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 21, 1995, there were approximately 1,139 and 173
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
------------------------------------------------------------------------------------------------------------------------
1994
First Quarter $10 $8 1/8 $-- $21 $19 1/4 $.425
Second Quarter 10 5/8 8 -- 22 19 3/4 .425
Third Quarter 9 1/2 8 1/8 -- 20 3/4 19 7/8 .425
Forth Quarter 9 1/2 8 1/8 -- 20 1/2 19 1/8 .425
--------------------------------------------------------------------------
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
==========================================================================
The annual cumulative Preferred Stock dividend requirement as of December 31,
1994, 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, 1994.
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, 1994 and 1993, 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, 1994. 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,
1994 and 1993, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than pensions
and income taxes in 1993.
[SIG]
Los Angeles, California
February 28, 1995
12
2
FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
-------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $ 139,156 $ 127,372 $ 126,610
Cost of sales 96,356 88,922 88,730
---------------------------------------
Gross profit 42,800 38,450 37,880
Selling, warehouse, general and administrative expenses 32,435 30,095 28,945
Loss on plant relocation -- 4,500 --
Interest expense 4,985 5,680 5,815
Interest and other income (369) (858) (1,293)
---------------------------------------
Earnings (loss) from continuing operations before income taxes 5,749 (967) 4,413
Provision (benefit) for income taxes 2,345 (634) 1,826
---------------------------------------
Earnings (loss) from continuing operations 3,404 (333) 2,587
Loss from discontinued operations, after applicable income
tax benefit of $2,104 -- -- (5,284)
Extraordinary loss on retirement of debt, after
applicable income tax benefit of $632 -- (1,300) --
---------------------------------------
Net earnings (loss) 3,404 (1,633) (2,697)
Preferred stock dividends 829 829 829
---------------------------------------
Net earnings (loss) applicable to common stockholders $ 2,575 $ (2,462) $ (3,526)
=======================================
Earnings (loss) per common share:
Earnings (loss) per common share from continuing operations $ 0.70 $ (0.32) $ 0.48
Loss per common share from discontinued operations -- -- (1.44)
Extraordinary loss per common share on retirement of debt -- (0.35) --
---------------------------------------
Net earnings (loss) per common share $ 0.70 $ (0.67) $ (0.96)
=======================================
See accompanying notes to consolidated financial statements.
13
3
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993
--------------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 2,261 $ 11,329
Receivables - primarily trade accounts, less allowance for doubtful accounts
of $170 in 1994 and $578 in 1993 16,312 13,533
Inventories
Raw materials and work in process 11,156 8,906
Finished goods 23,134 19,126
-------------------------
Total inventories 34,290 28,032
Prepaid expenses and other current assets 4,526 4,409
-------------------------
Total current assets 57,389 57,303
-------------------------
Property, plant and equipment, at cost
Land 427 427
Buildings and improvements 12,577 12,476
Machinery and equipment 84,462 74,748
Furniture and office equipment 5,381 3,001
-------------------------
102,847 90,652
Accumulated depreciation and amortization (54,506) (50,228)
-------------------------
Net property, plant and equipment 48,341 40,424
Deferred income taxes 2,192 4,747
Goodwill and other intangibles, net of amortization of $1,812 in 1994 and
$2,122 in 1993 6,622 6,645
Other assets 9,156 8,230
-------------------------
$ 123,700 $117,349
=========================
See accompanying notes to consolidated financial statements.
14
4
CONSOLIDATED BALANCE SHEETS (continued)
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993
--------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 5,500 $ --
Accounts payable 13,445 9,573
Accrued expenses 3,862 9,089
-------------------------
Total current liabilities 22,807 18,662
-------------------------
Pension liability 15,230 18,321
Other long-term liabilities 2,610 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 in 1994 and 4,210 shares issued in 1993 2,110 2,105
Additional paid-in capital 27,210 27,145
Retained earnings 11,995 9,420
Treasury Stock, at cost, 543 shares (12,803) (12,803)
Excess of additional pension liability over unrecognized
prior service cost, net of tax benefits (5,207) (6,835)
Notes receivable from ESOP Trusts -- (716)
-------------------------
Total stockholders' equity 33,053 28,064
-------------------------
$ 123,700 $117,349
=========================
See accompanying notes to consolidated financial statements.
15
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOW PROVIDED (USED) BY OPERATIONS
Continuing operations:
Earnings (loss) from continuing operations $ 3,404 $ (333) $ 2,587
Add (deduct) noncash items included in earnings (loss)
from continuing operations
Depreciation and amortization 7,731 7,364 6,651
Reserve for loss on plant relocation, net of tax -- 2,754 --
Change in deferred income taxes 1,705 159 (225)
Reduction in accrued long-term pension liability, net (266) (1,116) (2,413)
Other, net 62 (624) (355)
Changes in other operating working capital
Receivables (2,779) (2,186) (555)
Inventories (6,258) (5,712) 1,422
Prepaid expenses (133) (885) (1,279)
Accounts payable 3,872 729 1,384
Accrued expenses (913) (541) (508)
------------------------------------------
Cash flow provided (used) by continuing operations 6,425 (391) 6,709
Cash flow used by discontinued operations -- -- (3,121)
------------------------------------------
Total cash flow provided (used) by operations 6,425 (391) 3,588
------------------------------------------
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES
Continuing operations:
Capital expenditures (15,648) (11,256) (8,359)
Payments associated with relocation of home canning cap and lid operations (3,005) -- --
Proceeds from liquidation of long-term certificate of deposits 1,000 -- 5,000
Other, net (699) (1,338) 256
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 (2,598) (2,500) (7,974)
Capital expenditures and other -- -- (2,553)
------------------------------------------
Cash flow provided (used) by investing activities (20,950) (15,094) 61,297
------------------------------------------
CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES
Net borrowings under lines of credit 5,500 -- --
Issuance of senior debt -- 50,000 --
Extinguishment of subordinated debt -- (41,131) --
Borrowings (repayments) under Bank Credit Agreements, net -- -- (53,000)
Other long-term debt retirements -- (1,000) (3,207)
Dividends paid (829) (829) (829)
Other, net 786 523 843
------------------------------------------
Cash flow provided (used) by financing activities 5,457 7,563 (56,193)
------------------------------------------
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year (9,068) (7,922) 8,692
Balance at beginning of the year 11,329 19,251 10,559
------------------------------------------
Balance at end of the year $ 2,261 $ 11,329 $ 19,251
==========================================
See accompanying notes to consolidated financial statements.
16
6
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994, 1993 and 1992
-------------------------------------------------------------------------------------------------------------------------------
Number Of Excess Of
Shares Of Additional Pension Notes
Common Additional Liability Over Receivable
Stock Common Paid-In Retained Treasury Unrecognized From ESOP
Outstanding Stock Capital Earnings Stock Prior Service Cost Trusts
-------------------------------------------------------------------------------------------------------------------------------
(in thousands)
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)
--------------------------------------------------------------------------------------
Net earnings -- -- -- 3,404 -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Pension adjustment -- -- -- -- -- 1,628 --
Repayments on ESOP Trusts
notes receivable -- -- -- -- -- -- 716
Issuance of Common Stock under
stock option plans 10 5 65 -- -- -- --
--------------------------------------------------------------------------------------
Balance, December 31, 1994 3,677 $ 2,110 $ 27,210 $ 11,995 $ (12,803) $(5,207) $ --
======================================================================================
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 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 3 to 15 years
Furniture and equipment 5 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 17 years.
The Company periodically evaluates goodwill to assess recoverability based upon
expectations of future nondiscounted operating earnings related to the acquired
business. Based upon the most recent analysis, the Company believes that no
impairment of goodwill exists at December 31, 1994.
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.
Pensions And Other Postretirement Benefits
Financial Accounting Standards Board Statement No. 87 (FASB No. 87) requires
that a company record an additional minimum pension liability to the extent that
a company's accumulated pension benefit obligation exceeds the fair value of
pension plan assets and accrued pension liabilities. This additional minimum
pension liability is offset by an intangible asset, not to exceed prior service
costs of the pension plan. Amounts in excess of prior service costs are
reflected as a reduction in stockholders' equity, net of related tax benefits.
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 5, 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 20 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued) 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.
18
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
1994, 1993 and 1992.
Financial Statement Reclassification And Presentation
Certain reclassifications have been made to prior years' financial statements to
conform to the 1994 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)
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 consisted 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. In
1994, the Company made cash payments related to such accruals for i) the early
recognition of retiree health care and pension expense, severance, workers'
compensation costs and insurance continuation costs of approximately $1,500,000,
ii) asset retirement and related facility closing costs of approximately
$600,000, iii) moving and relocation costs of approximately $600,000 and iv)
other costs of approximately $300,000. In addition, during 1994, approximately
$300,000 was charged against such accruals related to the book value of fixed
assets retired. The remaining accruals primarily relate to retiree health costs
and pensions which will be paid over a number of years.
NOTE 3 - 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 provision (benefit) for the years ended December 31, 1994 and
1993 was allocated as follows:
-----------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------
(in thousands)
Earnings (loss) from continuing operations $ 2,345 $ (634)
Extraordinary item -- (632)
Stockholders' equity, related to excess of pension liability
over unrecognized prior service costs 878 (4,340)
-----------------------
$ 3,223 $(5,606)
=======================
19
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - INCOME TAXES (continued)
The provision (benefit) for income taxes related to continuing operations for
the years ended December 31, 1994, 1993 and 1992 consists of the following:
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
Current
U.S. Federal $ 81 $ 119 $ 1,426
State -- -- 493
---------------------------------------
Total current 81 119 1,919
---------------------------------------
Deferred
U.S. Federal 1,814 (637) 88
State 450 (116) (181)
---------------------------------------
Total deferred 2,264 (753) (93)
---------------------------------------
Total provision (benefit) for income taxes $ 2,345 $ (634) $ 1,826
=======================================
The significant components of deferred income taxes (benefits) related to
continuing operations for the years ended December 31, 1994, 1993 and 1992 are
as follows:
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
Reinstatement (reduction) of deferred income taxes
attributable to recognition of alternative minimum tax
credits and tax net operating loss carryforwards $ (541) $ 52 $ 3,653
Timing differences associated with the sales of
discontinued operations 1,531 1,051 (3,483)
Timing differences associated with the loss on plant relocation 1,429 (1,368) --
Additional costs inventoried for tax purposes 64 (245) (175)
Excess (deficit) of pension contributions paid over pension expense 46 448 (312)
Excess (deficit) of tax over book depreciation,
including assets retired or sold (19) (327) 228
Other, net (246) (364) (4)
------------------------------------
Total $ 2,264 $ (753) $ (93)
====================================
Total provision (benefit) for income taxes related to continuing operations for
the years ended December 31, 1994, 1993 and 1992 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:
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
Computed "expected" tax provision (benefit) $ 1,954 $ (329) $ 1,500
Increase (reduction) in provision resulting from:
State income tax provision (benefit),
net of Federal income tax effect 231 (47) 213
Change in the valuation allowance for deferred
income tax assets -- (369) --
Other, net 160 111 113
---------------------------------------
Actual tax provision (benefit) $ 2,345 $ (634) $ 1,826
=======================================
20
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liabilities at December 31, 1994 and 1993
are as follows:
-------------------------------------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------------------------------------
(in thousands)
Deferred income tax assets:
Pension liabilities --
Excess of additional pension liability over unrecognized prior service cost $ 3,462 $ 4,340
Accrued pension liability 1,490 1,495
Accrued retiree health liability 630 436
Accrued reserves associated with discontinued operations 350 1,830
Accrued reserves associated with plant relocation -- 1,368
Inventory 722 595
Accrued vacation pay 383 444
Tax credit carryforwards 1,830 1,975
Net operating loss carryforwards 1,962 978
Other 1,120 502
------------------------
Total gross deferred income tax assets 11,949 13,963
Less valuation allowance -- --
------------------------
Deferred income tax assets, net of valuation allowance 11,949 13,963
Deferred income tax liabilities:
Property, plant and equipment, principally due to differences in depreciation (5,146) (5,110)
Excess of book basis over tax basis of land and buildings formerly
used as a glass container manufacturing plant (1,795) (1,746)
Other (962) (478)
------------------------
Total gross deferred income tax liabilities (7,903) (7,334)
------------------------
Net deferred income tax assets $ 4,046 $ 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 $24,000,000 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, 1994, the Company had net operating loss carryforwards for
Federal income tax purposes of $4,524,000 which are available to offset future
Federal taxable income, expiring in the years 2006 through 2009.
The Company also has an alternative minimum tax credit carryforward of
$1,522,000 and other tax credit carryforwards (primarily investment tax credits)
of $308,000, expiring in the years 1999 through 2009, which are available to
reduce future Federal income taxes, if any.
The total net cash payments related to income taxes, which primarily represent
Federal alternative minimum taxes and state taxes, were $761,000, $470,000 and
$347,000 for 1994, 1993 and 1992, respectively.
21
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 - ACCRUED EXPENSES
At December 31, 1994 and 1993, accrued expenses from continuing operations were
as follows:
-------------------------------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------------------------------
(in thousands)
Accrued wages and vacation pay $ 1,879 $1,951
Accrued expenses associated with plant relocation 215 3,523
Accrued expenses associated with the sales of discontinued operations -- 990
Other accrued expenses 1,768 2,625
-----------------------
Total accrued expenses $ 3,862 $9,089
=======================
NOTE 5 - 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
generally 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 1994 and 1993, the Company funded $800,000 more than the accrued
pension expense for the 1993 plan year. During 1993 and 1992, the Company funded
$1,721,000 more than the accrued pension expense for the 1992 plan year.
Net pension expense related to continuing operations for the years ended
December 31, 1994, 1993 and 1992 included the following components:
-----------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
Defined Benefit Plan:
Service cost (benefit earned during period) $ 564 $ 472 $ 471
Interest cost on projected benefit obligation 7,018 6,941 6,884
Actual loss (return) on assets 597 (7,843) (5,383)
Net amortization and deferral (6,552) 1,619 (427)
---------------------------------------
Defined Benefit Plan expense $ 1,627 $ 1,189 $ 1,545
=======================================
Defined Contribution Plan expense $ 17 $ 21 $ 30
=======================================
22
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - RETIREMENT BENEFITS (continued)
The funded status of the defined benefit plans at December 31, 1994 and 1993 was
as follows:
-----------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------------------
(in thousands)
Actuarial present value
Vested benefit obligation $ 81,605 $89,848
Nonvested benefit obligation 2,445 2,985
------------------------
Accumulated benefit obligation 84,050 92,833
Effect of future salary increases 1,842 3,171
------------------------
Projected benefit obligation 85,892 96,004
Plan assets at fair value (a) 68,750 74,492
------------------------
Projected benefit obligation in excess of plan assets 17,142 21,512
Unrecognized net transition obligation (553) (632)
Unrecognized prior service costs (663) (903)
Unrecognized net loss (10,511) (14,346)
------------------------
Accrued pension liability before adjustment 5,415 5,631
Adjustment required to recognize additional minimum pension liability 9,885 12,710
------------------------
Accrued pension liability related to the defined benefit plan $ 15,300 $18,341
------------------------
Accrued pension liability related to the defined contribution plan $ 17 $ 26
========================
(a)Plan assets include 118,200 shares of Company Common Stock at a value of
$990,000 at December 31, 1994 and 1993.
In connection with recording the additional minimum pension liability pursuant
to the provisions of FASB No. 87, the Company recorded a reduction in
stockholders' equity of $5,207,000 at December 31, 1994, and $6,835,000 at
December 31, 1993, and an intangible pension asset of $1,216,000 at December 31,
1994, and $1,535,000 at December 31, 1993.
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, 1994, 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, 1994, 1993 and 1992 were
as follows:
------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------
Discount rate 8.75% 7.5% 9%
Increase in compensation rate 5% 5% 5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
=============================
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.
23
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - RETIREMENT BENEFITS (continued)
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.
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, 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. All such retiree
costs were charged against continuing operations.
Retiree health care and life insurance expense related to continuing operations
for the years ended December 31, 1994 and 1993 included the following
components:
-----------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------------------
(in thousands)
Retiree health care and life insurance plans:
Service cost (benefit earned during period) $ 54 $ 83
Interest cost on accumulated benefit obligation 1,082 1,187
Actual return on assets -- --
Net amortization and deferral 624 660
-------------------------
Retiree health care and life insurance expense $ 1,760 $ 1,930
=========================
The funded status of the retiree health care and life insurance plans at
December 31, 1994 and 1993 was as follows:
-----------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------------------------------------
(in thousands)
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 9,083 $11,400
Fully eligible active participants 1,428 1,400
Other active participants 739 700
-------------------------
Accumulated benefit obligation 11,250 13,500
Plan assets at fair value -- --
-------------------------
Accumulated benefit obligation in excess of plan assets 11,250 13,500
Unrecognized net transition obligation (11,237) (11,790)
Unrecognized prior service costs -- --
Unrecognized net gain (loss) 1,563 (325)
-------------------------
Accrued postretirement benefit liability $ 1,576 $ 1,385
=========================
24
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - RETIREMENT BENEFITS (continued)
The retiree health care and life insurance plans assumptions are as follows:
--------------------------------------------------------------------------------------------------------------
December 31, December 31, January 1,
1994 1993 1993
--------------------------------------------------------------------------------------------------------------
Discount rate 8.75% 7.5% 9.0%
Health care cost trend rates--
Indemnity plans 8.75% trending down to 6% 9% trending down to 6% 15% trending down to 7%
Managed care plans 6.75% trending down to 4% 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, 1994, would increase the postretirement benefit obligation
by approximately $450,000 and would increase the service and interest cost
components of the annual expense by approximately $40,000.
NOTE 6 - DEBT
At December 31, 1994 and 1993, the Company's long-term debt consisted of
$50,000,000 principal amount of Senior Notes payable 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 were issued on September 21, 1993, and 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, 1994,
$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.
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 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.
The mandatory principal payments for the next five years on the outstanding
long-term debt at December 31, 1994, are as follows:
---------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------------------------------------
(in thousands)
1995 $ --
1996 --
1997 3,000
1998 9,833
1999 9,833
2000 and thereafter 27,334
=======
25
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - DEBT (continued)
At December 31, 1994, the Company had two unsecured $10,000,000 short-term lines
of credit to provide for the seasonal working capital needs of the Company. Both
$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, the Eurodollar rate plus 1.5%
and charges a facility fee of 0.5% per annum on the commitment (the Eurodollar
Line of Credit). 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 Prime Line of Credit). The lines of
credit contain covenants identical to the Senior Notes.
During 1994, the Company had maximum borrowings outstanding under its lines of
credit of $5,500,000. During 1994, the weighted average interest rate under its
lines of credit was 7.3% and the weighted average borrowings outstanding under
its lines of credit was $1,544,000. 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.
In January 1995, the Company entered into a two-year agreement with a bank to
sell its trade accounts receivable on a nonrecourse basis. Under the facility,
the maximum amount that can be advanced to the Company pursuant to the sale of
trade accounts receivable at any time is $5,000,000 through April 30, 1995, and
$10,000,000 thereafter. The Company retains collection and service
responsibility, as agent for the purchaser, over any receivables sold. This
facility reduced the committed amount of the Eurodollar Line of Credit to
$5,000,000 through April 30, 1995, at which time the line of credit is
terminated.
In February 1995, the commitment of the Prime Line of Credit was extended to
April 30, 1996.
Total cash payments of interest (including duplicative interest related to the
refinancing of the Subordinated Notes and interest allocated to discontinued
operations) during 1994, 1993 and 1992 were $4,743,000, $6,501,000 and
$6,358,000, respectively.
NOTE 7 - PREFERRED STOCK
Class B Preferred Stock
At December 31, 1994 and 1993, 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, 1994 and 1993, 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 8.5% ($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.
26
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 - PREFERRED STOCK (continued)
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,
1994, 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 8 - 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 was repaid during 1994.
ESOP I and ESOP II obtained the funds to repay loans primarily through the
receipt of tax deductible contributions made by the Company. The Company funded
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 $472,000, $633,000 and $955,000 in 1994, 1993 and 1992,
respectively. For financial statement purposes, the bank loans were reflected as
a liability and the Company's loans to ESOP I and ESOP II were reflected as a
reduction in stockholders' equity.
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 ten 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 beginning in 1992 provide that the Company's stock price
must equal or exceed a triggering price per Common Share, which is higher than
the exercise price of the option, for ten consecutive trading days for the
options to be exercisable. The options granted during 1994 had triggering prices
ranging from $14.16 to $15.56 per Common Share and the options granted during
1993 had triggering prices of $12.50 per Common Share. The options granted
during 1992 had triggering prices of $10 per Common Share, which requirement was
met during 1994, and the options issued during 1992 are now exercisable.
27
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - COMMON STOCK (continued)
The following tabulation summarizes changes under the Company's Stock Option
Plans for employees during the years ended December 31, 1994, 1993 and 1992.
-----------------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
------------------------------------------------------------------------------------------
Options Outstanding:
Beginning 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
Granted 6,500 9 7/16 - 10 3/8 157,500 8 - 8 5/16 90,000 5 3/8
Exercised (10,400) 5 3/8 - 7 1/8 -- --
Cancelled (18,000) 5 3/8 - 8 5/16 (36,000) 5 3/8 - 10 3/4 (8,900) 5 3/8 - 11 7/16
Expired -- (46,350) 5 3/8 - 11 7/16 (10,000) 10 1/16
------------------------------------------------------------------------------------------
End of year 252,100 5 3/8 - 10 3/8 274,000 5 3/8 - 8 5/16 198,850 5 3/8 - 11 7/16
------------------------------------------------------------------------------------------
Exercisable at end of year:
Currently exercisable 70,900 56,200 95,451
Exercisable if Common
Stock trades at
triggering prices of
between $12.50 and
$15.56, or above 57,501 31,500 --
------------------------------------------------------------------------------------------
Total 128,401 87,700 95,451
------------------------------------------------------------------------------------------
Available for grant at
end of year 22,497 20,100 13,250
==========================================================================================
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.
28
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - 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, 1994, 1993
and 1992.
-------------------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
--------------------------------------------------------------------------------
Options Outstanding:
Beginning of year 60,000 $8 3/16 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 8 3/16 60,000 11 5/16
--------------------------------------------------------------------------------
Exercisable at end of year:
Currently exercisable -- -- 60,000
Exercisable if Common
Stock trades at $12.50
per share or above 60,000 60,000 --
--------------------------------------------------------------------------------
Total 60,000 60,000 60,000
--------------------------------------------------------------------------------
Available for grant at
end of year 80,000 80,000 20,000
================================================================================
The aggregate option price for all outstanding options at December 31, 1994,
1993 and 1992 was $2,359,000, $2,508,000 and $2,129,000, 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, 1994, 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 and 1992, total shares
of 15,000 and 16,000, respectively, were released from restriction.
29
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - 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 in 1992 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 in 1991 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 for the year ended December 31, 1992, are as follows:
----------------------------------------------------------------------
1992
----------------------------------------------------------------------
(in thousands)
Net sales $ 37,690
Costs and expenses 41,352
Allocated interest expense 726
--------
Loss before income taxes (4,388)
Benefit for income taxes (1,704)
--------
Loss from discontinued operations (2,684)
Loss on sale of Metal Crown Business (2,600)
--------
Total loss related to discontinued operations $ (5,284)
========
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.
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 $3,085,000, $3,008,000 and $2,864,000 in 1994, 1993
and 1992, respectively.
30
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - RENTAL EXPENSE AND LEASE COMMITMENTS (continued)
At December 31, 1994, the Company was obligated under various noncancelable
leases. Calendar year minimum rental commitments under the Company's leases are
as follows:
----------------------------------------------------------------------------
Total Real Personal
Years Ended December 31, Commitment Property Property
----------------------------------------------------------------------------
(in thousands)
1995 $ 3,363 $ 2,682 $681
1996 3,409 3,082 327
1997 3,276 3,082 194
1998 3,175 3,062 113
1999 3,142 3,077 65
2000 through 2008 22,866 22,866 --
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.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
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
surety bonds. 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. During 1994, the Company made cash payments related to
environmental remediation of $974,000. As of December 31, 1994, the Company
has accrued a reserve of approximately $1,100,000 for the expected remaining
costs associated with environmental remediation described above and in
connection with its current manufacturing plants. The amount of the 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 1994, 1993 or 1992.
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, land and buildings
formerly used as a glass container manufacturing plant that is being held for
sale, certificates of deposit and certain intangible assets.
31
21
NOTE 12 - INDUSTRY SEGMENT INFORMATION (continued) A summary of the Company's
operations by industry segment follows:
-----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
Net sales:
Plastic Products $ 106,792 $ 98,533 $ 92,557
Consumer Products 32,364 28,839 34,053
-----------------------------------------
Total $ 139,156 $127,372 $126,610
=========================================
Segment earnings (loss):
Plastic Products $ 12,055 $ 11,428 $ 9,165
Consumer Products (a) 3,213 (2,707) 4,982
-----------------------------------------
Total 15,268 8,721 14,147
General corporate expenses 4,903 4,866 5,212
-----------------------------------------
Earnings from continuing operations before
interest and income taxes 10,365 3,855 8,935
Interest expense 4,985 5,680 5,815
Interest and other income (369) (858) (1,293)
-----------------------------------------
Earnings (loss) from continuing operations before income taxes $ 5,749 $ (967) $ 4,413
=========================================
(a)The 1993 segment loss for Consumer Products includes a $4,500,000 pre-tax
loss 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, 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
(in thousands)
Identifiable Assets:
Plastic Products $ 84,283 $ 69,834 $ 64,306
Consumer Products 22,782 20,403 12,370
Corporate 16,635 27,112 28,556
-----------------------------------------
Total $ 123,700 $117,349 $105,232
=========================================
Depreciation and amortization:
Plastic Products $ 6,946 $ 6,600 $ 5,839
Consumer Products 236 197 204
Corporate 549 567 608
-----------------------------------------
Total $ 7,731 $ 7,364 $ 6,651
=========================================
Capital expenditures:
Plastic Products $ 13,906 $ 8,587 $ 6,853
Consumer Products 1,472 1,920 601
Corporate 270 749 905
-----------------------------------------
Total $ 15,648 $ 11,256 $ 8,359
=========================================
32
22
NOTE 13 - CONDENSED QUARTERLY DATA FOR 1994 AND 1993 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 Sept. 30 Dec. 31
-----------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
1994
Net sales $29,380 $41,004 $40,624 $28,148
Gross profit 9,961 12,291 12,007 8,541
Net earnings 263 1,599 1,310 232
Preferred stock dividends 207 207 207 208
-------------------------------------------------------
Net earnings applicable to
common stockholders $ 56 $ 1,392 $ 1,103 $ 24
=======================================================
Net earnings per common share:
Primary $ 0.02 $ 0.38 $ 0.30 $ 0.01
Fully diluted $ 0.02 $ 0.36 $ 0.30 $ 0.01
=======================================================
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)
=======================================================
(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)
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 3 of notes to consolidated financial statements for further
information.
(b)See Note 6 of notes to consolidated financial statements for information
regarding the extraordinary loss on retirement of debt.
33
23
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $ 139,156 $ 127,372 $ 126,610 $ 125,598 $122,168
==========================================================================
Segment earnings (loss):
Plastic Products $ 12,055 $ 11,428 $ 9,165 $ 9,077 $ 8,121
Consumer Products (a) 3,213 (2,707) 4,982 1,804 (294)
--------------------------------------------------------------------------
Total 15,268 8,721 14,147 10,881 7,827
General corporate expenses 4,903 4,866 5,212 5,568 6,484
--------------------------------------------------------------------------
Earnings from continuing operations
before interest and income taxes $ 10,365 $ 3,855 $ 8,935 $ 5,313 $ 1,343
==========================================================================
Earnings (loss) from continuing
operations before income taxes (a) $ 5,749 $ (967) $ 4,413 $ 1,094 $ (2,873)
Provision (benefit) for income taxes (b) 2,345 (634) 1,826 700 (1,132)
--------------------------------------------------------------------------
Earnings (loss) from continuing
operations 3,404 (333) 2,587 394 (1,741)
Earnings (loss) from
discontinued operations (c) -- -- (5,284) (2,973) 489
Extraordinary loss on retirement
of debt (d) -- (1,300) -- -- --
--------------------------------------------------------------------------
Net earnings (loss) 3,404 (1,633) (2,697) (2,579) (1,252)
Preferred stock dividends 829 829 829 829 829
Net earnings (loss) applicable to
common stockholders $ 2,575 $ (2,462) $ (3,526) $ (3,408) $ (2,081)
==========================================================================
Earnings (loss) per common share:
Earnings (loss) per common share
from continuing operations (a) (b) $ 0.70 $ (0.32) $ 0.48 $ (0.12) $ (0.70)
Earnings (loss) per common share
from discontinued operations (c) -- -- (1.44) (0.81) 0.13
Extraordinary loss per common share
on retirement of debt (d) -- (0.35) -- -- --
--------------------------------------------------------------------------
Net earnings (loss) per common share $ 0.70 $ (0.67) $ (0.96) $ (0.93) $ (0.57)
==========================================================================
Cash dividends per common share $ -- $ -- $ -- $ -- $ .33
==========================================================================
(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) 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 3 of notes to consolidated financial statements for further
information.
(c)See Note 9 of notes to consolidated financial statements for information
regarding discontinued operations.
(d)See Note 6 of notes to consolidated financial statements for information
regarding the extraordinary loss on retirement of debt.
34
24
--------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------
(in thousands)
Net property, plant and equipment $ 48,341 $ 40,424 $ 36,383 $ 34,395 $ 36,240
Depreciation and amortization 7,731 7,364 6,651 6,209 6,208
Capital expenditures (e) 15,648 11,256 8,359 4,391 6,980
Total assets 123,700 117,349 105,232 165,883 165,614
Senior long-term debt 50,000 50,000 -- 55,647 52,607
Subordinated long-term debt -- -- 40,000 40,000 40,000
=========================================================================
Stockholders' equity before
pension adjustment $ 38,260 $ 34,899 $ 36,464 $ 38,338 $ 40,091
Excess of additional pension liability over
unrecognized prior service cost,
net of tax benefits (5,207) (6,835) -- -- --
-------------------------------------------------------------------------
Stockholders' equity $ 33,053 $ 28,064 $ 36,464 $ 38,338 $ 40,091
=========================================================================
Weighted average number of
common shares outstanding 3,674 3,669 3,675 3,675 3,675
=========================================================================
(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.
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RESULTS OF OPERATIONS -- 1994 COMPARED TO 1993
Net sales of the Company increased to $139,156,000 in 1994 from $127,372,000 in
1993.
Net sales of the Plastic Products Business increased 8.4% to $106,792,000 in
1994 from 1993. The Company's plastic products manufacturing facilities operated
at approximately 74% of capacity during 1994.
The Plastic Products Business 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. During 1994, the average cost per pound of polypropylene, the primary
resin used by the Plastic Products Business, increased 31%. The impact of this
increase was largely mitigated by the ability of the Plastic Products Business,
consistent with industry practice, to pass-through resin cost increases for all
product lines except the prescription packaging product line. The higher resin
costs did reduce 1994 results in the prescription packaging product line.
Net sales of the Consumer Products Business increased 12.2% to $32,364,000 in
1994 compared to 1993 due primarily to higher unit sales as a result of
favorable growing conditions as compared to the adverse growing conditions
experienced during 1993.
During August 1994, the Company completed the relocation of its home canning cap
and lid manufacturing operations to Jackson, Tennessee from Chicago, Illinois.
The new facility is 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 approach normal
levels.
During August through December of 1994, the Company's cap and lid manufacturing
facility located in Jackson, Tennessee operated at approximately 26% of
capacity. This level of operations primarily resulted because the new plant was
in its start-up phase.
Home canning supplies sales of the Consumer Products Business are dependent upon
favorable growing conditions. 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 to $96,356,000 in 1994 compared to
$88,922,000 in 1993 primarily due to higher unit sales and higher resin costs.
Gross profit as a percent of net sales increased to 30.8% for 1994 as compared
to 30.2% for 1993.
Selling, warehouse, general and administrative expenses increased $2,340,000 or
7.8% during 1994, as compared to 1993, primarily due to higher selling expenses,
additional employees and salary and wage increases.
The Company recorded a pre-tax reserve of $4,500,000 in 1993 for the expected
costs associated with the relocation of the home canning cap and lid
manufacturing operations. The pre-tax loss consisted 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. In 1994, the Company made cash payments related to such accruals for
i) the early recognition of retiree health care and pension expense, severance,
workers' compensation costs and insurance continuation costs of approximately
$1,500,000, ii) asset retirement and related facility closing costs of
approximately $600,000, iii) moving and relocation costs of approximately
$600,000 and iv) other costs of approximately $300,000. In addition, during
1994, approximately $300,000 was charged against such accruals related to the
book value of fixed assets retired. The remaining accruals primarily relate to
retiree health costs and pensions which will be paid over a number of years.
Segment earnings of the Plastic Products Business, the larger of the Company's
two businesses, increased $627,000 to $12,055,000 in 1994 compared to
$11,428,000 in 1993 primarily due to higher sales. Segment earnings of the
Consumer Products Business increased to $3,213,000 in 1994 compared to
$1,793,000 in 1993, excluding the loss on plant relocation in 1993, due
primarily to higher sales as a result of favorable growing conditions.
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Earnings before interest and income taxes increased $2,010,000 to $10,365,000 in
1994 compared to $8,355,000 in 1993, excluding the loss on plant relocation in
1993, due primarily to higher earnings in both the Consumer Products and Plastic
Products Businesses.
Net interest expense decreased $206,000 during 1994, as compared to 1993, as a
result of a refinancing in 1993.
The increase in the income tax provision in 1994 compared to 1993 is due to
higher pre-tax earnings and the recognition in 1993 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 (the date on which the Subordinated Notes were redeemed at
par) 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.
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 Business 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.
Net sales of the Consumer Products Business decreased 15.3% to $28,839,000 in
1993 compared to 1992 due primarily to lower unit sales as a result of adverse
growing 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.
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.
Earnings from continuing operations before interest, income taxes and the loss
on plant relocation 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 $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 growing conditions.
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.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $15,649,000, payments associated with the
relocation of the home canning operations of $3,005,000 and other payments
related to discontinued operations of $2,598,000. Cash flow was provided through
the reduction of the Company's cash balances of $9,068,000, cash from operations
of $6,425,000 and cash from financing activities of $5,457,000.
During 1993, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $11,256,000 and payments associated with
discontinued operations of $2,500,000. Cash flow was provided through the
reduction of the Company's cash balances of $7,922,000 and cash from financing
activities of $7,563,000. During 1993, the Company sold $50,000,000 principal
amount of unsecured Senior Notes to a group of insurance companies and used a
portion of the proceeds from that sale to redeem all of the $40,000,000
principal amount of 13% Subordinated Notes.
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During 1992, the Company used primarily all of the $67,719,000 received from the
sale of its Commercial Glass Container Business to repay all amounts outstanding
under the Company's then-existing bank credit agreements and ESOP bank loan
agreements, and such agreements were terminated. Other sources of cash flow
during 1992 were $7,208,000 from the sale of the Metal Crown Business,
$6,709,000 from the Company's continuing operations and $5,000,000 from the
liquidation of a long-term certificate of deposit which had been used as
collateral under a letter of credit. Other uses of cash flow during 1992 were
$13,648,000 related to the Company's discontinued operations and $8,359,000 to
fund capital expenditures for its continuing operations.
During 1994 and 1993, inventories increased by $6,258,000 and $5,712,000,
respectively, due primarily to a) increases in inventories of home canning caps
and lids in anticipation of the relocation of the home canning cap and lid plant
and as a result of low sales levels in 1993, and b) increases in inventories of
the Plastic Products Business due to higher quantities and costs of resin, and
higher quantities of finished goods. It is anticipated that total inventories
will decline in 1995.
Capital expenditures of approximately $16,000,000 are planned for 1995.
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. Under the most restrictive covenant of such agreement, $500,000 was
available for the payment of dividends on Common Stock as of December 31, 1994.
At December 31, 1994, the Company had two unsecured $10,000,000 short-term lines
of credit to provide for the seasonal working capital needs of the Company. At
December 31, 1994, the Company had $5,500,000 borrowed under the lines of
credit. The Company had no borrowings outstanding under its working capital
credit facilities as of December 31, 1993 or 1992.
In January 1995, the Company entered into a two-year agreement with a bank to
sell its trade accounts receivable on a nonrecourse basis. Under the facility,
the maximum amount that can be advanced to the Company pursuant to the sale of
trade accounts receivable at any time is $5,000,000 through April 30, 1995, and
$10,000,000 thereafter. The Company retains collection and service
responsibility, as agent for the purchaser, over any receivables sold. This
facility reduced the committed amount of one of the lines of credit to
$5,000,000 through April 30, 1995, at which time the line of credit is
terminated.
In February 1995, the commitment of the other line of credit was extended to
April 30, 1996.
The ratio of current assets to current liabilities at December 31, 1994 and 1993
was 2.5 and 3.1, respectively. The decline in the ratio of current assets to
current liabilities at December 31, 1994, compared to December 31, 1993, is due
to the $5,500,000 of short-term borrowings outstanding at December 31, 1994. At
December 31, 1994 and 1993, the ratio of total debt to total capitalization was
62.7% and 64.1%, respectively.
The Company has recorded deferred income tax assets of $4,046,000 on its
Consolidated Balance Sheet as of December 31, 1994. In order to fully realize
this deferred income tax asset, the Company will need to generate future taxable
income of at least $24,000,000 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, 1994, the Company had unused sources of liquidity consisting of
cash and cash equivalents of $2,261,000, unused committed credit under the bank
lines of credit of $14,500,000 of which $10,404,000 could be borrowed under the
terms of the Company's Senior Note Agreement, a tax net operating loss
carryforward of $4,524,000, a minimum tax credit carryforward of $1,522,000 and
other tax credit carryforwards of $308,000. The Company believes that its
financial resources, including internally generated funds and amounts available
under its receivables facility and line of credit, are adequate to meet its
foreseeable needs.
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