ ------ -------
Deferred
U.S. Federal (637) 88 (1,700)
State (116) (181) (250)
------ ------ -------
Total deferred (753) (93) (1,950)
------ ------ -------
Total provision (benefit) for income taxes $ (634) $1,826 $ 700
====== ====== =======
The significant components of deferred income taxes (benefits) related to
continuing operations are as follows:
Years Ended December 31, 1993 1992 1991
- - ------------------------ ------- ------- --------
(in thousands)
Reinstatement (reduction) of deferred income taxes
attributable to recognition of alternative minimum tax
credits and tax net operating loss carryforwards $ 52 $ 3,653 $ (1,397)
Timing differences associated with the sales of
discontinued operations 1,051 (3,483) (1,768)
Timing differences associated with the loss on
plant relocation (1,368) -- --
Additional costs inventoried for tax purposes (245) (175) 1,141
Excess (deficit) of pension contributions paid over
pension expense 448 (312) 343
Excess (deficit) of tax over book depreciation, including
assets retired or sold (327) 228 (742)
Other, net (364) (4) 473
------ ------- --------
Total $ (753) $ (93) $ (1,950)
====== ======= ========
Total provision (benefit) for income taxes related to continuing operations
differed from the amounts computed by applying the U.S. Federal income tax rate
of 34% to earnings (loss) from continuing operations before income taxes as a
result of the following:
20
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - INCOME TAXES (continued)
Years Ended December 31, 1993 1992 1991
------ ------ ------
(in thousands)
Computed "expected" tax provision (benefit) $(329) $1,500 $ 372
Increase (reduction) in provision resulting from:
State income tax provision (benefit),
net of Federal income tax effect (47) 213 53
Change in the valuation allowance for deferred
income tax assets (369) -- --
Other, net 111 113 275
----- ------ ------
Actual tax provision (benefit) $(634) $1,826 $ 700
===== ====== ======
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liabilities at December 31, 1993 are as
follows:
(in thousands)
Deferred income tax assets:
Pension liabilities --
Excess of additional pension liability over unrecognized prior service cost $ 4,340
Accrued pension liability 1,495
Accrued reserves associated with plant relocation 1,368
Inventory 595
Accrued vacation pay 444
Tax credit carryforwards 1,975
Net operating loss carryforwards 720
Other 1,223
-------
Total gross deferred income tax assets 12,160
Less valuation allowance --
-------
Deferred income tax assets, net of valuation allowance 12,160
Deferred income tax liabilities:
Property, plant and equipment, principally due to differences in depreciation (5,110)
Other (421)
-------
Total gross deferred income tax liabilities (5,531)
-------
Net deferred income tax asset $ 6,629
=======
The valuation allowance for deferred income tax assets as of January 1, 1993
was $369,000. The net change in the valuation allowance during the year ended
December 31, 1993 was a reduction of $369,000, or $0.10 per common share.
In order to fully realize the deferred income tax asset, the Company will need
to generate future taxable income of at least approximately $27 million in the
aggregate prior to expiration of net operating loss carryforwards which will
begin to expire in 2006. Based upon the Company's recent pre-tax earnings,
adjusted for significant nonrecurring items, and projections of future taxable
income over the period in which the deferred income tax assets are deductible,
management believes it is more likely than not that the Company will realize
the benefit of the deferred income tax asset. There can be no assurance,
however, that the Company will generate any specific level of continuing
earnings.
At December 31, 1993, the Company had net operating loss carryforwards for
Federal income tax purposes of $1,854,000 which are available to offset future
Federal taxable income, expiring in the years 2006 through 2008.
21
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - INCOME TAXES (continued)
The Company also has an alternative minimum tax credit carryforward of
$1,693,000 and other tax credit carryforwards (primarily investment tax
credits) of $282,000, expiring in the years 1999 through 2006, which are
available to reduce future Federal income taxes, if any.
The Internal Revenue Service has completed an audit of the Company's Federal
income tax returns through 1985.
The total net cash payments related to income taxes, which primarily represent
Federal alternative minimum taxes and state taxes, were $470,000, $347,000 and
$808,000 for 1993, 1992 and 1991, respectively.
NOTE 5 - ACCRUED EXPENSES
At December 31, 1993 and 1992, accrued expenses from continuing operations were
as follows:
1993 1992
------- -------
(in thousands)
Accrued wages and vacation pay $ 1,951 $1,915
Accrued pension benefits 46 592
Accrued expenses associated with plant relocation 3,523 --
Accrued expenses associated with the sales of discontinued operations 990 4,416
Other accrued expenses 2,579 2,594
------- ------
Total accrued expenses $ 9,089 $9,517
======= ======
NOTE 6 - RETIREMENT BENEFITS
Pensions
The Company has a defined benefit pension plan and defined contribution pension
plan, which cover substantially all employees. The defined benefit plan
provides benefits based on years of service and average final pay. The defined
contribution plan provides benefits based on a fixed percent of pay for each
year of service. The Company's policy is to fund amounts sufficient to satisfy
the funding requirements of the Employee Retirement Income Security Act of
1974. During 1993 and 1992, the Company funded $1,721,000 more than the accrued
pension expense for the 1992 plan year. During 1992 and 1991, the Company
funded $2,917,000 more than the accrued pension expense for the 1991 plan year.
FASB Statement No. 87, Employers' Accounting for Pensions, requires that
pension liabilities be discounted at an interest rate equal to the rate on
longer-term, high-quality debt instruments. As a result of the downward trend
in interest rates in 1993, the Company has lowered its assumed discount rate
used for pension accounting from 9% at December 31, 1992 to 7.5% at December
31, 1993. This change in discount rate increased the Company's additional
minimum pension liability to $12,710,000 at December 31, 1993 from $1,424,000
at December 31, 1992 and reduced stockholders' equity at December 31, 1993 by
$6,835,000. The amount of this adjustment will be increased or decreased at the
end of each year depending on future changes in interest rates. This adjustment
did not have any effect on 1993 earnings. Intangible assets of $1,535,000 and
$1,424,000 were recorded as of December 31, 1993 and 1992, respectively.
Net pension expense related to continuing operations for the years ended
December 31, 1993, 1992 and 1991, included the following components:
1993 1992 1991
------- ------- ------
(in thousands)
Defined Benefit Plan:
Service cost (benefit earned during period) $ 472 $ 471 $ 468
Interest cost on projected benefit obligation 6,941 6,884 6,941
Actual return on assets (7,843) (5,383) (8,698)
Net amortization and deferral 1,619 (427) 2,862
------- ------- -------
Defined Benefit Plan expense $ 1,189 $ 1,545 $ 1,573
------- ------- -------
Defined Contribution Plan expense $ 21 $ 30 $ 35
======= ======= =======
22
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - RETIREMENT BENEFITS (continued)
The Company retained the pension benefit obligations for service prior to the
date of the sale and the pension assets related to both the Metal Crown
Business and the Commercial Glass Container Business. In connection with the
sale of the two businesses, the Company's pension plans had a combined
curtailment loss of $4,664,000 pursuant to FASB Statement No. 88, Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits. During 1993, the Company recorded a curtailment
loss of $232,000 related to the relocation of the Company's home canning cap
and lid manufacturing operations. Such curtailment losses are included as a
component of the respective losses on the sale of the businesses and plant
relocation.
The funded status of the defined benefit plans at December 31, 1993 and 1992,
was as follows:
1993 1992
-------- -------
(in thousands)
Actuarial present value
Vested benefit obligation $ 89,848 $74,640
Nonvested benefit obligation 2,985 3,607
-------- -------
Accumulated benefit obligation 92,833 78,247
Effect of future salary increases 3,171 1,544
-------- -------
Projected benefit obligation 96,004 79,791
Plan assets at fair value (a) 74,492 69,733
-------- -------
Projected benefit obligation in excess of plan assets 21,512 10,058
Unrecognized net transition obligation (632) (818)
Unrecognized prior service costs (903) (688)
Unrecognized net loss (14,346) (1,462)
-------- -------
Accrued pension liability before adjustment 5,631 7,090
Adjustment required to recognize additional minimum pension liability 12,710 1,424
-------- -------
Accrued pension liability related to the defined benefit plan $ 18,341 $ 8,514
-------- -------
Accrued pension liability related to the defined contribution plan $ 26 $ 30
======== =======
(a) Plan assets include 118,200 shares of Company Common Stock at December
31, 1993 and December 31, 1992, at a value of $990,000 and $768,000,
respectively.
The majority of all pension plan assets are held by a master trust created for
the collective investment of the plan's funds, as well as in private placement
insurance contracts. At December 31, 1993, assets held by the master trust
consisted primarily of cash, U.S. government obligations, corporate bonds and
common stocks.
The defined benefit plan assumptions as of December 31, 1993, 1992 and 1991,
were as follows:
1993 1992 1991
----- ---- ----
Discount rate 7.5% 9% 9%
Increase in compensation rate 5% 5% 5%
Long-term rate of return on assets 9.5% 9.5% 10%
==== ==== ===
Retiree Health Care And Life Insurance
The Company provides certain health care and life insurance benefits for
retired employees and their spouses. The costs of such benefits are shared by
retirees through one or more of the following: a) deductibles, b) copayments
and c) retiree contributions. Salaried employees hired prior to September 1,
1992 and certain hourly employees may become eligible for those benefits if
they reach retirement age while working for the Company. The Company will not
provide retiree health care and life insurance benefits for salaried employees
hired after September 1, 1992. Health care and life insurance benefits provided
by the Company are not funded in advance, but rather are paid by the Company as
the costs are actually incurred by the retirees.
23
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - RETIREMENT BENEFITS (continued)
As discussed in Note 1, effective January 1, 1993, the Company adopted FASB No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
FASB No. 106 requires a company to use an accrual method for recording retiree
health care and life insurance benefits instead of the previously used
pay-as-you-go method. The effect of this accounting change on 1993 results of
operations was to increase retiree health care and life insurance expense by
$640,000 from the amount that would have been recorded in 1993 under the
previously used pay-as-you-go method. The adoption of FASB No. 106 at January
1, 1993 created a previously unrecognized accumulated postretirement benefit
obligation of $13,195,000. As permitted under FASB No. 106, the Company has
elected to amortize the $13,195,000 accumulated postretirement benefit
obligation ratably over 20 years.
Prior to 1993, the Company recognized the expense for the cost of retiree
health care and life insurance benefits as paid. During 1992 and 1991, the cost
of retiree health care and life insurance benefits with respect to both i) the
retirees of continuing operations and ii) the retirees of discontinued
operations, liability for which was retained by the Company, totalled
$1,230,000 and $1,180,000, respectively. All such retiree costs were charged
against continuing operations.
Retiree health care and life insurance expense related to continuing operations
for the year ended December 31, 1993, included the following components:
(in thousands)
Retiree health care and life insurance plans:
Service cost (benefit earned during period) $ 83
Interest cost on accumulated benefit obligation 1,187
Actual return on assets --
Net amortization and deferral 660
-------
Retiree health care and life insurance expense $ 1,930
=======
The funded status of the retiree health care and life insurance plans at
December 31, 1993, was as follows:
(in thousands)
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 11,400
Fully eligible active participants 1,400
Other active participants 700
--------
Accumulated benefit obligation 13,500
Plan assets at fair value --
--------
Accumulated benefit obligation in excess of plan assets 13,500
Unrecognized net transition obligation (11,790)
Unrecognized prior service costs --
Unrecognized net loss (325)
--------
Accrued postretirement benefit liability $ 1,385
========
The retiree health care and life insurance plans assumptions are as follows:
December 31, 1993 January 1, 1993
----------------- ---------------
Discount rate 7.5% 9.0%
Health care cost trend rates --
Indemnity plans 9% trending down to 6% 15% trending down to 7%
Managed care plans 7% trending down to 4% 13% trending down to 5%
===================== ======================
The effect of a one percentage point annual increase in these assumed cost
trend rates at December 31, 1993 would increase the postretirement benefit
obligation by approximately $550,000 and would increase the service and
interest cost components of the annual expense by approximately $45,000.
24
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - DEBT
At December 31, 1993 and 1992, long-term debt consisted of the following:
1993 1992
------- -------
(in thousands)
Senior Notes $50,000 $ --
13% Subordinated Notes, redeemed December 15, 1993 -- 40,000
12% Industrial Development Revenue Bonds, redeemed March 2, 1993 -- 1,000
------- -------
50,000 41,000
Less current maturities -- 1,000
------- -------
$50,000 $40,000
======= =======
On September 21, 1993, the Company sold $50 million principal amount of Senior
Notes to a group of insurance companies consisting of John Hancock Mutual Life
Insurance Company, New York Life Insurance Company and Massachusetts Mutual
Life Insurance Company. The Senior Notes consist of $41,000,000 of 10-year
notes with an interest rate of 9.45% and $9,000,000 of 6-year notes with an
interest rate of 8.99%. Sinking fund payments begin under the 10-year notes in
1998 and under the 6-year notes in 1997. The Senior Notes are unsecured.
The Senior Notes contain various covenants including covenants relating to
coverage of fixed charges, minimum level of tangible net worth, limitation on
leverage and limitation on restricted payments, for which payments are defined
to include Common Stock dividends. Under these covenants, at December 31, 1993,
$500,000 was available for the payment of Common Stock dividends.
A portion of the proceeds from the sale of the Senior Notes was used to redeem
all of the $40,000,000 principal amount of 13% Subordinated Notes on December
15, 1993 at par. The remaining proceeds are being used for working capital.
During the third quarter of 1993, the Company incurred an after-tax loss of
$1,300,000, or $0.35 per common share, in connection with the refinancing of
its 13% Subordinated Notes and the termination of its $25,000,000 revolving
credit facility. The extraordinary loss included interest expense on the 13%
Subordinated Notes from September 21, 1993 through December 15, 1993 and the
write-off of unamortized debt fees and related costs.
The mandatory principal payments for the next five years on the outstanding
long-term debt at December 31, 1993 are as follows:
Years Ended December 31,
- - ----------------------- (in thousands)
1994 $ --
1995 --
1996 --
1997 3,000
1998 9,833
1999 and thereafter 37,167
=======
On November 8, 1993, the Company entered into two $6,000,000 short-term lines
of credit with two banks to provide for the seasonal working capital needs of
the Company. One of the lines of credit is committed through October 28, 1994
with borrowings to bear interest at either the prime rate of the lender or,
alternatively, Eurodollar rate plus 2%. In addition, a facility fee of 0.5% per
annum is charged on the unused amount of the commitment. The other line of
credit is committed through September 30, 1994 with borrowings to bear interest
at the prime rate of the lender. A facility fee of 0.75% per annum is charged
on the total amount of this commitment. The two short-term lines of credit
contain covenants identical to the Senior Notes.
During 1993, the Company had no borrowings under either its lines of credit or
its revolving credit facility which was terminated on September 21, 1993.
During 1992, the Company had maximum borrowings outstanding under the
terminated revolving credit facility of $9,000,000 and under a previously
existing revolving credit commitment of $65,000,000. During 1992, the weighted
average interest rate under both credit agreements was 6.5% and the weighted
average borrowings outstanding under both credit agreements was $11,143,000.
25
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - DEBT (continued)
The Company redeemed on March 2, 1993, all $1,000,000 outstanding of the 12%
Industrial Development Revenue Bonds.
Total cash payments of interest (including duplicative interest related to the
refinancing of the Subordinated Notes and interest allocated to discontinued
operations) during 1993, 1992 and 1991 were $6,501,000, $6,358,000 and
$10,324,000, respectively.
NOTE 8 - PREFERRED STOCK
Class B Preferred Stock
At December 31, 1993 and 1992, the Company was authorized to issue 1,302,300
shares of Class B Preferred Stock, par value $.50 per share, which may be
issued in series from time to time at the discretion of the Board of Directors.
Holders of all series of Class B Preferred Stock share ratably as to rights to
payment of dividends and to amounts payable in event of liquidation,
dissolution or winding up of the Company. No dividends or payments in
liquidation may be made with respect to Common Stock or any other stock ranking
junior as to dividends or assets to the Class B Preferred Stock unless all
accumulated dividends and sinking fund payments on the Class B Preferred Stock
have been paid in full and, in the event of liquidation, unless the accumulated
dividends and the liquidation preference of the Class B Preferred Stock have
been paid.
Series D
At December 31, 1993 and 1992, the Company had 487,400 shares of Class B
Cumulative Convertible Preferred Stock, Series D (Preferred Stock), issued and
outstanding. Holders of the Preferred Stock are entitled to a cumulative
dividend, payable quarterly, at the annual rate of 8 1/2% ($1.70 per share). The
Preferred Stock is redeemable at the option of the Company at any time, in
whole or in part, at a price of $20.00 per share. No purchases or redemptions
of or dividends on Common Stock may occur unless all accumulated dividends have
been paid on the Preferred Stock.
Each share of Preferred Stock has a liquidating value of $20.00 per share and
is convertible into Common Stock at the rate of 1.4545 shares of Common Stock
for each share of Preferred Stock (equivalent to a conversion price of $13.75
per common share), subject to adjustment under certain conditions. At December
31, 1993, a total of 708,923 shares of Common Stock was reserved for issuance
upon conversion of the Preferred Stock.
If six quarterly dividends on the Preferred Stock are unpaid, the holders of
Preferred Stock shall have the right, voting as a class, to elect two
additional persons to the Board of Directors of the Company until all such
dividends have been paid.
NOTE 9 - COMMON STOCK
Employee Stock Ownership Plans
The Company has two employee stock ownership plans, the Kerr Group, Inc.
Employee Incentive Stock Ownership Plan Trust formed in 1985 (ESOP I) and the
Kerr Group, Inc. 1987 Employee Incentive Stock Ownership Plan Trust formed in
1987 (ESOP II). Both plans are for the benefit of employees of the Company. The
Company borrowed funds from a group of banks, which in turn were loaned to the
plans for the purpose of purchasing shares of the Company's Common Stock. The
bank loans were repaid on February 28, 1992. The related Company loan to ESOP I
was repaid during 1993 and the loan to ESOP II is repayable through 1994.
ESOP I and ESOP II obtain the funds to repay loans primarily through the
receipt of tax deductible contributions made by the Company. The Company funds
such contributions primarily through the reduction of compensation and
benefits, and deferral of salary increases which it would otherwise have
provided to its employees. Total contribution expense for these plans related
to continuing operations was $633,000, $955,000 and $1,025,000 in 1993, 1992
and 1991, respectively. For financial statement purposes, the bank loans were
reflected as a liability and the Company's loans to ESOP I and ESOP II are
reflected as a reduction in stockholders' equity.
26
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMON STOCK (continued)
Stock Options
Under the Company's Stock Option Plans for employees, options may be granted at
a price determined by the Stock Option Committee of the Board of Directors,
which may be less than market value. Options may be exercised during periods
established by such Committee; however, in no event may any option be exercised
more than 10 years after the date of grant. All of the Company's currently
outstanding options generally vest in cumulative installments of 20% per year
commencing on the date of grant. Such options become exercisable in full upon
the occurrence of certain enumerated events, including certain changes in
control of the Company. The options granted during 1993 and 1992 provide that
the Company's stock price must equal or exceed $12.50 and $10 per Common Share,
respectively, for ten consecutive trading days for the options to be
exercisable.
The following tabulation summarizes changes under the Company's Stock Option
Plans for employees during the years ended December 31, 1993, 1992 and 1991.
1993 1992 1991
----------------------------- ------------------------------ ---------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
--------- ----------- --------- ----------- --------- -----------
Options Outstanding:
Beginning of year 198,850 $5 3/8 - 11 7/16 127,750 $7 1/8 - 11 7/16 112,250 $ 8 1/4 - 14 15/16
Granted 157,500 8 - 8 5/16 90,000 5 3/8 48,000 7 1/8
Exercised -- -- --
Cancelled (36,000) 5 3/8 - 10 3/4 (8,900) 5 3/8 - 11 7/16 (2,500) 11 7/16
Expired (46,350) 5 3/8 - 11 7/16 (10,000) 10 1/16 (30,000) 13 13/16 - 14 15/16
------- ---------------- ------- ---------------- ------- --------------------
End of year 274,000 5 3/8 - 8 5/16 198,850 5 3/8 - 11 7/16 127,750 7 1/8 - 11 7/16
------- ---------------- ------- ---------------- ------- --------------------
Exercisable at end of year:
Currently exercisable 28,800 77,450 72,400
Exercisable if Common
Stock trades at $10
per share or above 27,400 18,001 --
Exercisable if Common
Stock trades at $12.50
per share or above 31,500 -- --
------- ------- -------
Total 87,700 95,451 72,400
------- ------- -------
Available for grant at
end of year 20,100 13,250 92,350
======= ======= =======
In addition, the 1988 Stock Option Plan for Non-Employee Directors (the 1988
Plan), consisting of 80,000 shares, and 1993 Stock Option Plan for Non-Employee
Directors (the 1993 Plan), consisting of 60,000 shares, provide for the grant
of options to purchase Common Stock to members of the Board of Directors of the
Company who are not employees of the Company or any of its subsidiaries or
affiliates. The option price of each option granted under these plans is the
fair market value of Common Stock on the date of grant. Options under the 1988
Plan are immediately exercisable upon grant and will expire five years from the
date of grant. Future grants of options under the 1988 Plan can only be made to
Directors other than the Company's current Directors. Options under the 1993
Plan are exercisable six months after date of grant, provided that the
Company's stock price equals or exceeds $12.50 per Common Share for ten
consecutive trading days. Options under the 1993 Plan expire ten years from the
date of grant.
27
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMON STOCK (continued)
The following tabulation summarizes changes under the Company's Stock Option
Plans for non-employee Directors during the years ended December 31, 1993, 1992
and 1991.
1993 1992 1991
------------------------ ---------------------- -----------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
--------- ----------- --------- ----------- --------- -----------
Options Outstanding:
Beginning of year 60,000 $ 11 5/16 60,000 $ 11 5/16 60,000 $ 11 5/16
Granted 60,000 8 3/16 -- --
Exercised -- -- --
Expired (60,000) 11 5/16 -- --
------- --------- ------ --------- ------ ---------
End of year 60,000 8 3/16 60,000 11 5/16 60,000 11 5/16
------- --------- ------ --------- ------ ---------
Exercisable at end of year:
Currently exercisable -- 60,000 60,000
Exercisable if Common
Stock trades at $12.50
per share or above 60,000 -- --
------- ------ ------
Total 60,000 60,000 60,000
------- ------ ------
Available for grant at
end of year 80,000 20,000 20,000
======= ====== ======
The aggregate option price for all outstanding options at December 31, 1993,
1992 and 1991 was $2,508,000, $2,129,000 and $1,845,000, respectively. At the
time options are exercised, the common stock account is credited with the par
value of the shares issued and additional paid-in capital is credited with the
cash proceeds in excess of par value. The Company's Stock Option Plans permit
the grant of both incentive stock options and nonstatutory stock options.
Restricted Stock Plan
In 1985 and 1984, the Company sold 65,000 shares and 75,000 shares,
respectively, of Treasury Stock to an officer of the Company at a price of
$1.00 per share. The shares were sold subject to forfeiture and restrictions on
disposition under conditions as defined in the Restricted Stock Purchase
Agreements between the Company and the officer. As of December 31, 1993, the
restrictions on all 140,000 shares have been released. Compensation expense
was recorded in the periods benefitted as the difference between the fair
market value on the date of sale and the sale price. During 1993, 1992 and
1991, total shares of 15,000, 16,000 and 28,000, respectively, were released
from restriction.
NOTE 10 - RENTAL EXPENSE AND LEASE COMMITMENTS
The Company occupies certain manufacturing facilities, warehouse facilities and
office space and uses certain automobiles, machinery and equipment under
noncancelable lease arrangements. Rent expense related to continuing operations
under these agreements was $3,008,000, $2,864,000 and $3,242,000 in 1993, 1992
and 1991, respectively.
28
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - RENTAL EXPENSE AND LEASE COMMITMENTS (continued)
At December 31, 1993, the Company was obligated under various noncancelable
leases. Calendar year minimum rental commitments under the leases related to
the Company's continuing operations are as follows:
Total Real Personal
Years Ended December 31, Commitment Property Property
- - ------------------------ ---------- -------- --------
(in thousands)
1994 $3,439 $2,812 $627
1995 3,263 2,711 552
1996 2,655 2,456 199
1997 1,581 1,522 59
1998 1,503 1,502 1
1999 through 2008 5,865 5,865 --
====== ====== ====
Real estate taxes, insurance and maintenance expenses are obligations of the
Company. Generally, in the normal course of business, leases that expire will
be renewed or replaced by leases on other properties. In addition, rental
expense will increase in connection with the Company's relocation of its home
canning cap and lid manufacturing operations and expansion of its Jackson,
Tennessee plastic products plant.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the Company was contingently liable for outstanding
letters of credit in the amount of $1,000,000, which were fully collateralized
by certificates of deposit and secure the Company's obligations under an
officer's employment agreement.
In connection with the Company's Workers' Compensation insurance programs, the
Company has pledged a certificate of deposit in the amount of $900,000 to
secure a surety bond. The Company's estimate of its ultimate liability relating
to these programs has been reflected on the Company's consolidated balance
sheet as a liability.
The Company has been designated by the Environmental Protection Agency as a
potentially responsible party to share in the remediation costs of several
waste disposal sites. Pursuant to the sale of the Metal Crown Business, the
Company has indemnified the buyer for certain environmental remediation costs.
In addition, pursuant to the sale of the Commercial Glass Container Business,
the Company has indemnified the buyer for certain environmental remediation
costs and has retained ownership of certain real property used in the
Commercial Glass Container Business which may require environmental
remediation. As of December 31, 1993, the Company has accrued a reserve of
approximately $2,100,000 for the expected costs associated with environmental
remediation described above and in connection with its current manufacturing
plants. The amount of this reserve was based in part on an environmental study
performed by an independent environmental engineering firm. The Company
believes that this reserve is adequate.
NOTE 12 - INDUSTRY SEGMENT INFORMATION
The Company operates in two industry segments, Plastic Products and Consumer
Products. Operations in the Plastic Products segment involve: 1) the
manufacture and sale of a variety of plastic products including child-resistant
closures, tamper-evident closures, prescription packaging products, jars and
other plastic closures and containers; and 2) the sale of glass prescription
products. Operations in the Consumer Products segment involve: 1) the
manufacture and sale of caps and lids for home canning, and 2) the sale of
glass jars and a line of pickling spice and pectin products for home canning,
iced tea tumblers and beverage mugs. Intersegment sales are not material. No
customer accounted for more than 10% of net sales from continuing operations in
1993, 1992 or 1991.
Segment earnings is income from continuing operations before general corporate
expenses, interest expense, interest and other income and provision (benefit)
for income taxes.
Identifiable assets by industry segment are those assets that are used in the
Company's operations in each industry segment. Corporate assets are principally
cash and cash equivalents, the deferred income tax asset, certificates of
deposit and certain intangible assets.
29
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - INDUSTRY SEGMENT INFORMATION (continued)
A summary of the Company's operations by industry segment follows:
Years Ended December 31, 1993 1992 1991
- - ------------------------ --------- -------- --------
(in thousands)
Net sales:
Plastic Products $ 98,533 $ 92,557 $ 93,449
Consumer Products 28,839 34,053 32,149
-------- -------- --------
Total $127,372 $126,610 $125,598
======== ======== ========
Segment earnings (loss):
Plastic Products $ 11,428 $ 9,165 $ 9,077
Consumer Products (a) (2,707) 4,982 1,804
-------- -------- --------
Total 8,721 14,147 10,881
General corporate expenses 4,866 5,212 5,568
-------- -------- --------
Earnings from continuing operations before
interest and income taxes 3,855 8,935 5,313
Interest expense 5,680 5,815 5,086
Interest and other income (858) (1,293) (867)
-------- -------- --------
Earnings (loss) from continuing operations before
income taxes $ (967) $ 4,413 $ 1,094
======== ======== ========
(a) The 1993 segment loss for Consumer Products includes a $4,500,000
pre-tax loss for the expected costs associated with the relocation of
the Company's home canning cap and lid manufacturing operations. See
Note 2 of notes to consolidated financial statements for further
information.
Identifiable assets, depreciation and amortization and capital expenditures for
each segment are as follows:
Years Ended December 31, 1993 1992 1991
- - ------------------------ -------- -------- --------
(in thousands)
Identifiable Assets:
Plastic Products $ 69,834 $ 64,306 $ 64,204
Consumer Products 20,403 12,370 11,469
Corporate 23,083 24,196 24,189
Discontinued operations 4,029 4,360 66,021
-------- -------- --------
Total $117,349 $105,232 $165,883
======== ======== ========
Continuing operations - depreciation and amortization:
Plastic Products $ 6,600 $ 5,839 $ 5,037
Consumer Products 197 204 496
Corporate 567 608 676
-------- -------- --------
Total $ 7,364 $ 6,651 $ 6,209
======== ======== ========
Continuing operations - capital expenditures (b):
Plastic Products $ 8,587 $ 6,853 $ 4,084
Consumer Products 1,920 601 198
Corporate 749 905 109
-------- -------- --------
Total $ 11,256 $ 8,359 $ 4,391
======== ======== ========
(b) During 1991, in addition to the capital expenditures shown above, the
Company entered into long-term operating leases for manufacturing
equipment costing $1,623,000, primarily in the Plastic Products
segment.
30
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 - CONDENSED QUARTERLY DATA FOR 1993 AND 1992 (UNAUDITED)
Three Months Ended March 31 June 30 Sept. 30 Dec. 31
- - ------------------ -------- ------- -------- -------
(in thousands, except per share amounts)
1993
Net sales $26,674 $38,113 $34,448 $28,137
Gross profit 8,358 11,371 9,832 8,889
Earnings (loss) from continuing operations (a) (295) 1,398 552 (1,988)
Extraordinary loss on retirement of debt (b) -- -- (1,300) --
------- ------- ------- -------
Net earnings (loss) (295) 1,398 (748) (1,988)
Preferred stock dividends 207 207 207 208
------- ------- ------- -------
Net earnings (loss) applicable to
common stockholders $ (502) $ 1,191 $ (955) (2,196)
======= ======= ======= =======
Earnings (loss) per common share:
Earnings (loss) per common share from
continuing operations (a) $ (0.14) $ 0.32 $ 0.09 $ (0.60)
Extraordinary loss per common share
on retirement of debt (b) -- -- (0.35) --
------- ------- ------- -------
Net earnings (loss) per common share $ (0.14) $ 0.32 $ (0.26) $ (0.60)
======= ======= ======= =======
1992
Net sales $24,736 $38,821 $36,813 $26,240
Gross profit 7,629 10,925 11,114 8,212
Earnings (loss) from continuing operations (393) 1,597 1,460 (77)
Loss from discontinued operations (571) (818) (566) (3,329)
------- ------- ------- -------
Net earnings (loss) (964) 779 894 (3,406)
Preferred stock dividends 207 207 207 208
------- ------- ------- -------
Net earnings (loss) applicable to
common stockholders $(1,171) $ 572 $ 687 (3,614)
======= ======= ======= =======
Earnings (loss) per common share:
Earnings (loss) per common share from
continuing operations $ (0.16) $ 0.38 $ 0.34 $ (0.08)
Loss per common share from
discontinued operations (0.16) (0.22) (0.15) (0.90)
------- ------- ------- -------
Net earnings (loss) per common share $ (0.32) $ 0.16 $ 0.19 $ (0.98)
======= ======= ======= =======
(a) The loss from continuing operations for the fourth quarter of 1993
includes a $4,500,000 pre-tax loss ($2,754,000 after-tax or $0.75 per
common share) for the expected costs associated with the relocation of
the Company's home canning cap and lid manufacturing operations and a
tax benefit of $369,000 ($0.10 per common share) related to a
reduction in the income tax valuation reserve. See Notes 2 and 4 of
notes to consolidated financial statements for further information.
(b) See Note 7 of notes to consolidated financial statements for
information regarding the extraordinary loss on retirement of debt.
31
21
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
Years Ended December 31, 1993 1992 1991 1990 1989
- - ------------------------ --------- -------- -------- -------- --------
(in thousands, except per share amounts)
Net sales $ 127,372 $126,610 $125,598 $122,168 $112,346
========= ======== ======== ======== ========
Segment earnings (loss):
Plastic Products $ 11,428 $ 9,165 $ 9,077 $ 8,121 $ 3,841
Consumer Products (a) (2,707) 4,982 1,804 (294) 3,694
--------- -------- -------- ------- --------
Total 8,721 14,147 10,881 7,827 7,535
General corporate expenses 4,866 5,212 5,568 6,484 5,934
--------- -------- -------- -------- --------
Earnings from continuing operations
before interest and income taxes $ 3,855 $ 8,935 $ 5,313 $ 1,343 $ 1,601
========= ======== ======== ======== ========
Earnings (loss) from continuing
operations before income
taxes (a) $ (967) $ 4,413 $ 1,094 $ (2,873) $ (2,360)
Provision (benefit) for income
taxes (b) (634) 1,826 700 (1,132) (913)
--------- -------- -------- -------- --------
Earnings (loss) from continuing
operations (333) 2,587 394 (1,741) (1,447)
Earnings (loss) from
discontinued operations (c) -- (5,284) (2,973) 489 1,728
Extraordinary loss on retirement
of debt (d) (1,300) -- -- -- --
--------- -------- -------- -------- --------
Net earnings (loss) (1,633) (2,697) (2,579) (1,252) 281
Preferred stock dividends 829 829 829 829 829
--------- -------- -------- -------- --------
Net loss applicable to
common stockholders $ (2,462) $ (3,526) $ (3,408) $ (2,081) $ (548)
========= ======== ======== ======== ========
Earnings (loss) per common share:
Earnings (loss) per common share
from continuing
operations (a) (b) $ (0.32) $ 0.48 $ (0.12) $ (0.70) $ (0.62)
Earnings (loss) per common share
from discontinued operations (c) -- (1.44) (0.81) 0.13 0.47
Extraordinary loss per common share
on retirement of debt (d) (0.35) -- -- -- --
--------- -------- -------- -------- --------
Net loss per common share $ (0.67) $ (0.96) $ (0.93) $ (0.57) $ (0.15)
========= ======== ======== ======== ========
Cash dividends per common
share $ -- $ -- $ -- $ .33 $ .44
========= ======== ======== ======== ========
(a) The 1993 segment loss for Consumer Products includes a $4,500,000
pre-tax loss ($2,754,000 after-tax or $0.75 per common share) for the
expected costs associated with the relocation of the Company's home
canning cap and lid manufacturing operations. See Note 2 of notes to
consolidated financial statements for further information.
(b) The benefit for income taxes for 1993 includes a tax benefit of
$369,000 ($0.10 per common share) related to a reduction in the income
tax valuation reserve. See Note 4 of notes to consolidated financial
statements for further information.
(c) See Note 3 of notes to consolidated financial statements for
information regarding discontinued operations.
(d) See Note 7 of notes to consolidated financial statements for
information regarding the extraordinary loss on retirement of debt.
32
22
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (continued)
Years Ended December 31, 1993 1992 1991 1990 1989
- - ------------------------ --------- -------- -------- -------- --------
(in thousands)
Net property, plant and equipment -
continuing operations $ 40,424 $ 36,383 $ 34,395 $ 36,240 $ 34,995
Depreciation and amortization -
continuing operations 7,364 6,651 6,209 6,208 5,857
Capital expenditures -
continuing operations (e) 11,256 8,359 4,391 6,980 6,919
Total assets 117,349 105,232 165,883 165,614 177,912
Senior long-term debt 50,000 -- 55,647 52,607 51,690
Subordinated long-term debt -- 40,000 40,000 40,000 40,000
========= ======== ======== ======== ========
Stockholders' equity before
pension adjustment $ 34,899 $ 36,464 $ 38,338 $ 40,091 $ 41,375
Excess of additional pension liability
over unrecognized prior service cost,
net of tax benefits (6,835) -- -- -- --
--------- -------- -------- -------- --------
Stockholders' equity $ 28,064 $ 36,464 $ 38,338 $ 40,091 $ 41,375
========= ======== ======== ======== ========
Weighted average number of
common shares outstanding 3,669 3,675 3,675 3,675 3,666
========= ======== ======== ======== ========
(e) During 1991 and 1990, in addition to the capital expenditures shown
above, the Company entered into long-term operating leases for
manufacturing equipment costing $1,623,000 and $1,331,000,
respectively.
33
23
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS -- 1993 COMPARED TO 1992
Net sales of the Company increased to $127,372,000 in 1993 from $126,610,000 in
1992.
Net sales of the Plastic Products segment increased 6.5% to $98,533,000 in 1993
from 1992. The Company's plastic products manufacturing facilities operated at
approximately 83% of capacity during 1993.
The Plastic Products segment manufactures a variety of plastic closures,
prescription packaging products, bottles and jars. Although unit sales of these
products have generally increased in recent years, sales and profitability of
these products could be affected in the future by the availability and pricing
of resin.
Net sales of the Consumer Products segment decreased 15.3% to $28,839,000 in
1993 compared to 1992 due primarily to lower unit sales as a result of adverse
weather conditions in many areas of the country where the Company markets home
canning supplies. The cap and lid manufacturing facility of the Consumer
Products Business operated at approximately 76% of capacity in 1993.
In 1994 the Company will relocate its home canning cap and lid manufacturing
operations from Chicago, Illinois to a new manufacturing facility in Jackson,
Tennessee and permanently cease operations in its leased facility in Chicago.
The Company expects that this relocation will result in improved efficiencies
and cost reductions of approximately $3,000,000 pre-tax per year. Relocation to
Jackson is expected to be completed by the end of 1994, with partial savings to
be realized in 1995. Full savings are expected to be realized in 1996.
Home canning supplies sales of the Consumer Products Business are dependent
upon favorable growing conditions for fruits and vegetables. Thus, unfavorable
growing conditions such as occurred in 1993 will reduce sales of home canning
supplies.In addition, the Company believes that the demand for home canning
supplies has declined in recent years. If this decline were to increase
materially, it could have an adverse effect on the Company.
Cost of sales of the Company increased slightly to $88,922,000 in 1993 compared
to $88,730,000 in 1992.
Selling, warehouse, general and administrative expenses increased 4.0% to
$30,095,000 in 1993 compared to $28,945,000 in 1992.
The Company recorded a pre-tax reserve in 1993 for the expected costs
associated with the relocation of the home canning cap and lid manufacturing
operations of $4,500,000. The pre-tax loss consists primarily of accruals for
i) the early recognition of retiree health care and pension expense, severance,
workers' compensation costs and insurance continuation costs of approximately
$2,500,000, ii) asset retirement and related facility closing costs of
approximately $1,000,000 and iii) moving and relocation costs of approximately
$700,000. Primarily all these costs will ultimately require cash payments.
Approximately $3,000,000 of these costs are expected to require cash payments
during 1994.
Earnings from continuing operations before the loss on relocation, interest and
income taxes decreased $580,000 to $8,355,000 in 1993 from $8,935,000 in 1992,
due primarily to lower earnings in the Consumer Products Business.
Segment earnings of the Plastic Products Business, the larger of the Company's
two businesses, increased 25% to a record $11,428,000 in 1993, compared to
$9,165,000 in 1992, primarily due to higher sales. Segment earnings of the
Consumer Products Business excluding the loss on plant relocation declined to
$1,793,000 in 1993, compared to $4,982,000 in 1992, due primarily to lower
sales as a result of adverse weather conditions in many areas of the country
where the Company markets home canning supplies.
The decrease in the income tax provision in 1993 compared to 1992 is due to
lower pre-tax earnings and the recognition of an income tax benefit of $369,000
related to a reduction in the income tax valuation reserve.
During 1993, the Company incurred an after-tax loss of $1,300,000 in connection
with the refinancing on September 21, 1993 of its 13% Subordinated Notes and
the termination of its revolving credit facility. The extraordinary loss
included interest expense on the 13% Subordinated Notes from September 21, 1993
through December 15, 1993 and the write-off of unamortized debt fees and
related costs.
Due to competitive pressures, there are occasions when the Company is unable to
pass through to customers the full extent of cost increases. Other than the
inability on all occasions to pass on cost increases, inflation and changes in
prices did not have a material effect on the Company's results of operations.
34
24
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF CONTINUING OPERATIONS -- 1992 COMPARED TO 1991
Net sales of the Company increased to $126,610,000 in 1992 from $125,598,000 in
1991.
Net sales of the Plastic Products segment decreased 1.0% to $92,557,000 in 1992
from 1991. The Company's plastic products manufacturing facilities operated at
approximately 84% of capacity during 1992.
Net sales of the Consumer Products segment increased 5.9% to $34,053,000 in
1992 compared to 1991 due primarily to increased sales of home canning
supplies.
The cap and lid manufacturing facility of the Consumer Products Business
operated at approximately 50% of capacity in 1992.
Cost of sales of the Company decreased 2.7% to $88,730,000 in 1992 compared to
1991.
Selling, warehouse, general and administrative expenses decreased slightly to
$28,945,000 in 1992 from $29,093,000 in 1991.
Earnings from continuing operations before interest and income taxes increased
$3,622,000 in 1992 from 1991, due primarily to higher sales and earnings in the
Consumer Products Business. Earnings of the Plastic Products Business improved
slightly in 1992 compared to 1991.
The increase in the income tax provision in 1992 compared to 1991 is due to
higher pre-tax earnings.
RESULTS OF DISCONTINUED OPERATIONS -- 1992 COMPARED TO 1991
The Metal Crown Business was sold in late 1992.
The after-tax loss from the operations of the discontinued Metal Crown Business
increased in 1992 to $2,684,000 compared to $2,540,000 in 1991.
The sale of the Metal Crown Business resulted in a pre-tax loss of $3,000,000
($2,600,000 after-tax or $0.71 per common share). The amount of the tax benefit
that could be immediately recognized against the pre-tax loss was limited under
accounting rules.
The discontinued Commercial Glass Container Business which was sold in early
1992 had no effect on earnings in 1992.
During 1991, the after-tax earnings of the discontinued Commercial Glass
Container Business were $1,663,000, the after-tax loss on sale of the
Commercial Glass Container Business was $2,982,000 and the cumulative effect of
a change in method of accounting for machine repair parts related to the
Commercial Glass Container Business resulted in after-tax earnings of $886,000.
LIQUIDITY AND CAPITAL RESOURCES
On September 21, 1993, the Company sold $50 million principal amount of
unsecured Senior Notes to a group of insurance companies. The Senior Notes
consist of $41,000,000 of 10-year notes with an interest rate of 9.45% and
$9,000,000 of 6-year notes with an interest rate of 8.99%. Sinking fund
payments begin under the 10-year notes in 1998 and under the 6-year notes in
1997. A portion of the proceeds from that sale was used to redeem all of the
$40,000,000 principal amount of 13% Subordinated Notes on December 15, 1993 at
par. The remaining proceeds are being used for working capital.
During February 1992, the Company sold its Commercial Glass Container Business
for a cash payment of approximately $68,000,000. The proceeds from the sale of
the Commercial Glass Container Business were used to repay all amounts
outstanding under the Company's then-existing bank credit agreements and ESOP
bank loan agreements, and such agreements were terminated. During December
1992, the Company sold its Metal Crown Business for a cash payment of
approximately $7,200,000. During 1993 and 1992, collection of accounts
receivable and payment of accounts payable and accrued and other expenses
associated with the discontinued operations used cash of $2,500,000 and
$7,974,000, respectively.
35
25
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Cash flow provided by financing activities was a significant source of
liquidity during 1993. Cash flow provided by continuing operations was a
significant source of liquidity during 1992 and 1991. Cash flow from continuing
operations in 1993 was reduced by increased working capital requirements.
The Company's continuing operations spent $11,256,000, $8,359,000 and
$4,391,000 on capital expenditures in 1993, 1992 and 1991, respectively.
During 1991, in addition to these capital expenditures, the Company entered
into long-term operating leases for manufacturing equipment costing $1,623,000.
Capital expenditures of approximately $17,000,000 are planned for continuing
operations in 1994.
Since the third quarter of 1990, the Company has not declared any dividends on
its Common Stock. The Company's Senior Note Agreement limits the payment of
dividends on Common Stock.
On November 8, 1993, the Company entered into two $6,000,000 short-term lines
of credit with two banks to provide for working capital. The Company had no
borrowings outstanding under its working capital credit facilities as of
December 31, 1993 or 1992. During 1991, the Company increased by $4,600,000 its
borrowings under its then-existing bank credit agreement.
The Company previously maintained a $5,000,000 letter of credit fully
collateralized by a certificate of deposit to secure the obligations of the
Company to indemnify its Directors and Officers. During 1992, the Company
terminated the letter of credit and liquidated the related long- term
certificate of deposit, resulting in cash proceeds of $5,000,000 to the
Company.
During 1993, the Company redeemed $1,000,000 of Industrial Development Revenue
Bonds.
The ratio of current assets to current liabilities at December 31, 1993 and
1992 was 3.0 and 2.8, respectively. At December 31, 1993 and 1992, the ratio of
total debt to total capitalization was 64.1% and 52.9%, respectively. The
increase in the ratio of total debt to total capitalization at December 31,
1993 compared to December 31, 1992 was due primarily to the reduction in
stockholders' equity relating to pensions and the sale of $50 million principal
amount of senior notes.
Accounting rules require that pension liabilities be discounted at an interest
rate equal to the rate on longer-term, high-quality debt instruments. As a
result of the downward trend in interest rates in 1993, the Company has lowered
its assumed discount rate used for pension accounting from 9% at December 31,
1992 to 7.5% at December 31, 1993. This change in discount rate increased the
Company's pension liability by $11,286,000 and reduced stockholders' equity by
$6,835,000. The amount of this adjustment will be increased or decreased at the
end of each year depending on future changes in interest rates. This adjustment
did not have any effect on 1993 earnings.
The Company has recorded a deferred income tax asset of $6,629,000 on its
Consolidated Balance Sheet as of December 31, 1993. In order to fully realize
this deferred income tax asset, the Company will need to generate future
taxable income of at least approximately $27 million in the aggregate prior to
expiration of net operating loss carryforwards which will begin to expire in
2006. Based upon the Company's recent pre-tax earnings, adjusted for
significant nonrecurring items, and projections of future taxable income over
the period in which the deferred income tax assets are deductible, management
believes it is more likely than not that the Company will realize the benefit
of the deferred income tax asset. There can be no assurance, however, that the
Company will generate any specific level of continuing earnings.
At December 31, 1993, the Company had unused sources of liquidity consisting
of cash and cash equivalents of $11,329,000, unused committed credit under the
bank lines of credit of $12,000,000 of which $9,738,000 could be borrowed under
the terms of the Company's Senior Note Agreement, a tax net operating loss
carryforward of $1,854,000, a minimum tax credit carryforward of $1,693,000 and
other tax credit carryforwards of $282,000.
36