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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 1 - 7272
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KERR GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-0898810
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Century Park East, Los Angeles, CA 90067
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 556-2200
-------------------------
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Former name, former address and former fiscal year,
if changed since last year.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ____
The number of shares of Registrant's Common Stock, $.50 par value, outstanding
as of October 31, 1994 was 3,677,095.
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KERR GROUP, INC.
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 3 - 4
Condensed Consolidated Statements of Earnings (Loss) -
Three Months and Nine Months Ended September 30, 1994 and 1993 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 6
Notes to Condensed Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
Part II. Other Information 11
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KERR GROUP, INC.
Consolidated Balance Sheets
As of September 30, 1994 and December 31, 1993
(in thousands except per share data)
(Unaudited) (Audited)
September 30, December 31,
Assets 1994 1993
- - - ------ ------------- ------------
Current assets
Cash and cash equivalents $ 2,926 $ 11,329
Receivables-primarily trade accounts,
less allowance for doubtful accounts
of $724 at September 30, 1994 and $578
at December 31, 1993 21,618 13,533
Inventories
Raw materials and work in process 10,453 8,906
Finished goods 18,685 19,126
-------- --------
Total inventories 29,138 28,032
Prepaid expenses and other current assets 1,955 2,527
Deferred income taxes 1,854 0
-------- --------
Total current assets 57,491 55,421
-------- --------
Property, plant and equipment, at cost 98,373 90,652
Accumulated depreciation and amortization (55,328) (50,228)
-------- --------
Net property, plant and equipment 43,045 40,424
-------- --------
Goodwill and other intangibles, net of
amortization of $2,388 at September 30,
1994 and $2,122 at December 31, 1993 6,788 6,645
Deferred income taxes 2,981 6,629
Other assets 4,125 4,201
Non-current assets related to discontinued operations 4,479 4,029
-------- --------
$118,909 $117,349
======== ========
See accompanying notes to condensed consolidated financial statements.
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KERR GROUP, INC.
Consolidated Balance Sheets (continued)
As of September 30, 1994 and December 31, 1993
(in thousands except per share data)
(Unaudited) (Audited)
September 30, December 31,
Liabilities and Stockholders' Equity 1994 1993
- - - ------------------------------------ ------------- ------------
Current liabilities
Short-term debt $ 1,000 $ 0
Accounts payable 10,461 9,573
Accrued expenses 7,594 9,089
-------- --------
Total current liabilities 19,055 18,662
-------- --------
Accrued pension liability 16,745 18,321
Other long-term liabilities 1,889 2,302
Senior long-term debt 50,000 50,000
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, 4,220
shares issued at September 30, 1994 and
4,210 shares issued at December 31, 1993 2,110 2,105
Additional paid-in capital 27,210 27,145
Retained earnings 11,971 9,420
Treasury Stock, 543 shares at cost (12,803) (12,803)
Excess of additional pension liability
over unrecognized prior service
cost, net of tax benefits (6,835) (6,835)
Notes receivable from ESOP Trusts (181) (716)
-------- --------
Total stockholders' equity 31,220 28,064
-------- --------
$118,909 $117,349
======== ========
See accompanying notes to condensed consolidated financial statements.
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KERR GROUP, INC.
Condensed Consolidated Statements of Earnings (Loss)
for the Three Months and Nine Months Ended September 30, 1994 and 1993
(in thousands except per share data)
(Unaudited) (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
1994 1993 1994 1993
--------- --------- ---------- -----------
Net sales $40,624 $34,448 $111,008 $99,235
Cost of sales 28,617 24,616 76,749 69,674
------- ------- -------- -------
Gross profit 12,007 9,832 34,259 29,561
Selling, warehouse, general and
administrative expense 8,559 7,594 25,337 22,915
Interest expense 1,263 1,457 3,727 4,473
Interest and other income (66) (199) (297) (671)
------- ------- -------- -------
Earnings before income taxes 2,251 980 5,492 2,844
Provision for income taxes 941 428 2,320 1,189
------- --------- -------- -------
Earnings before extraordinary item 1,310 552 3,172 1,655
Extraordinary loss on retirement of debt 0 (1,300) 0 (1,300)
------- -------- -------- -------
Net earnings (loss) $ 1,310 $ (748) $ 3,172 $ 355
Preferred stock dividends 207 207 621 621
------- -------- -------- -------
Net earnings (loss) applicable to
common stockholders $ 1,103 $ (955) $ 2,551 $ (266)
======= ======== ======== =======
Net earnings (loss) per common share,
primary and fully diluted:
Earnings per common share before
extraordinary item $ 0.30 $ 0.09 $ 0.69 $ 0.28
Extraordinary loss per common share on
retirement of debt 0.00 (0.35) 0.00 (0.35)
------- -------- -------- -------
Net earnings (loss) per common share $ 0.30 $ (0.26) $ 0.69 $ (0.07)
======= ======== ======== =======
See accompanying notes to condensed consolidated financial statements.
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KERR GROUP, INC.
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1994 and 1993
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------------
1994 1993
------------ ----------
Cash flows provided (used) by operations
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Earnings before extraordinary item $ 3,172 $ 1,655
Add (deduct) noncash items included in
net earnings
Depreciation and amortization 5,773 5,541
Change in deferred income taxes 1,794 726
Reduction in long-term pension liability (1,576) (1,374)
Other, net 225 (804)
Changes in other operating working capital
Receivables (8,085) (3,912)
Inventories (1,106) (2,246)
Prepaid expenses 594 (909)
Accounts payable and accrued expenses 2,518 (962)
-------- --------
Cash flows provided (used) by operations 3,309 (2,285)
-------- --------
Cash flows provided (used) by investing activities
- - - --------------------------------------------------
Capital expenditures (8,178) (5,542)
Payments associated with relocation of home
canning cap and lid operations (2,440) 0
Collection of accounts receivable, and payment of
accounts payable and accrued and other expenses
related to discontinued operations (1,802) (2,440)
Other, net (276) (1,388)
-------- --------
Cash flows used by investing activities (12,696) (9,370)
-------- --------
Cash flows provided (used) by financing activities
- - - --------------------------------------------------
Net borrowings under lines of credit 1,000 0
Issuance of Senior Notes 0 50,000
Extinguishment of Subordinated Debt 0 (41,131)
Retirement of long-term debt 0 (1,000)
Dividends paid (621) (621)
Other 605 344
-------- --------
Cash flows provided by financing activities 984 7,592
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Cash and cash equivalents
- - - -------------------------
Decrease during the period (8,403) (4,063)
Balance at beginning of the period 11,329 19,251
-------- --------
Balance at end of the period $ 2,926 $ 15,188
======== ========
See accompanying notes to condensed consolidated financial statements
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KERR GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1) General
The condensed consolidated financial statements include the accounts of Kerr
Group, Inc. and its wholly owned subsidiary (collectively referred to as
the Company). In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of the Company as of September 30, 1994, the results of operations
for the three months and nine months ended September 30, 1994 and 1993, and
changes in cash flows for the nine months ended September 30, 1994 and
1993.
The results of operations for the first nine months of 1994 are not
necessarily indicative of the results to be expected for the full year.
2) Earnings Per Share
Fully diluted earnings 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. The calculation of
fully diluted net earnings (loss) per common share for the three and nine
months ended September 30, 1994 and 1993 was not dilutive.
3) Debt
On May 2, 1994, the Company replaced its two existing unsecured $6,000,000
short-term lines of credit with two unsecured $10,000,000 short-term lines
of credit. The lines of credit provide for the seasonal working capital
needs of the Company. The $10,000,000 lines of credit are committed
through April 30, 1995. One of the $10,000,000 lines of credit provides
for borrowings to bear interest at either the prime rate of the lender or,
alternatively, Eurodollar rate plus 1.5% and charges a facility fee of 0.5%
per annum on the commitment. The other $10,000,000 line of credit provides
for borrowings to bear interest at the prime rate of the lender and charges
a facility fee of 0.75% per annum on the commitment. The lines of credit
contain covenants identical to the Senior Notes.
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KERR GROUP, INC.
Computation of Earnings (Loss) Per Common Share
(in thousands except per share data)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1994 1993 1994 1993
------ ------ ------ ------
Primary Net Earnings (Loss) Per Common Share
Net earnings (loss) $1,310 $ (748) $3,172 $ 355
Less Preferred Stock dividends (207) (207) (621) (621)
------ ------ ------ ------
Net earnings (loss) applicable to primary earnings
per common share $1,103 $ (955) $2,551 $ (266)
====== ====== ====== ======
Weighted average number of common
shares outstanding 3,677 3,667 3,673 3,670
====== ====== ====== ======
Primary net earnings (loss) per common share $ 0.30 $(0.26) $ 0.69 $(0.07)
====== ====== ====== ======
Fully Diluted Net Earnings (Loss) Per Common Share
- - - --------------------------------------------------
Net earnings (loss) applicable to primary earnings
per common share $1,103 $ (955) $2,551 $ (266)
Add Preferred Stock dividends 207 207 621 621
------ ------ ------ ------
Net earnings (loss) applicable to fully
diluted earnings per common share $1,310 $ (748) $3,172 $ 355
====== ====== ====== ======
Weighted average number of common
shares outstanding 3,677 3,667 3,673 3,670
Common shares issuable upon assumed
conversion of Preferred Stock 709 709 709 709
Incremental common shares issuable upon
assumed exercise of outstanding stock options 22 8 22 8
------ ------ ------ ------
Adjusted weighted average number of common
shares outstanding 4,408 4,384 4,404 4,387
====== ====== ====== ======
Fully diluted net earnings (loss) per common share:
As computed $ 0.30 $(0.17) $ 0.72 $ 0.08
====== ====== ====== ======
As reported(a) $ 0.30 $(0.26) $ 0.69 $(0.07)
====== ====== ====== ======
(a) The calculation of fully diluted net earnings (loss) per common share
for the three and nine months ended September 30, 1994 and 1993 was
not dilutive.
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KERR GROUP, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months and Nine Months Ended September 30, 1994 and 1993
Results of Operations
Net sales for the three months ended September 30, 1994 were $40,624,000 as
compared to $34,448,000 for the three months ended September 30, 1993, an
increase of $6,176,000 or 17.9%. The increase in net sales for the three
months ended September 30, 1994 over the comparable period in 1993 was due
primarily to higher unit sales in the Consumer Products and Plastic Products
Businesses.
Net sales for the nine months ended September 30, 1994 were $111,008,000 as
compared to $99,235,000 for the nine months ended September 30, 1993, an
increase of $11,773,000 or 11.9%. The increase in net sales for the nine
months ended September 30, 1994 over the comparable period in 1993 was due
primarily to higher unit sales in the Plastic Products and Consumer Products
Businesses.
Cost of sales for the three months ended September 30, 1994 were $28,617,000 as
compared to $24,616,000 for the three months ended September 30, 1993, an
increase of $4,001,000 or 16.3%. Cost of sales for the nine months ended
September 30, 1994 were $76,749,000 as compared to $69,674,000 for the nine
months ended September 30, 1993, an increase of $7,075,000 or 10.2%. The
increase for both periods in 1994 over comparable periods in 1993 was due
primarily to higher unit sales.
Gross profit as a percent of net sales for the three months ended September 30,
1994 increased to 29.6% as compared to 28.5% for the three months ended
September 30, 1993. Gross profit as a percent of net sales for the nine months
ended September 30, 1994 increased to 30.9% as compared to 29.8% for the nine
months ended September 30, 1993.
Selling, warehouse, general and administrative expenses increased $965,000 or
12.7% during the three months ended September 30, 1994, as compared to the same
period in 1993. The increase for the three months was primarily due to salary
and wage increases, higher bad debt expense, additional employees and higher
legal and professional fees.
Selling, warehouse, general and administrative expenses increased $2,422,000 or
10.6% during the nine months ended September 30, 1994, as compared to the same
period in 1993. The increase for the nine months was primarily due to
additional employees, higher bad debt expense, and salary and wage increases.
Net interest expense decreased $61,000 and $372,000 during the three month and
nine month periods ended September 30, 1994, respectively, as compared to the
same periods in 1993, as a result of the refinancing of the Company's long-term
debt on September 21, 1993.
Earnings before income taxes increased $1,271,000 during the three months ended
September 30, 1994, as compared to the same period in 1993 due to higher
earnings in both the Consumer Products and Plastic Products Businesses.
Earnings before income taxes increased $2,648,000 during the nine months ended
September 30, 1994 as compared to the same period in 1993 due to higher
earnings in both the Consumer Products and Plastic Products Businesses and
lower interest expense as a result of the refinancing of the Company's
long-term debt on September 21, 1993. Earnings of the Consumer Products
Business increased significantly in the three month and nine month periods of
1994 as compared to the same periods in 1993 due to higher sales as a result of
favorable weather and growing conditions in many areas of the country where the
Company markets home canning supplies, compared to the adverse weather
conditions experienced during 1993.
The provision for income taxes increased $513,000 and $1,131,000 during the
three month and nine month periods ended September 30, 1994, respectively, as
compared to the same periods in 1993 due primarily to higher pretax earnings.
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The Company successfully completed the relocation of its home canning cap and
lid manufacturing operations to Jackson, Tennessee during August 1994. The new
facility is ultimately expected to result in improved efficiencies and cost
reductions of approximately $3,000,000 pre-tax per year ($1,836,000 after-tax,
or 50 cents per common share per year). In anticipation of the relocation, the
Company produced home canning caps and lids in excess of normal requirements.
As a result, the Company will not realize significant earnings improvement from
the relocation until 1996, when inventories and production volume are at normal
levels.
The Company's sales and earnings are usually higher in the second and third
quarters and lower in the first and fourth quarters because of the seasonal
nature of the sales of home canning supplies.
Extraordinary Loss
During the third quarter of 1993, the Company incurred an after-tax loss of
$1,300,000 or 35 cents per common share (primary and fully diluted) 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 (the date on which the Subordinated Notes were
redeemed at par) and the write-off of unamortized debt fees and related costs.
Financial Condition
Cash flow was generated by operations in the nine months ended September 30,
1994 in the amount of $3,309,000 and used by operations in the nine months
ended September 30, 1993 in the amount of $2,285,000. The comparable
improvement in funds provided by operations is due primarily to higher pretax
earnings and lower working capital requirements.
Cash flow was used by investing activities in the nine months ended September
30, 1994 in the amount of $12,696,000 and in the nine months ended September
30, 1993 in the amount of $9,370,000, primarily related to capital expenditures
and cash costs associated with discontinued operations and also in 1994 related
to the Company's relocation of its home canning cap and lid operations.
Cash flow was provided by financing activities in the nine months ended
September 30, 1994 in the amount of $984,000 primarily attributable to
borrowings under the Company's working capital lines of credit. Cash flow was
generated by financing activities in the nine months ended September 30, 1993
in the amount of $7,592,000, primarily attributable to the sale of $50 million
principal amount of unsecured Senior Notes to a group of insurance companies.
A portion of the proceeds from that sale were deposited with a trustee to
provide for the redemption of all of the $40,000,000 principal amount of 13%
Subordinated Notes on December 15, 1993 when they became redeemable at par.
The ratio of current assets to current liabilities at both September 30, 1994
and December 31, 1993 was 3.0. The ratio of total debt to total capitalization
decreased to 62.0% at September 30, 1994 from 64.1% at December 31, 1993 due
primarily to higher retained earnings of the Company.
As of September 30, 1994, the Company had two unsecured $10,000,000 lines of
credit with two banks to provide for the seasonal working capital needs of the
Company. The lines of credit are committed through April 30, 1995. The lines
of credit provide the Company with a source of working capital which the
Company believes will be sufficient to meet its anticipated needs.
At September 30, 1994, the Company had unused sources of liquidity consisting
of cash and cash equivalents of $2,926,000, unused committed credit under bank
lines of credit of $19,000,000, of which $11,068,000 could be borrowed under
the terms of the Company's Senior Note Agreement, tax net operating loss
carryforwards of $2,640,000 and certain tax credit carryforwards of $1,975,000.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.3 Lease dated October 5, 1989 between Century 21 Associates, as
lessor, and Santa Fe Plastic Corporation, as lessee.
10.4 Amended and restated lease dated as of May 16, 1994 between
Phoenician Properties, as lessor, and Kerr Group, Inc., as
lessee.
10.5 Amendment dated May 18, 1994 by and between Century 21 Associates
and Kerr Group, Inc. related to lease dated October 5, 1989.
10.6 Lease agreement dated June 30, 1994 between Bowling Green-Warren
County Industrial Authority IV, Inc. and Kerr Group, Inc.
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended September
30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KERR GROUP, INC.
November 10, 1994 By /s/ D. Gordon Strickland
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D. Gordon Strickland
Senior Vice President, Finance,
Chief Financial Officer
November 10, 1994 By /s/ J. Stephen Grassbaugh
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J. Stephen Grassbaugh
Vice President, Controller,
Chief Accounting Officer
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