1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 1-7272
KERR GROUP, INC.
----------------
(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 Identi-
incorporation or organization) fication Number)
1840 Century Park East, Los Angeles, California 90067
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(Address of principal executive office) (Zip Code)
Registrant's telephone number,
including area code: (310) 556-2200
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock New York Stock Exchange
$1.70 Class B Cumulative Convertible
Preferred Stock, Series D New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
-Continued-
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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. .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 15, 1996, was $25,927,179.
The number of shares of the Registrant's Common Stock, $.50 par value,
outstanding as of March 15, 1996, was 3,933,095.
DOCUMENTS INCORPORATED BY REFERENCE
Part(s) Into
Document Which Incorporated
-------- ------------------
(1) Proxy Statement to be used in Part III
connection with the Annual
Meeting of Stockholders to be
held on April 30, 1996. With the
exception of the pages of the
Proxy Statement specifically
incorporated by reference herein,
the Proxy Statement is not deemed
to be filed as a part of this
Form 10-K.
(ii)
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KERR GROUP, INC.
Form 10-K Annual Report
For The Fiscal Year Ended December 31, 1995
PART I
ITEM 1. BUSINESS
1. General
Kerr Group, Inc. (the "Registrant"), a Delaware corporation
which was founded in 1903, operates the Plastic Products Business and, until
March 15, 1996, also operated the Consumer Products Business.
Operations in the Plastic Products Business include the
manufacture and sale of a variety of plastic products, including child-resistant
closures, tamper-evident closures, prescription packaging products, jars, other
closures and containers and the sale of glass prescription products (the
"Plastic Products Business"). Operations in the Consumer Products Business
included the manufacture and sale of caps and lids and the sale of glass jars
and a line of pickling spice and pectin products for home canning which together
with the sale of other related products, including iced tea tumblers and
beverage mugs, constituted the "Consumer Products Business".
On March 15, 1996, the Registrant sold to Alltrista
Corporation (the "Buyer") for approximately $14,500,000 the manufacturing
assets, supplies, work in process inventory and certain trademarks and a
perpetual and exclusive license to use the name "Kerr" in the sale of home
canning supplies. The Registrant also assigned to Buyer the lease on the
Jackson, Tennessee plant where the Registrant manufactured metal caps and lids
for the Consumer Products Business. The Registrant also appointed the Buyer as
sales agent to sell the inventory of home canning supplies produced by the
Registrant before March 15, 1996. The Registrant expects to receive
approximately $16,500,000, primarily during the remainder of 1996, from the sale
to its customers of Consumer Products Business inventory and the collection of
accounts receivable of the Consumer Products Business. The Registrant used a
portion of the proceeds to reduce debt, including $3,500,000 of debt which was
secured by liens on certain equipment, and will use the balance for working
capital and for further reduction of debt.
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On March 15, 1996, the Registrant, in addition to reducing its
indebtedness for borrowed money by $7,500,000, obtained the consent of the
lenders of such indebtedness and the lender under an Accounts Receivable
Agreement to extend, until May 15, 1996, waivers with respect to defaults under
certain financial covenants in loan agreements with the Registrant and to extend
the maturity of a $6,040,000 note, due April 15, 1996, until May 15, 1996. The
Registrant is currently in discussions with the lenders regarding such defaults
and the maturity of such note. After the payment of the $3,500,000 of secured
debt, the indebtedness of the Company was unsecured.
On March 15, 1996, the Registrant also announced a
restructuring which will consolidate certain manufacturing facilities and which
will move the Registrant's principal executive office from Los Angeles,
California to Lancaster, Pennsylvania where the Plastic Products Business is
headquartered. The Registrant expects to realize annualized cost savings from
the restructuring of approximately $6,500,000, which will be substantially
realized in 1997.
In connection with the restructuring, the Registrant said that
Roger W. Norian, who had been President and Chief Executive Officer of the
Registrant since 1980, had elected not to move to Lancaster and that, at the
recommendation of Mr. Norian, he had been replaced as President and Chief
Executive Officer by D. Gordon Strickland, who had been Senior Vice President,
Chief Financial Officer, and General Manager, Consumer Products Business. Mr.
Strickland was also elected as a Director. Mr. Norian has remained as a Director
but has resigned as Chairman.
In connection with the sale of assets of the Consumer Products
Business and the restructuring, the Registrant will report in the first quarter
of 1996 a one-time pretax gain of approximately $2,900,000 on the sale of
certain assets of the Consumer Products Business and a one-time loss on the
restructuring of $7,700,000. In addition to the one-time charge on the
restructuring, the Registrant will incur additional non-recurring pretax charges
of $2,400,000 during 1996 and early 1997 for restructuring related costs that
accounting rules require to be expensed as incurred.
a. Principal Products and Markets; Sales and Customers
The Plastic Products Business accounted for approximately 79%
of the Registrant's total net sales in 1995. The Consumer Products Business
accounted for approximately 21% of the Registrant's total net sales in 1995.
Plastic closures are sold to customers in the pharmaceutical, food, distilled
spirits, toiletries and cosmetics and household chemical industries. Plastic and
glass prescription products are sold to drug wholesalers, drug chains and
independent pharmacists. Plastic bottles and jars are sold to customers in the
pharmaceutical and toiletries and cosmetics industries. Plastic products are
sold nationally, principally by the Registrant's sales force.
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No customer accounted for more than 10% of the Registrant's
net sales in 1995, 1994 or 1993.
b. Competition
Competition in the markets in which the Plastic Products
Business operates is highly fragmented and the Registrant has a number of large
competitors with respect to its Plastic Products Business that compete for sales
on the basis of price, service and quality of product. The Registrant believes
that it is one of the three largest manufacturers of child-resistant plastic
closures. The Registrant has one major competitor in the prescription products
business, who has substantially larger market share than the Registrant. The
Registrant also believes it is the largest domestic manufacturer of plastic
closures incorporating a tamper-evident feature for the liquor market and that
it is one of the leading suppliers of single and double walled jars to the
personal care and cosmetic markets.
c. Backlog
The Registrant does not believe that recorded sales backlog is
a significant factor in its business.
d. Raw Materials and Supplies; Fuel and Energy Matters
The primary raw materials used by the Registrant's Plastic
Products Business are resins. The Registrant has historically been able to
obtain adequate supplies of these items from a number of sources. However, since
resins are derived from petroleum or fossil fuel, shortages of petroleum or
fossil fuel could affect the supply of resins. From time to time, the Registrant
has experienced substantial increases in the cost of resin. To the extent that
the Registrant is unable to pass on resin cost increases, the cost increases
could have a significant impact on the results of operations of the Registrant.
The Plastic Products Business, consistent with industry practice, is generally
able to pass through resin cost increases for all product lines except the
prescription packaging product line. However, in times of rapidly increasing
resin prices, such as experienced in late 1994 and during the first half of
1995, the Registrant's ability to pass through the full impact of resin price
increases on a timely basis is limited.
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e. Product Development, Engineering, Patents and
Licensing
The Registrant carries on a product development and
engineering program with respect to its Plastic Products Business. Expenditures
for such programs during the years ended December 31, 1995, 1994 and 1993 were
approximately $3,300,000, $3,600,000 and $2,000,000, respectively.
Although the Registrant owns a number of United States
patents, including patents for its tamper-evident closures and certain of its
child-resistant closures, it is of the opinion that no one or combination of
these patents is of material importance to its business. The Registrant has
granted licenses on some of its patents, although the income from these sources
is not material.
f. Environmental Matters; Legislation
Several states have enacted recycling laws which require
consumers to recycle certain items including containers, and which require
product, container and resin manufacturers to promote recycling efforts. These
mandatory recycling laws are not expected to have an adverse effect on the
Registrant's business.
The Registrant is subject to laws and regulations governing
the protection of the environment, including, among others, laws and regulations
governing disposal of waste, discharges into water and emissions into the
atmosphere. The Registrant's expenditures for environmental control equipment in
each of the last three years have not been material and the standards required
by such regulations have not significantly affected the Registrant's operations.
Registrant is a party or a potentially responsible party in
several administrative proceedings and lawsuits involving liability for cleanup
of certain offsite disposal facilities under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund") and similar
state laws. See "Legal Proceedings".
g. Employees
As of December 31, 1995, the Registrant had approximately
1,000 employees, of which approximately 286 were office, supervisory and sales
personnel.
h. Seasonality
Since the sale of assets of the Consumer Products Business,
seasonality is not material to the operations of the Registrant.
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Prior to 1996, when the Registrant operated the Consumer
Products Business, its sales and earnings were usually higher in the second and
third calendar quarters and lower in the first and fourth calendar quarters,
since most of the sales by the Consumer Products Business occured in the second
and third calendar quarters. In addition, substantially all returns of home
canning supplies occured in the fourth calendar quarter of each year.
i. Working Capital
In general, the working capital practices followed by the
Registrant are typical of the businesses in which it operates. The seasonal
nature of the Registrant's Consumer Products Business required periodic
short-term borrowing by the Registrant.
As of December 31, 1995, the Registrant had an Accounts
Receivable Agreement to meet the seasonal working capital needs of the
Registrant. The agreement permits the Registrant to sell its trade accounts
receivable on a nonrecourse basis. Under the agreement, the maximum amount that
can be advanced to the Registrant pursuant to the sale of trade accounts
receivable at any time is $13,500,000, which amount is reduced on April 15, 1996
to $10,000,000. The reduction occurred because the sale of assets of the
Consumer Products Business reduced the working capital needs of the Registrant.
The Registrant retains collection and service responsibility, as agent for the
purchaser, over any receivables sold.
The proceeds from the sale of assets of the Consumer Products
Business, together with the Accounts Receivable Agreement and internally
generated funds, provide the Registrant with the working capital which the
Registrant believes will be sufficient to meet its anticipated needs subject to
the satisfactory resolution of current discussions with the Registrant's lenders
regarding defaults under its loan agreements and the maturity of a $6,040,000
note.
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ITEM 2. PROPERTIES
The Registrant's manufacturing activities are conducted at the
five facilities described in the following table.
Building Area
Location Purpose of Facility (square feet)
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Lancaster, Pennsylvania Plastic Closure and 490,000
Container Plant;
Warehouses
Jackson, Tennessee Plastic Closure, Vial and 198,000
Bottle Plant; Warehouse
Santa Fe Springs, Plastic Jar and Closure 170,000
California Plant; Warehouse
Ahoskie, North Carolina Plastic Closure Plant; 153,000
Warehouse
Bowling Green, Kentucky Plastic Closure Plant; 168,000
Warehouse
The Lancaster, Pennsylvania and Ahoskie, North Carolina
facilities are owned by the Registrant. The Jackson, Tennessee, Santa Fe
Springs, California and Bowling Green, Kentucky facilities are leased by the
Registrant.
The Registrant's principal executive offices are located at
1840 Century Park East, Los Angeles, California 90067, in approximately 23,000
square feet of leased space. In addition, the Registrant rents three area sales
offices.
In the opinion of the Registrant's management, its
manufacturing facilities are suitable and adequate for the purposes for which
they are being used.
The Registrant owns land and buildings in Santa Ana,
California used in connection with a former glass container manufacturing plant
that are being held for sale.
In 1995, the Registrant's plastic products manufacturing
facilities operated at approximately 64% of capacity.
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ITEM 3. LEGAL PROCEEDINGS
As the Registrant reported in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, in February 1986, the Registrant was
advised by the United States Environmental Protection Agency ("EPA") that
Phoenix Closures, Inc. ("Phoenix") was one of several companies which disposed
of wastes at the American Chemical Services ("ACS") site located near Griffith,
Indiana. The EPA indicated that the wastes were disposed of by Phoenix's Chicago
plant between 1955 and 1975. The Registrant has advised the EPA that it did not
lease the Chicago plant during the period from 1955 to 1975. The Registrant has
also advised Phoenix of its responsibilities with respect to environmental
matters, including the environmental matters at the ACS site, under the lease
relating to the Chicago plant.
As the Registrant reported in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, in March 1986, the Registrant and
other parties were designated by the EPA as potentially responsible parties
("PRPs") responsible for the cleanup of certain hazardous wastes that have been
disposed of at the Wayne Waste Oil ("WWO") site located near Columbia City,
Indiana. In October 1986, the Registrant and other PRPs entered into a Consent
Order with the EPA which allowed the PRPs to complete a Remedial Investigation
and Feasibility Study for the WWO site. In March 1990, the EPA issued a Record
of Decision ("ROD") for the site. The ROD documents the EPA's cleanup plan for
the site, which includes capping the former municipal landfill, groundwater
extraction and treatment, and soil vapor extraction. On July 20, 1992, a Consent
Decree between the EPA and the PRPs at the site was entered in the United States
District Court for the Northern District of Indiana, captioned United States v.
Active Products Corp., No. F91-00247. Based upon the Registrant's percentage
share of the total amount of wastes disposed of at the WWO site, the Registrant
estimates its share of the costs under the Consent Decree will be approximately
$109,000. A reserve has been established for such costs.
As the Registrant reported in its Quarterly Report on Form
10-Q for the quarter ended June 30, 1990, on April 12, 1990, the State of New
Jersey, Department of Environmental Protection and Energy ("NJDEPE"), filed a
lawsuit in the United States District Court for the District of New Jersey
against the Registrant, among others, entitled State of New Jersey, Department
of Environmental Protection v. Gloucester Environmental Management Services,
Inc., et al., No. 84-0152 (D.N.J.). The suit alleges that the Registrant was a
"generator" of hazardous wastes and other hazardous substances which were
disposed of at the Gloucester Environmental Management Services, Inc. ("GEMS")
facility in the Township of Gloucester. The suit seeks cleanup costs,
compensatory and treble damages, and a declaration that the Registrant and
others are responsible for NJDEPE's past and future response costs at the GEMS
site. On March 27, 1990, NJDEPE issued a Directive to the Registrant and other
parties pursuant
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to the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et
seq. Pursuant to the Directive, the Registrant and other parties have been
ordered to undertake the second phase of remedial action at the site, including
the construction and operation of a groundwater treatment system and operation
of the remedial action performed in the first phase, and to reimburse NJDEPE's
alleged past and future response costs. The estimated cost of second phase
remedial action related to the GEMS site is approximately $20 million. The
amount that the NJDEPE is seeking as reimbursement for past costs and damages is
approximately $10 million. In October, 1995 the Registrant entered into a de
minims settlement agreement with the State of New Jersey and the United States
to resolve all outstanding claims. In exchange for a payment of approximately
$205,000, the Registrant will be dismissed from the lawsuit in accordance with
the terms of a Consent Decree which is expected to be entered by the Court later
this year. The Registrant has not admitted any liability for disposal of wastes
at the GEMS site. The Registrant is one of approximately ninety companies
participating in the de minimis settlement. Two of the Registrant's insurance
carriers have agreed to pay the cost of settlement and defense of this matter,
subject to an agreement to arbitrate whether coverage is available for
approximately $75,000 in settlement funds. Thus, the Registrant's maximum
exposure in connection with this site is $75,000.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and offices
held, and a brief account of the business experience during the past five years
of each executive officer of the Registrant.
Positions Held With
Registrant and Periods
Name and Age During Which Held
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D. Gordon Strickland (49) President and Chief Executive
Officer, effective March 15, 1996;
Senior Vice President, Finance and
Chief Financial Officer, since 1986;
Robert S. Reeves (66) Senior Vice President, Sales and Marketing,
Plastic Products Division, since 1992; Senior
Vice President, General Manager, Commercial
Glass Container Division, since 1985
J. Stephen Grassbaugh (42) Vice President, Controller, since 1988
Geoffrey A. Whynot (37) Chief Financial Officer, effective March 15,
1996; Vice President, Treasurer since 1991;
Assistant Vice President, Controller,
External Reporting from 1989 through 1991
Roger W. Norian (52) Chairman, President and Chief
Executive Officer, from 1980 through
March 15, 1996
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Business Experience
D. Gordon Strickland has served in an executive capacity with
the Registrant for more than the past five years.
Robert S. Reeves has served in an executive capacity with the
Registrant for more than the past five years.
J. Stephen Grassbaugh has served in an executive capacity with
the Registrant for more than the past five years.
Geoffrey A. Whynot has served as Vice President, Treasurer of
Registrant since 1991 and Assistant Vice President, Controller, External
Reporting of Registrant from 1989 through 1991.
Roger W. Norian served in an executive capacity with the
Registrant for more than the past five years
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock and Preferred Stock are both listed
on the New York Stock Exchange. As of March 13, 1996, there were approximately
1,214 and 130 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:
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Common Stock Preferred Stock
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Cash Cash
Calendar Year High Low Dividends High Low Dividends
- ---------------------------------------------------------------------------------------------
1995
First Quarter $ 9 3/8 $6 7/8 $-- $20 5/8 $19 1/8 $.425
Second Quarter 8 3/8 7 1/8 -- 20 1/8 19 1/4 .425
Third Quarter 8 1/2 7 -- 20 1/4 19 .425
Fourth Quarter 10 3/8 6 1/2 -- 20 16 3/8 .425
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
Fourth Quarter 9 1/2 8 1/8 -- 20 1/2 19 1/8 .425
The cummulative Preferred Stock dividend requirement as of December 31, 1995,
was $829,000. The payment of Common Stock dividends is restricted by the
Company's Senior Note agreement. Under the most restrictive covenant, the
payment of Common Stock dividends is not permitted at December 31, 1995.
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ITEM 6. SELECTED FINANCIAL DATA (h)
Years Ended December 31, 1995 1994 1993 1992 1991
(in thousands, except per share amounts)
Net sales $ 138,995 $ 139,156 $ 127,372 $ 126,610 $ 125,598
Segment earnings (loss):
Plastic Products $ 4,842 $ 12,055 $ 11,428 $ 9,165 $ 9,077
Consumer Products (a) (1,590) 3,213 (2,707) 4,982 1,804
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Total 3,252 15,268 8,721 14,147 10,881
General corporate expenses 5,258 4,903 4,866 5,212 5,568
Loss on revaluation of land 1,000 -- -- -- --
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations
before interest and income taxes $ (3,006) $ 10,365 $ 3,855 $ 8,935 $ 5,313
========= ========= ========= ========= =========
Earnings (loss) from continuing
operations before income taxes (b) $ (8,825) $ 5,749 $ (967) $ 4,413 $ 1,094
Provision (benefit) for income taxes (c) (3,518) 2,345 (634) 1,826 700
--------- --------- --------- --------- ---------
Earnings (loss) from continuing operations (5,307) 3,404 (333) 2,587 394
Earnings (loss) from
discontinued operations (d) -- -- -- (5,284) (2,973)
Extraordinary loss on retirement
of debt (e) -- -- (1,300) -- --
--------- --------- --------- --------- ---------
Net earnings (loss) (5,307) 3,404 (1,633) (2,697) (2,579)
Preferred stock dividends 829 829 829 829 829
--------- --------- --------- --------- ---------
Net earnings (loss) applicable to
common stockholders $ (6,136) $ 2,575 $ (2,462) $ (3,526) $ (3,408)
========= ========= ========= ========= =========
Earnings (loss) per common share:
Earnings (loss) per common share
from continuing operations (a) (b) (c) $ (1.60) $ 0.70 $ (0.32) $ 0.48 $ (0.12)
Earnings (loss) per common share
from discontinued operations (d) -- -- -- (1.44) (0.81)
Extraordinary loss per common share
on retirement of debt (e) -- -- (0.35) -- --
--------- --------- --------- --------- ---------
Net earnings (loss) per common share $ (1.60) $ 0.70 $ (0.67) $ (0.96) $ (0.93)
========= ========= ========= ========= =========
Cash dividends per common share $ -- $ -- $ -- $ -- $ --
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ITEM 6. SELECTED FINANCIAL DATA (Continued)(h)
Years Ended December 31, 1995 1994 1993 1992 1991
(in thousands)
Net property, plant and equipment $ 51,515 $ 48,341 $ 40,424 $ 36,383 $ 34,395
Depreciation and amortization 9,016 7,731 7,364 6,651 6,209
Capital expenditures (f) 11,840 15,648 11,256 8,359 4,391
Total assets 120,221 123,700 117,349 105,232 165,883
Senior debt (g) 50,000 50,000 50,000 -- 55,647
Subordinated long-term debt -- -- -- 40,000 40,000
Stockholders' equity before
pension adjustment $ 34,047 $ 38,260 $ 34,899 $ 36,464 $ 38,338
Excess of additional pension liability over
unrecognized prior service cost,
net of tax benefits (10,140) (5,207) (6,835) -- --
-------- -------- -------- -------- --------
Stockholders' equity $ 23,907 $ 33,053 $ 28,064 $ 36,464 $ 38,338
======== ======== ======== ======== ========
Weighted average number of
common shares outstanding 3,842 3,674 3,669 3,675 3,675
(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 11 of notes to consolidated financial statements for
further information.
(b) The loss from continuing operations before income taxes for 1995 includes a
pre-tax loss of $1,000,000 ($0.16 per common share) related to the
write-down in the book value of land formerly used by the Company as a glass
container manufacturing plant.
(c) The benefit for income taxes for 1993 includes a tax benefit of $369,000
($0.10 per common share) related to a reduction in the income tax valuation
reserve. See Note 4 of notes to consolidated financial statements for
further information.
(d) Losses related to discontinued operations for 1992 and 1991 relate to
results of operations and losses on disposal of the Company's former glass
container manufacturing operations and metal crown manufacturing operations.
(e) See Note 7 of notes to consolidated financial statements for information
regarding the extraordinary loss on retirement of debt.
(f) During 1991, in addition to the capital expenditures shown above, the
Company entered into long-term operating leases for manufacturing equipment
costing $1,623,000.
(g) As of December 31, 1995, the Company's $50,000,000 of outstanding senior
debt was classified as a current liability because the Company was in
default of certain financial covenants for which the Company had received
waivers only through May 15, 1996.
(h) The selected financial data does not reflect the discontinuance of the
Consumer Products segment.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
Net sales of the Registrant decreased to $138,995,000 in 1995 from $139,156,000
in 1994.
Net sales of the Plastic Products Business increased 2.2% to $109,187,000 in
1995 from 1994 due primarily to the pass through of resin price increases. The
Registrant's plastic products manufacturing facilities operated at approximately
64% of capacity during 1995.
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 are affected by the availability and pricing of resin. During the
first half of 1995 and the full year 1994, the average cost per pound of
polypropylene, the primary resin used by the Plastic Products Business,
increased 28% and 31%, respectively. Under industry practice, the Plastic
Products Business is generally able to pass on resin cost increases for all
products except for prescription packaging products. However, since resin costs
increased substantially, the results of the Plastic Products Business were
adversely affected because the Plastic Products Business was not able to obtain
general price increases from customers due to the resin price increases. In
addition, not all resin increases were passed on because of competitive
pricing. Resin prices have declined in the second half of 1995 and early 1996.
Net sales of the Consumer Products Business decreased 7.9% to $29,808,000 in
1995 compared to 1994 due primarily to lower unit sales as a result of adverse
growing conditions in 1995.
During August 1994, the Registrant completed the relocation of its home canning
cap and lid manufacturing operations to Jackson, Tennessee from Chicago,
Illinois. The new facility was expected to generate 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 Registrant produced home canning caps and lids in excess of
normal requirements. As a result, the Registrant did not expect to realize
significant earnings improvement from the relocation until 1996, when
inventories and production volume would approach normal levels.
During 1995, the Consumer Products Business cap and lid manufacturing facility
operated at approximately 33% of capacity, partially as a result of the
Registrant reducing its cap and lid inventory.
Cost of sales of the Registrant increased to $108,964,000 in 1995 compared to
$96,356,000 in 1994 primarily due to higher resin costs in the Plastic Products
Business and the sale of higher cost inventory in the Consumer Products
Business.
Gross profit as a percent of net sales decreased to 21.6% for 1995 as compared
to 30.8% for 1994 due to substantially higher resin costs and competitive
pricing in the Plastic Products Business, and the sale of higher cost inventory
produced during 1994 and higher customer rebates in the Consumer Products
Business.
Selling, warehouse, general and administrative expenses decreased $398,000 or
1.2% during 1995, as compared to 1994.
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Segment earnings of the Plastic Products Business decreased $7,213,000 to
$4,842,000 in 1995 compared to $12,055,000 in 1994 primarily due to
substantially higher resin costs and competitive pricing. Segment earnings of
the Consumer Products Business decreased to a loss of $1,590,000 in 1995
compared to earnings of $3,213,000 in 1994 primarily due to the sale of higher
cost inventory produced during 1994, higher customer rebates and lower sales
volume due to adverse weather conditions.
In 1995, the Registrant incurred a $1,000,000 unusual loss related to the
write-down in the book value of land formerly used by the Registrant as a glass
container manufacturing plant.
Earnings before interest and income taxes decreased $13,371,000 to a loss of
$3,006,000 in 1995 compared to earnings of $10,365,000 in 1994 due primarily to
lower earnings in both the Consumer Products and Plastic Products Businesses.
Net interest expense increased $1,203,000 during 1995 compared to 1994 due to
higher levels of debt and interest charged on advances under the Accounts
Receivable Agreement.
The decrease in the income tax provision in 1995 compared to 1994 is due to
lower pre-tax earnings.
Due to competitive pressures, there are occasions when the Registrant is unable
to pass on to customers 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 Registrant's results of operations.
SUBSEQUENT EVENT
On March 15, 1996, the Registrant sold certain assets of the Consumer Products
Business for a purchase price of approximately $14,500,000 and announced a
restructuring which will include the relocation of the Registrant's principal
executive office and the consolidation of certain manufacturing facilities. The
Registrant also expects to receive approximately $16,500,000, primarily during
the remainder of 1996, from the Registrant's sale to consumer products customers
of the inventory of the Consumer Products Business and from the collection of
the accounts receivable of the Consumer Products Business. These proceeds will
be utilized for working capital, to reduce debt, including $3,500,000 of debt
secured by liens on certain machinery and equipment of the Registrant, and to
fund costs of the restructuring.
In connection with the sale of Consumer Products Business assets, the Registrant
will report in the first quarter of 1996 a one-time pretax gain of approximately
$2,900,000 ($1,740,000 after-tax or $0.44 per common share). Also during the
first quarter of 1996, the Registrant will report a one-time pretax loss of
approximately $7,700,000 ($4,620,000 after-tax or $1.17 per common share)
associated with the restructuring. The loss on the restructuring includes
provisions for severance costs and related benefits, net loss on subleases,
write-off of fixed assets and certain intangible assets, and legal and
professional fees. In addition to the loss recorded on the restructuring, the
Registrant will incur additional non-recurring pretax losses during 1996 and
early 1997 associated with the restructuring of $2,400,000 ($1,440,000 after-tax
or $0.37 per common share) primarily related to equipment and personnel
relocation costs, inefficiences related to the relocation of operations and
start-up costs which accounting rules require to be expensed as incurred.
The restructuring is expected to result in annualized cost savings of
approximately $6,500,000 primarily from reduced employment costs, lease costs,
offices expenses, manufacturing overhead and freight. These cost savings will be
substantially realized in 1997.
-17-
18
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets (FASB No. 121), and Statement
No. 123, Accounting for Stock-Based Compensation (FASB No.123).
FASB No.121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill. FASB No. 121 will be
adopted during 1996 and is not expected to have a material effect on the
Registrant's financial position or results of operations.
FASB No.123 establishes a "fair value" method of accounting for the value of
grants under stock-based compensation plans. As permitted under FASB No. 123,
the Registrant will elect to continue to measure compensation expense related to
employee stock option plans utilizing the intrinsic value method as prescribed
by APB Opinion No. 25. However, beginning in 1996, the Registrant will disclose
in the footnotes to its financial statements the proforma effect on net income
and earnings per common share as if the fair value method of measuring
compensation expense related to employee stock option plans was utilized as
described in FASB No.123.
RESULTS OF OPERATIONS -- 1994 COMPARED TO 1993
Net sales of the Registrant 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 Registrant's plastic products manufacturing facilities
operated at approximately 74% of capacity during 1994.
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 in 1994.
During August 1994, the Registrant completed the relocation of its home canning
cap and lid manufacturing operations to Jackson, Tennessee from Chicago,
Illinois. During August through December of 1994, the Registrant's cap and lid
manufacturing facility operated at approximately 26% of capacity. This level of
operations primarily resulted because the new plant was in its start-up phase.
Cost of sales of the Registrant 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.
-18-
19
The Registrant 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 Registrant 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, 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.
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 Registrant 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $11,840,000. Cash flow was provided primarily
through net advances on accounts receivable sold under the Registrant's Accounts
Receivable Agreement of $7,700,000 and a $3,249,000 reduction in inventory.
-19-
20
During 1994, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $15,648,000, 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 Registrant's cash balances of $9,068,000, cash from
operations of $6,425,000 and cash from financing activities of $5,457,000.
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.
During 1995, the Registrant contributed 250,000 shares of its Common Stock, at a
price of $7.56 per share, to the Kerr Group, Inc. Retirement Income Plan. The
contribution reduced the Registrant's recorded pension liability by $1,891,000.
Capital expenditures of approximately $6,000,000 are planned for 1996.
Since the third quarter of 1990, the Registrant has not declared any dividends
on its Common Stock. The Registrant's Senior Note Agreement limits the payment
of dividends on Common Stock. Under the most restrictive covenant, the payment
of Common Stock dividends is not permitted at December 31, 1995.
The ratio of current assets to current liabilities at December 31, 1995 and 1994
was 0.6 and 2.5, respectively. The decline in the ratio of current assets to
current liabilities at December 31, 1995, compared to December 31, 1994, is due
primarily to i) the classification of the Registrant's $50,000,000 of
outstanding senior debt as short-term because the Registrant was in default of
certain financial covenants and was currently unable to obtain waivers beyond
May 15, 1996 and ii) advances on accounts receivable sold under the Accounts
Receivable Agreement. At December 31, 1995 and 1994, the ratio of total debt to
total capitalization was 70.3% and 62.7%, respectively. The increase in the
ratio of total debt to total capitalization is primarily due to lower
stockholders' equity.
The Registrant has recorded deferred income tax assets of $9,808,000 on its
Consolidated Balance Sheet as of December 31, 1995. In order to fully realize
this deferred income tax asset, the Registrant will need to generate future
taxable income of at least $35,000,000 prior to expiration of net operating loss
carryforwards which will begin to expire in 2006. Based upon the Registrant's
recent pre-tax earnings adjusted for significant nonrecurring items, the sale of
certain assets of the Consumer Products Business and cost savings related to the
restructuring announced March 15, 1996 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 Registrant will realize
the benefit of the deferred income tax asset. There can be no assurance,
however, that the Registrant will generate any specific level of continuing
earnings.
As of December 31, 1995, the Registrant had an Accounts Receivable Agreement
(Receivable Agreement) maturing on January 18, 1997 to meet the seasonal working
capital needs of the Registrant. The Receivable Agreement permits the Registrant
to sell its trade accounts receivable on a nonrecourse basis. Under the
Receivable Agreement, the maximum amount that can be advanced to the Registrant
pursuant to the sale of trade accounts receivable at any time is $13,500,000,
which amount is reduced on April 15, 1996 to $10,000,000. The reduction occurred
because the sale of assets of the Consumer Products Business reduced the working
capital needs of the Registrant. The Registrant retains collection and service
responsibility, as agent for the purchaser, over any receivables sold. Advances
under such Receivable Agreement
-20-
21
are subject to certain limitations. As of December 31, 1995, receivables as
shown on the accompanying Consolidated Balance Sheet have been reduced by net
proceeds of $7,700,000 from advances pursuant to the sale of receivables under
the Registrant's Receivable Agreement. The Receivable Agreement contains
covenants identical to the Senior Notes.
In addition, at December 31, 1995, the Registrant owed $6,500,000 under a note
payable to a bank due April 15, 1996 with interest accrued at the prime rate
(Unsecured Note Payable). The Unsecured Note Payable was originally related to a
$10,000,000 bank line of credit, which effective October 24, 1995 was reduced by
the lender to the then outstanding balance of $6,500,000 due to a decline in the
Registrant's financial performance. The line of credit contains covenants
identical to the Senior Notes.
On January 5, 1996, the Registrant borrowed $3,500,000 from the same bank under
a note payable secured by certain machinery and equipment (Secured Note
Payable). On March 15, 1996, the Registrant used a portion of the proceeds from
the sale of certain assets of the Consumer Products Business to pay the
$3,500,000 Secured Note Payable, and to prepay $3,540,000 of Senior Notes and
$460,000 of the Unsecured Note Payable. After the payment of the Secured Note
Payable, the indebtedness of the Registrant was unsecured.
In connection with the sale of certain assets of the Consumer Products Business,
the Registrant obtained waivers of certain financial covenants through May 15,
1996 from the lenders under the Senior Notes, the lender under the Unsecured
Note Payable and the purchaser under the Receivable Agreement (collectively
referred to as "Lenders") and an extension of the maturity date of the Unsecured
Note Payable to May 15, 1996. Discussions between the Lenders and the Registrant
are continuing with respect to the further extension of the maturity of the
Unsecured Note Payable, additional waiver of financial covenants and additional
reduction of indebtedness. Although the Registrant has obtained waivers or
amendments from the Lenders on three previous occasions, there can be no
assurance that the Lenders will agree to further waivers.
If additional waivers of financial covenants or the extension of the maturity
date of the Unsecured Note Payable are not obtained, the Lenders would be
entitled to exercise certain remedies, including the acceleration of the due
date for payment of the Senior Notes or the Unsecured Note Payable, and the
terminination of the Receivable Agreement.
Based upon the past experience of the Registrant in obtaining waivers or
amendments from its Lenders and because the Registrant expects to use a portion
of the proceeds from the sale of inventory and collection of accounts
receivables of the Consumer Products Business to further reduce debt, the
Registrant believes that the Lenders will extend the due date of the Unsecured
Note Payable, will not accelerate the due date for payment of the Senior Notes
and will not terminate the Receivable Agreement. The accompanying consolidated
financial statements have been prepared on the basis of such belief of the
Registrant.
At December 31, 1995, the Registrant had unused sources of liquidity consisting
of cash and cash equivalents of $3,904,000, additional advances under the
Receivable Agreement of $300,000, a tax net operating loss carryforward of
$17,209,000, a minimum tax credit carryforward of $1,083,000 and other tax
credit carryforwards of $75,000. The Registrant believes that its financial
resources, including proceeds from the sale of certain assets of the Consumer
Products Business and other internally generated funds, are adequate to meet its
foreseeable needs, subject to the satisfactory resolution of current discussions
with the Lenders.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page(s)
-------
Independent Auditors' Report 23
Consolidated Balance Sheets - December 31, 1995 and 1994 24-25
Consolidated Statements of Earnings (Loss) - Three Years Ended December 31, 1995 26
Consolidated Statements of Cash Flows - Three Years Ended December 31, 1995 27
Consolidated Statements of Common Stockholders' Equity - Three Years Ended
December 31, 1995 28
Notes to Consolidated Financial Statements 29-50
-22-
23
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Kerr Group, Inc.
We have audited the consolidated financial statements of Kerr Group, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 Group, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basis consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 15, 1996
-23-
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CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994
- ----------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Current assets
Cash and cash equivalents $ 3,904 $ 2,261
Receivables - primarily trade accounts, less allowance for doubtful accounts
of $421 in 1995 and $170 in 1994 7,430 16,312
Inventories
Raw materials and work in process 11,245 11,156
Finished goods 19,796 23,134
-------- --------
Total inventories 31,041 34,290
Prepaid expenses and other current assets 3,108 4,526
-------- --------
Total current assets 45,483 57,389
Property, plant and equipment, at cost
Land 427 427
Buildings and improvements 13,589 12,577
Machinery and equipment 93,401 84,462
Furniture and office equipment 6,035 5,381
-------- --------
113,452 102,847
Accumulated depreciation and amortization (61,937) (54,506)
-------- --------
Net property, plant and equipment 51,515 48,341
Deferred income taxes 8,057 2,192
Goodwill and other intangibles, net of amortization of $2,291 in 1995 and
$1,812 in 1994 7,140 6,622
Other assets 8,026 9,156
-------- --------
$120,221 $123,700
======== ========
See accompanying notes to consolidated financial statements.
-24-
25
CONSOLIDATED BALANCE SHEETS (continued)
- -------------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994
- -------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 6,500 $ 5,500
Senior debt due 1997 through 2003 classified as current 50,000 0
Accounts payable 10,488 13,445
Accrued pension liability 3,777 70
Other current liabilities 5,056 3,792
-------- --------
Total current liabilities 75,821 22,807
Pension liability 18,318 15,230
Other long-term liabilities 2,175 2,610
Senior debt due 1997 through 2003 0 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,
4,226 shares issued in 1995 and 4,220 shares issued in 1994 2,113 2,110
Additional paid-in capital 27,239 27,210
Retained earnings 1,860 11,995
Treasury Stock, at cost, 293 shares in 1995 and 543 shares in 1994 (6,913) (12,803)
Excess of additional pension liability over unrecognized
prior service cost, net of tax benefits (10,140) (5,207)
-------- --------
Total stockholders' equity 23,907 33,053
-------- --------
$120,221 $123,700
======== ========
See accompanying notes to consolidated financial statements.
-25-
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CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
- -----------------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Net sales $138,995 $139,156 $127,372
Cost of sales 108,964 96,356 88,922
-------- -------- --------
Gross profit 30,031 42,800 38,450
Selling, warehouse, general and administrative expenses 32,037 32,435 30,095
Loss on plant relocation -- -- 4,500
Loss on revaluation of land 1,000 -- --
Interest expense 6,047 4,985 5,680
Interest and other income (228) (369) (858)
-------- -------- --------
Earnings (loss) before income taxes (8,825) 5,749 (967)
Provision (benefit) for income taxes (3,518) 2,345 (634)
-------- -------- --------
Earnings (loss) before extraordinary loss (5,307) 3,404 (333)
Extraordinary loss on retirement of debt, after
applicable income tax benefit of $632 -- -- (1,300)
-------- -------- --------
Net earnings (loss) (5,307) 3,404 (1,633)
Preferred stock dividends 829 829 829
-------- -------- --------
Net earnings (loss) applicable to common stockholders $ (6,136) $ 2,575 $ (2,462)
======== ======== ========
Earnings (loss) per common share:
Earnings (loss) per common share before extraordinary loss $ (1.60) $ 0.70 $ (0.32)
Extraordinary loss per common share on retirement of debt -- -- (0.35)
-------- -------- --------
Net earnings (loss) per common share $ (1.60) $ 0.70 $ (0.67)
======== ======== ========
See accompanying notes to consolidated financial statements.
-26-
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 1994 1993
(in thousands)
CASH FLOW PROVIDED (USED) BY OPERATIONS
Earnings (loss) $ (5,307) $ 3,404 $ (333)
Add (deduct) noncash items included in earnings (loss)
Depreciation and amortization 9,016 7,731 7,364
Reserve for loss on plant relocation, net of tax -- -- 2,754
Change in deferred income taxes (2,482) 1,705 159
Reduction in total pension liability, net (1,597) (266) (1,116)
Other, net 1,420 62 (624)
Changes in other operating working capital
Receivables 8,882 (2,779) (2,186)
Inventories 3,249 (6,258) (5,712)
Other current assets 1,304 (133) (885)
Accounts payable (2,957) 3,872 729
Accrued expenses 1,379 (913) (541)
-------- -------- --------
Cash flow provided (used) by operations 12,907 6,425 (391)
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES
Capital expenditures (11,840) (15,648) (11,256)
Payments associated with relocation of home canning cap and lid
operations (205) (3,005) --
Proceeds from liquidation of long-term certificates of deposit 375 1,000 --
Other, net (982) (699) (1,338)
Collection of accounts receivable, and payment of accounts payable
and accrued and other expenses related to discontinued operations (297) (2,598) (2,500)
-------- -------- --------
Cash flow provided (used) by investing activities (12,949) (20,950) (15,094)
CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES
Net borrowings under lines of credit 1,000 5,500 --
Issuance of senior debt -- -- 50,000
Extinguishment of subordinated debt -- -- (41,131)
Contribution of Common Stock to pension plan 1,891 -- --
Dividends paid (829) (829) (829)
Other, net (377) 786 (477)
-------- -------- --------
Cash flow provided (used) by financing activities 1,685 5,457 7,563
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year 1,643 (9,068) (7,922)
Balance at beginning of the year 2,261 11,329 19,251
-------- -------- --------
Balance at end of the year $ 3,904 $ 2,261 $ 11,329
======== ======== ========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1995, 1994 and 1993
- -----------------------------------------------------------------------------------------------------------------------
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, 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) --
Net loss -- -- -- (5,307) -- -- --
Dividends on Preferred Stock -- -- -- (829) -- -- --
Pension adjustment -- -- -- -- -- (4,933) --
Contribution of Treasury Stock to
pension fund 250 -- -- (3,999) 5,890 -- --
Issuance of Common Stock under
stock option plans 6 3 29 -- -- -- --
----- ------ ------- ------- -------- -------- -------
Balance, December 31, 1995 3,933 $2,113 $27,239 $ 1,860 $ (6,913) $(10,140) $ --
===== ====== ======= ======= ======== ======== =======
See accompanying notes to consolidated financial statements.
-28-
29
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.,
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 2 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, 1995.
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.
-29-
30
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Effective January 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions (FASB No. 106). As more fully described in Note 6, the Company has
elected to amortize the impact of FASB No. 106 ratably over 20 years.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, Accounting for Income Taxes (FASB No. 109). Under the asset and liability
method of FASB No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under FASB
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted FASB No. 109. The cumulative and
pro forma effect of the change in accounting was not material.
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
1995, 1994 and 1993.
NATURE OF OPERATIONS - SIGNIFICANT USE OF RESIN
The Company's Plastic Products Business uses a significant amount of resin in
its manufacturing process. From time to time, the Company has experienced
substantial increases in the cost of resin. To the extent that the Company is
unable to pass on resin cost increases, the cost increases could have a
significant impact on the results of operations of the Company.
FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities as of December 31, 1995 and
1994, and the reported amounts of income and expenses for each of the three
years ended December 31, 1995. Actual results could differ from those estimates.
Included in other assets are certain assets held for sale consisting of real
property and buildings. Management has obtained a recent appraisal to support
the carrying value of such assets, however, the ultimate sales proceeds
received by the Company could differ from the appraisal amount depending on
changes in market conditions.
Certain reclassifications have been made to prior years' financial statements to
conform to the 1995 presentation.
-30-
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets (FASB No. 121), and Statement
No. 123, Accounting for Stock-Based Compensation (FASB No. 123).
FASB No.121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill. FASB No. 121 will be
adopted during 1996 and is not expected to have a material effect on the
Company's financial position or results of operations.
FASB No.123 establishes a "fair value" method of accounting for the value of
grants under stock-based compensation plans. As permitted under FASB No. 123,
the Company will elect to continue to measure compensation expense related to
employee stock option plans utilizing the intrinsic value method as prescribed
by APB Opinion No. 25. However, beginning in 1996, the Company will disclose in
the footnotes to its financial statements the proforma effect on net income and
earnings per common share as if the fair value method of measuring compensation
expense related to employee stock option plans was utilized as described in FASB
No. 123.
NOTE 2 - SUBSEQUENT EVENT - SALE OF ASSETS AND RESTRUCTURING
On March 15, 1996, the Company sold certain assets of the Consumer Products
Business for a purchase price of approximately $14,500,000 and announced a
restructuring program which will include the relocation of the Company's
principal executive office and the consolidation of certain manufacturing
facilities. The Company also expects to receive approximately $16,500,000,
primarily during the remainder of 1996, from the Company's sale to its customers
of the inventory of the Consumer Products Business and from the collection of
the accounts receivable of the Consumer Products Business. These proceeds will
be utilized for working capital, to reduce debt, including $3,500,000 of debt
secured by liens on certain machinery and equipment of the Company, and to fund
costs of the restructuring.
In connection with the sale of Consumer Products Business assets, the Company
will report in the first quarter of 1996 a one-time pretax gain of approximately
$2,900,000 ($1,740,000 after-tax or $0.44 per common share). Also during the
first quarter of 1996, the Company will report a pretax loss of approximately
$7,700,000 ($4,620,000 after-tax or $1.17 per common share) associated with the
restructuring. The loss on the restructuring includes provisions for severance
costs and related benefits, net loss on subleases, write-off of fixed assets and
certain intangible assets, and legal and professional fees. In addition to the
loss recorded on the restructuring, the Company will incur additional
non-recurring pretax losses during 1996 and early 1997 associated with the
restructuring of $2,400,000 ($1,440,000 after-tax or $0.37 per common share)
primarily related to equipment and personnel relocation costs, inefficiencies
related to the relocation of operations and start-up costs which accounting
rules require to be expensed as incurred.
The accompanying financial statements do not reflect the discontinuance of the
Consumer Products segment.
-31-
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NOTE 3 - ISSUES AFFECTING LIQUIDITY
On March 15, 1996, the Company used a portion of the proceeds from the sale of
certain assets of the Consumer Products Business to pay the $3,500,000 Secured
Note Payable (which was borrowed on January 5, 1996), and to prepay $3,540,000
of Senior Notes and $460,000 of the Unsecured Note Payable. After the payment of
the Secured Note Payable, the indebtedness of the Company was unsecured.
In connection with the sale of certain assets of the Consumer Products Business,
the Company obtained waivers of certain financial covenants through May 15, 1996
from the lenders under the Senior Notes, the lender under the Unsecured Note
Payable and the purchaser under the Receivable Agreement (collectively referred
to as "Lenders") and an extension of the maturity date of the Unsecured Note
Payable to May 15, 1996. Discussions between the Lenders and the Company are
continuing with respect to the further extension of the maturity of the
Unsecured Note Payable, additional waiver of financial covenants and additional
reduction of indebtedness. Although the Company has obtained waivers or
amendments from the Lenders on three previous occasions, there can be no
assurance that the Lenders will agree to further waivers.
If additional waivers of financial covenants or the extension of the maturity
date of the Unsecured Note Payable are not obtained, the Lenders would be
entitled to exercise certain remedies, including the acceleration of the due
date for payment of the Senior Notes or the Unsecured Note Payable, and the
terminination of the Receivable Agreement.
Based upon the past experience of the Company in obtaining waivers or amendments
from its Lenders and because the Company expects to use a portion of the
proceeds from the sale of inventory and collection of accounts receivables of
the Consumer Products Business to further reduce debt, the Company believes that
the Lenders will extend the due date of the Unsecured Note Payable, will not
accelerate the due date for payment of the Senior Notes and will not terminate
the Receivable Agreement. The accompanying consolidated financial statements
have been prepared on the basis of such belief of the Company.
NOTE 4 - INCOME TAXES
Total income tax provision (benefit) for the years ended December 31, 1995 and
1994 was allocated as follows:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
(in thousands)
Earnings (loss) $(3,518) $2,345
Stockholders' equity, related to excess of pension liability
over unrecognized prior service costs (3,281) 878
------- ------
$(6,799) $3,223
======= ======
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NOTE 4 - INCOME TAXES (continued)
The provision (benefit) for income taxes for the years ended December 31, 1995,
1994 and 1993 consists of the following:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
(in thousands)
Current
U.S. Federal $ -- $ 81 $ 119
State -- -- --
------- ------ -----
Total current -- 81 119
Deferred
U.S. Federal (2,755) 1,814 (637)
State (763) 450 (116)
------- ------ -----
Total deferred (3,518) 2,264 (753)
------- ------ -----
Total provision (benefit) for income taxes $(3,518) $2,345 $(634)
======= ====== =====
The significant components of deferred income taxes (benefits) for the years
ended December 31, 1995, 1994 and 1993 are as follows:
- -----------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------
(in thousands)
Reinstatement (reduction) of deferred income taxes
attributable to recognition of alternative minimum tax
credits and tax net operating loss carryforwards $(5,056) $ (541) $ 52
Temporary differences associated with the sales of
discontinued operations (466) 1,531 1,051
Temporary differences associated with the loss on plant relocation 157 1,429 (1,368)
Additional costs inventoried for tax purposes (44) 64 (245)
Excess (deficit) of pension contributions paid over pension expense 1,513 46 448
Excess (deficit) of tax over book depreciation,
including assets retired or sold 668 (19) (327)
Other, net (290) (246) (364)
------- ------ -------
Total $(3,518) $2,264 $ (753)
======= ====== =======
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NOTE 4 - INCOME TAXES (continued)
Total provision (benefit) for income taxes for the years ended December 31,
1995, 1994 and 1993 differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to earnings (loss) before income taxes as a
result of the following:
- --------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------
(in thousands)
Computed "expected" tax provision (benefit) $(3,002) $1,954 $(329)
Increase (reduction) in provision resulting from:
State income tax provision (benefit), net of Federal tax effect (524) 231 (47)
Change in the valuation allowance for deferred tax assets -- -- (369)
Other, net 8 160 111
------- ------ -----
Actual tax provision (benefit) $(3,518) $2,345 $(634)
======= ====== =====
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liabilities at December 31, 1995 and 1994
are as follows:
- ----------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------
(in thousands)
Deferred income tax assets:
Pension liabilities--
Excess of additional pension liability over unrecognized prior service cost $ 6,743 $ 3,462
Accrued pension liability -- 1,490
Accrued retiree health liability 551 630
Accrued reserves associated with discontinued operations 274 350
Inventory 675 722
Accrued vacation pay 461 383
Tax credit carryforwards 1,158 1,830
Net operating loss carryforwards 6,882 1,962
Other 670 1,120
------- -------
Total gross deferred income tax assets 17,414 11,949
Less valuation allowance -- --
------- -------
Deferred income tax assets, net of valuation allowance 17,414 11,949
Deferred income tax liabilities:
Property, plant and equipment, principally due to differences in depreciation (5,744) (5,146)
Excess of book basis over tax basis of land and buildings formerly
used as a glass container manufacturing plant (1,252) (1,795)
Other (610) (962)
------- -------
Total gross deferred income tax liabilities (7,606) (7,903)
------- -------
Net deferred income tax assets $ 9,808 $ 4,046
======= =======
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NOTE 4 - INCOME TAXES (continued)
In order to fully realize the deferred income tax asset, the Company will need
to generate future taxable income of at least $35,000,000 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, the sale of certain assets of the Consumer Products Business and cost
savings related to the restructuring announced March 15, 1996 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, 1995, the Company had net operating loss carryforwards for
Federal income tax purposes of $17,209,000 which are available to offset future
Federal taxable income, expiring in the years 2006 through 2010.
The Company also has an alternative minimum tax credit carryforward of
$1,083,000 and other tax credit carryforwards (primarily investment tax credits)
of $75,000, 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 $24,000, $761,000 and
$470,000 for 1995, 1994 and 1993, respectively.
NOTE 5 - OTHER CURRENT LIABILITIES
At December 31, 1995 and 1994, other current liabilities were as follows:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
(in thousands)
Accrued wages and vacation pay $2,143 $1,879
Accrued interest 2,617 240
Other accrued expenses 296 1,673
------ ------
Total accrued expenses $5,056 $3,792
====== ======
NOTE 6 - RETIREMENT BENEFITS
PENSIONS
The Company has a defined benefit pension plan (the "Retirement Income Plan")
and a defined contribution pension plan, which cover substantially all
employees. The Retirement Income 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 1995 and 1994, the
Company funded the Retirement Income Plan by $1,983,000 more than the accrued
pension expense for the 1994 plan year. During 1994 and 1993, the Company funded
the Retirement Income Plan by $800,000 more than the accrued pension expense for
the 1993 plan year.
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NOTE 6 - RETIREMENT BENEFITS (continued)
During 1995, the Company contributed 250,000 shares of its Common Stock, at a
price of $7.56 per share, to the Retirement Income Plan. The contribution
reduced the Company's recorded pension liability by $1,891,000.
During 1995, the Company adopted a Pension Restoration Plan which is an unfunded
plan providing benefits to participants not payable by the Company's Retirement
Income Plan because of the limitations on benefits imposed by the Internal
Revenue Code of 1986, as amended. The aggregate annual accrued benefit for each
participant under the combination of the Retirement Income Plan and the Pension
Restoration Plan when expressed as a single-life annuity is limited to $200,000.
Net pension expense for the years ended December 31, 1995, 1994 and 1993
included the following components:
1995 1994 1993
(in thousands)
Defined Benefit Plan:
Service cost (benefit earned during period) $ 498 $ 564 $ 472
Interest cost on projected benefit obligation 7,364 7,018 6,941
Actual loss (return) on assets (16,080) 597 (7,843)
Net amortization and deferral 9,460 (6,552) 1,619
-------- ------- -------
Defined Benefit Plan expense $ 1,242 $ 1,627 $ 1,189
======== ======= =======
Defined Contribution Plan expense $ 15 $ 17 $ 21
======== ======= =======
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NOTE 6 - RETIREMENT BENEFITS (continued)
The funded status of the defined benefit plans at December 31, 1995 and 1994 was
as follows:
- ------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------
(in thousands)
Actuarial present value
Vested benefit obligation $ 99,237 $ 81,605
Nonvested benefit obligation 1,942 2,445
-------- --------
Accumulated benefit obligation 101,179 84,050
Effect of future salary increases 2,812 1,842
-------- --------
Projected benefit obligation 103,991 85,892
Plan assets at fair value (a) 79,084 68,750
-------- --------
Projected benefit obligation in excess of plan assets 24,907 17,142
Unrecognized net transition obligation (474) (553)
Unrecognized prior service costs (936) (663)
Unrecognized net loss (19,660) (10,511)
-------- --------
Accrued pension liability before adjustment 3,837 5,415
Adjustment required to recognize additional minimum pension liability 18,258 9,885
-------- --------
Accrued pension liability related to the defined benefit plan $ 22,095 $ 15,300
======== ========
Accrued pension liability related to the defined contribution plan $ 8 $ 17
======== ========
(a) Plan assets include 368,200 shares of Company Common Stock at a value of
$3,682,000 at December 31, 1995 and 118,200 shares of Company Common Stock
at a value of $990,000 at December 31, 1994.
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 $10,140,000 at December 31, 1995, and $5,207,000 at
December 31, 1994, and an intangible pension asset of $1,376,000 at December 31,
1995, and $1,216,000 at December 31, 1994.
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, 1995, 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, 1995, 1994 and 1993 were
as follows:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Discount rate 7.25% 8.75% 7.5%
Increase in compensation rate 5% 5% 5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
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NOTE 6 - RETIREMENT BENEFITS (continued)
The Company retained the pension benefit obligations for service prior to the
date of the sale and the pension assets related to the Company's discontinued
Commercial Glass Container and Metal Crown Businesses. 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 were included as components of
the respective losses on the sale of the businesses and plant relocation.
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.
Retiree health care and life insurance expense for the years ended December 31,
1995, 1994 and 1993 included the following components:
- -----------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------
(in thousands)
Retiree health care and life insurance expense:
Service cost (benefit earned during period) $ 41 $ 54 $ 83
Interest cost on accumulated benefit obligation 855 1,082 1,187
Actual return on assets -- -- --
Net amortization and deferral 544 624 660
------ ------ ------
$1,440 $1,760 $1,930
====== ====== ======
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NOTE 6 - RETIREMENT BENEFITS (continued)
The funded status of the retiree health care and life insurance plans at
December 31, 1995 and 1994 was as follows:
- ----------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------
(in thousands)
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 9,210 $ 9,083
Fully eligible active participants 735 1,428
Other active participants 1,055 739
-------- --------
Accumulated benefit obligation 11,000 11,250
Plan assets at fair value -- --
-------- --------
Accumulated benefit obligation in excess of plan assets 11,000 11,250
Unrecognized net transition obligation (10,612) (11,237)
Unrecognized prior service costs -- --
Unrecognized net gain (loss) 992 1,563
-------- --------
Accrued postretirement benefit liability $ 1,380 $ 1,576
======== ========
The retiree health care and life insurance plans assumptions are as follows:
- -----------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Discount rate 7.25% 8.75% 7.5%
Health care cost trend rates--
Indemnity plans 8.75% trending down 8.75% trending down 9% trending down
to 6% to 6% to 6%
Managed care plans 6.75% trending down 6.75% trending down 7% trending down
to 4% to 4% to 4%
- -----------------------------------------------------------------------------------------------------------
The effect of a one percentage point annual increase in these assumed cost trend
rates at December 31, 1995, would increase the postretirement benefit obligation
by approximately $420,000 and would increase the service and interest cost
components of the annual expense by approximately $40,000.
-39-
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NOTE 7 - FINANCING
At December 31, 1995 and 1994, the Company's 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 and lines of
credit with banks. 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 the most restrictive covenant related
to the payment of dividends, the payment of Common Stock dividends is not
permitted at December 31, 1995. As of December 31, 1995, the Company is not in
compliance with certain of the financial covenants and has obtained waivers of
such covenants through May 15, 1996.
As of December 31, 1995, the Company's $50,000,000 of outstanding Senior Notes
is classified as a current liability because the Company was in default of
certain financial covenants for which the Company had received waivers only
through May 15, 1996. See further discussion at Note 3 of notes to consolidated
financial statements. The mandatory scheduled principal payments, as specified
in the loan agreement, for the next five years on the Senior Notes outstanding
at December 31, 1995, are as follows:
- --------------------------------------------------------------------------------
Years Ended December 31,
- --------------------------------------------------------------------------------
(in thousands)
1996 $ --
1997 3,000
1998 9,833
1999 9,833
2000 6,833
2001 and thereafter 20,501
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.
-40-
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NOTE 7 - FINANCING (continued)
As of December 31, 1995, the Company had an Accounts Receivable Agreement
(Receivable Agreement) maturing on January 18, 1997 to meet the seasonal working
capital needs of the Company. The Receivable Agreement permits the Company
to sell its trade accounts receivable on a nonrecourse basis. Under the
Receivable Agreement, the maximum amount that can be advanced to the Company
pursuant to the sale of trade accounts receivable at any time is $13,500,000,
which amount is reduced on April 15, 1996 to $10,000,000. The reduction occurred
because the sale of assets of the Consumer Products Business reduced the working
capital needs of the Company. The Company retains collection and service
responsibility, as agent for the purchaser, over any receivables sold. Advances
under such Receivable Agreement are subject to certain limitations. As of
December 31, 1995, receivables as shown on the accompanying Consolidated
Balance Sheet have been reduced by net proceeds of $7,700,000 from advances
pursuant to the sale of receivables under the Company's Receivable Agreement.
The Receivable Agreement contains covenants identical to the Senior Notes.
In addition, at December 31, 1995, the Company owed $6,500,000 under a note
payable to a bank due April 15, 1996 (which maturity date was extended to
May 15, 1996) with interest accrued at the prime rate (Unsecured Note
Payable). The Unsecured Note Payable was originally related to a $10,000,000
bank line of credit, which effective October 24, 1996 was reduced by the lender
to the then outstanding balance of $6,500,000 due to a decline in the Company's
financial performance. During 1994 and early 1995, the Company had an additional
bank line of credit which was replaced by the Receivable Agreement. The line of
credit contains covenants identical to the Senior Notes.
During 1995 and 1994, the Company had maximum borrowings outstanding under its
lines of credit of $12,000,000 and $5,500,000, respectively. During 1995 and
1994, the weighted average interest rate under its lines of credit was 8.7% and
7.3% and the weighted average borrowings outstanding under its lines of credit
was $7,528,000 and $1,544,000, respectively.
Total cash payments of interest during 1995, 1994 and 1993 were $3,440,000,
$4,743,000 and $6,501,000, respectively.
See discussion of issues affecting liquidity at Note 3 of notes to consolidated
financial statements.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1994, the Financial Accounting Standards Board issued Statement No. 107,
Disclosure about Fair Value of Financial Instruments (FASB No. 107). FASB No.
107 requires the disclosure of the estimated fair values for all financial
instruments for which it is practicable to estimate fair value.
The fair value of cash, accounts receivable and payable, and advances pursuant
to the sale of receivables under the Company's Receivable Agreement approximate
their carrying amount because of their short maturity.
The fair value of the line of credit approximates its carrying amount because
such debt has a floating rate tied to the Prime rate.
-41-
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NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The fair value of the Company's $50,000,000 principal amount of Senior Notes
would be expected to be higher than the carrying amount because market interest
rates have declined since such debt was incurred. However, since it is unlikely
the Company could obtain similar unsecured financing at comparable rates today,
determining a fair value of such debt is not appropriate.
NOTE 9 - PREFERRED STOCK
CLASS B PREFERRED STOCK
At December 31, 1995 and 1994, 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, 1995 and 1994, 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.
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,
1995, 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.
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NOTE 10 - 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 was $472,000 and $633,000
in 1994 and 1993, 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 1995, 1994 and 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.
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NOTE 10 - COMMON STOCK (continued)
The following tabulation summarizes changes under the Company's Stock Option
Plans for employees during the years ended December 31, 1995, 1994 and 1993.
- -----------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
- -----------------------------------------------------------------------------------------------------------
Options Outstanding:
Beginning 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
Granted 204,000 7 9/16 6,500 9 7/16-10 3/8 157,500 8-8 5/16
Exercised (6,000) 5 3/8 (10,400) 5 3/8-7 1/8 --
Cancelled (23,000) 5 3/8-8 5/16 (18,000) 5 3/8-8 5/16 (36,000) 5 3/8-10 3/4
Expired -- -- (46,350) 5 3/8-11 7/16
------- ------------- ------- ------------- ------- --------------
End of year 427,100 5 3/8-10 3/8 252,100 5 3/8-10 3/8 274,000 5 3/8-8 5/16
Exercisable at end of year:
Currently exercisable 83,200 70,900 56,200
Exercisable if Common
Stock trades at
triggering price of
$ 12.50 277,300 57,501 31,500
------- ------ ------
Total 360,500 128,401 87,700
Available for grant at
end of year 21,497 22,497 20,100
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.
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NOTE 10 - 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, 1995, 1994
and 1993.
- ------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
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 $8 3/16 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 8 3/16
Exercisable at end of year:
Currently exercisable -- -- --
Exercisable if Common
Stock trades at $12.50
per share or above 60,000 60,000 60,000
------ ------ ------
Total 60,000 60,000 60,000
Available for grant at
end of year 80,000 80,000 80,000
The aggregate option price for all outstanding options at December 31, 1995,
1994 and 1993 was $3,698,000, $2,359,000 and $2,508,000, 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, total shares of
15,000 were released from restriction.
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NOTE 11 - 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
1995, the Company made cash payments related to relocation costs of
approximately $200,000. 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 12 - 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 under these agreements was
$3,714,000, $3,085,000 and $3,008,000 in 1995, 1994 and 1993, respectively.
At December 31, 1995, 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)
1996 $3,644 $3,256 $388
1997 3,517 3,253 264
1998 3,395 3,220 175
1999 3,311 3,200 111
2000 2,607 2,590 17
2001 through 2014 20,276 20,276 --
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.
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NOTE 13 - 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 $500,000 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 1995, the
Company made cash payments related to environmental remediation of $327,000. As
of December 31, 1995, the Company has accrued a reserve of approximately
$312,000 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 14 - INDUSTRY SEGMENT INFORMATION
During 1995, the Company operated in two industry segments, Plastic Products and
Consumer Products. The manufacturing assets of the Consumer Products segment
were subsequently sold in 1996. 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 in 1995, 1994 or
1993.
The Company carries on a product development and engineering program with
respect to its Plastic Products Business. Expenditures for such programs during
the years ended December 31, 1995, 1994 and 1993 were approximately $3,300,000,
$3,600,000 and $2,000,000, respectively.
Although the Company owns a number of United States patents, including
patents for its tamper-evident closures and certain of its child-resistant
closures, it is of the opinion that no one or combination of these patents is of
material importance to its business. The Company has granted licenses on some
of its patents, although the income from these sources is not material.
Segment earnings is income before unusual items not attributable to one of the
segments, general corporate expenses, interest expense, interest and other
income and provision (benefit) for income taxes.
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NOTE 14 - INDUSTRY SEGMENT INFORMATION (continued)
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.
A summary of the Company's operations by industry segment follows:
- --------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(in thousands)
Net sales:
Plastic Products $109,187 $106,792 $ 98,533
Consumer Products (b) 29,808 32,364 28,839
-------- -------- --------
Total $138,995 $139,156 $127,372
======== ======== ========
Segment earnings (loss):
Plastic Products $ 4,842 $ 12,055 $ 11,428
Consumer Products (a)(b) (1,590) 3,213 (2,707)
-------- -------- --------
Total 3,252 15,268 8,721
Loss on revaluation of land 1,000 -- --
General corporate expenses 5,258 4,903 4,866
-------- -------- --------
Earnings (loss) before interest and income taxes (3,006) 10,365 3,855
Interest expense 6,047 4,985 5,680
Interest and other income (228) (369) (858)
-------- -------- --------
Earnings (loss) before income taxes $ (8,825) $ 5,749 $ (967)
======== ======== ========
(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 11 of notes to consolidated financial
statements for further information.
(b) The manufacturing assets of the Consumer Products segment were sold on
March 15, 1996.
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NOTE 14 - INDUSTRY SEGMENT INFORMATION (continued)
Identifiable assets, depreciation and amortization and capital expenditures for
each segment are as follows:
- --------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
(in thousands)
Identifiable Assets:
Plastic Products $ 79,367 $ 84,283 $ 69,834
Consumer Products(a) 18,981 22,782 20,403
Corporate 21,873 16,635 27,112
-------- -------- --------
Total $120,221 $123,700 $117,349
======== ======== ========
Depreciation and amortization:
Plastic Products $ 7,961 $ 6,946 $ 6,600
Consumer Products(a) 343 236 197
Corporate 712 549 567
-------- -------- --------
Total $ 9,016 $ 7,731 $ 7,364
======== ======== ========
Capital expenditures:
Plastic Products $ 10,604 $ 13,906 $ 8,587
Consumer Products(a) 976 1,472 1,920
Corporate 260 270 749
-------- -------- --------
Total $ 11,840 $ 15,648 $ 11,256
======== ======== ========
- -------------
(a) The manufacturing assets of the Consumer Products segment were sold on
March 15, 1996.
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NOTE 15 - CONDENSED QUARTERLY DATA FOR 1995 AND 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------
(in thousands, except per share amounts)
1995
Net sales $30,390 $41,892 $39,021 $27,692
Gross profit 8,577 9,783 8,080 3,591
Net loss (a) (387) (285) (1,099) (3,536)
Preferred stock dividends 207 207 207 208
------- ------- ------- -------
Net loss applicable to common
stockholders (a) $ (594) $ (492) $(1,306) $(3,744)
======= ======= ======= =======
Net loss per common share (primary and
fully diluted) $ (0.16) $ (0.13) $ (0.33) $ (0.95)
(a) Net for the quarter ended December 31, 1995 includes a pre-tax loss of
$1,000,000 ($0.15 per common share) related to the write-down in the book
value of land formerly used by the Company as a glass container manufacturing
plant.
- --------------------------------------------------------------------------------
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
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ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by Item 10 of Form 10-K is
included in a separate item captioned "Executive Officers of the Registrant" in
Part I of this Form 10-K.
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 30, 1996 contains on
pages 2 through 6 the remaining information required by Item 10 of Form 10-K and
such information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 30, 1996 contains on
pages 7 through 12 the information required by Item 11 of Form 10-K, and such
information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 30, 1996 contains on
pages 2 through 3 the information required by Item 12 of Form 10-K, and such
information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Stockholders to be held on April 30, 1996 contains on page
13 the information required by Item 13 of Form 10-K, and such information is
incorporated herein by this reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a. (i) Financial Statements
In addition to the Consolidated Financial Statements and
Independent Auditors' Report included at Item 8, the following
are included herein:
Schedules for the three years ended December 31, 1995:
VIII - Valuation and Qualifying Accounts, page 61.
All other Schedules have been omitted as
inapplicable, or not required, or because the required information is
included in the Consolidated Financial Statements or the notes thereto.
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(ii) Exhibits
3.1 Restated Certificate of Incorporation of the
Registrant is incorporated by reference to
Exhibit 3.1 to Form 10-K for the fiscal year
ended December 31, 1980.
3.2 Certificate of Retirement of Capital Stock of the
Registrant is incorporated by reference to
Exhibit 3.2 to Form 10-K for the fiscal year
ended December 31, 1989.
3.3 Certificate of Amendment to the Restated
Certificate of Incorporation of the Registrant is
incorporated by reference to Exhibit 3.3 to Form
10-K for the fiscal year ended December 31, 1989.
3.4 By-laws of the Registrant, as amended effective
June 15, 1993, is incorporated by reference to
Exhibit 3.1 to Form 10-Q for the quarter ended
June 30, 1993.
10.1 Amended and Restated Employment Agreement between
the Registrant and Roger W. Norian dated as of
December 1, 1994 incorporated by reference to
Exhibit 10.4 to Form 10-K for the fiscal year
ended December 31, 1994.
10.2 Amendment dated as of January 2, 1996 of the
Employment Agreement between Registrant and Roger
W. Norian.
10.3 Employment Agreement between the Registrant and
D. Gordon Strickland dated as of June 16, 1986 is
incorporated by reference to Exhibit 10.5 to Form
10-K for the fiscal year ended December 31, 1986.
10.4 Amendment dated as of January 2, 1996 of the
Employment Agreement between Registrant and D.
Gordon Strickland.
10.5 Employment Agreement between the Registrant and
Robert S. Reeves dated as of February 17, 1983 is
incorporated by reference to Exhibit 10.6 to Form
10-K for the fiscal year ended December 31, 1983.
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10.6 Amendment dated as of January 2, 1996 of the
Employment Agreement between Registrant and
Robert S. Reeves.
10.7 Employment Agreement, as amended, between
Registrant and Geoffrey A. Whynot dated as of
November 1, 1989.
10.8 Employment Agreement between the Registrant and
Norman N. Broadhurst dated as of December 8, 1988
is incorporated by reference to Exhibit 10.9 to
Form 10-K for the fiscal year ended December 31,
1988.
10.9 Employment Agreement between the Registrant and
J. Stephen Grassbaugh dated as of February 24,
1989 is incorporated by reference to Exhibit
10.10 to Form 10-K for the fiscal year ended
December 31, 1988.
10.10 Amendment dated as of January 2, 1996 of the
Employment Agreement between Registrant and J.
Stephen Grassbaugh.
10.11 1984 Stock Option Plan is incorporated by
reference to Exhibit 4.7 to Registration
Statement No. 2-92722.
10.12 1987 Stock Option Plan is incorporated by
reference to Exhibit 10.12 to Form 10-K for the
fiscal year ended December 31, 1986.
10.13 Amended and Restated 1993 Employee Stock Option
Plan incorporated by reference to Exhibit 10.8 to
Form 10-K for the fiscal year ended December 31,
1994.
10.14 1987 Stock Option Plan for Non-Employee Directors
is incorporated by reference to Exhibit 10.17 to
Form 10-K for the fiscal year ended December 31,
1987.
10.15 1993 Stock Option Plan for Non-Employee Directors
is incorporated by reference to Exhibit 10.4 to
Form 10-Q for the fiscal quarter ended June 30,
1993.
10.16 Form of Stock Option Agreement used in connection
with the 1984 Stock Option Plan is incorporated
by reference to Exhibit 4.11 to Registration
Statement No. 2-92722.
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10.17 Form of Stock Option Agreement used in connection
with the 1987 Stock Option Plan is incorporated
by reference to Exhibit 10.17 to Form 10-K for
the fiscal year ended December 31, 1986.
10.18 Form of Stock Option Agreement used in connection
with the 1993 Employee Stock Option Plan is
incorporated by reference to Exhibit 10.17 to
Form 10-K for the fiscal year ended December 31,
1993.
10.19 Form of Stock Option Agreement used in connection
with the 1987 Stock Option Plan for Non-Employee
Directors is incorporated by reference to Exhibit
10.23 to Form 10-K for the fiscal year ended
December 31, 1987.
10.20 Form of Stock Option Agreement used in connection
with the 1993 Stock Option Plan for Non-Employee
Directors is incorporated by reference to Exhibit
10.19 to Form 10-K for the fiscal year ended
December 31, 1993.
10.21 1993 Common Stock Purchase Plan for Non-Employee
Directors is incorporated by reference to Exhibit
10.3 to Form 10-Q for the fiscal quarter ended
June 30, 1993.
10.22 Directors' Retirement Consulting Plan is
incorporated by reference to Exhibit 10.22 to
Form 10-K for the fiscal year ended December 31,
1984.
10.23 Key Executive Bonus Plan is incorporated by
reference to Exhibit 10.2 to Form 10-Q for the
fiscal quarter ended June 30, 1993.
10.24 Pension Restoration Plan is incorporated by
reference to Exhibit 10.19 to Form 10-K for the
fiscal year ended December 31, 1994.
10.25 Asset Purchase Agreement dated as of November 25,
1991 by and between the Registrant and Ball
Corporation is incorporated by reference to
Exhibit 1 to Form 8-K dated November 24, 1991.
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56
10.26 Asset Purchase Agreement, dated as of December
11, 1992, by and between Crown Cork & Seal
Company, Inc. and Kerr Group, Inc. is
incorporated by reference to Exhibit 1 to Form 8-
K dated December 11, 1992.
10.27 Asset Purchase Agreement, dated as of March 15,
1996 between Registrant and Alltrista Corporation
is incorporated by reference to Exhibit 2.1 to
Form 8-K dated March 29, 1996.
10.28 Sales Agent Agreement, dated as of March 15, 1996
between Registrant and Alltrista Corporation is
incorporated by reference to Exhibit 99.1 to Form
8-K dated March 29, 1996.
10.29 Lease dated as of March 11, 1986 between Northrop
Corporation and Registrant with respect to
Registrant's principal executive offices,
including related amendment to the Lease dated as
of September 30, 1986 is incorporated by
reference to Exhibit 10.24 to Registration
Statement No. 33-08212.
10.30 Third amendment of lease dated March 11, 1986
between Northrop Corporation, predecessor in
interest to State Teachers Retirement System, and
Registrant is incorporated by reference to
Exhibit 10.4 to Form 10-Q for the fiscal quarter
ended March 31, 1995.
10.31 Lease dated August 1, 1988 between KCB
Development, as lessor, and SCP Corporation, as
lessee is incorporated by reference to Exhibit
10.23 to Form 10-K for the fiscal year ended
December 31, 1994..
10.32 Lease dated October 5, 1989 between Century 21
Associates, as lessor, and Santa Fe Plastic
Corporation, as lessee, is incorporated by
reference to Exhibit 10.3 to Form 10-Q for the
fiscal quarter ended September 30, 1994.
10.33 Lease between the Industrial Development Board of
the City of Jackson and Kerr Group, Inc., Dated
as of May 14, 1993 is incorporated by reference
to Exhibit 10.5 to Form 10-Q for the fiscal
quarter ended June 30, 1993.
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57
10.34 Amended and restated lease dated as of May 16,
1994 between Phoenician Properties, as lessor,
and Kerr Group, Inc., as lessee,is incorporated
by reference to Exhibit 10.4 to Form 10-Q for the
fiscal quarter ended September 30, 1994.
10.35 Amendment dated May 18, 1994 between Century 21
Associates and Kerr Group, Inc. related to lease
dated October 5, 1989 is incorporated by
reference to Exhibit 10.5 to Form 10-Q for the
fiscal quarter ended September 30, 1994.
10.36 Lease agreement dated June 30, 1994 between
Bowling Green- Warren County Industrial Authority
IV, Inc. and Kerr Group, Inc. is incorporated by
reference to Exhibit 10.6 to Form 10-Q for the
fiscal quarter ended September 30, 1994.
10.37 Note Agreement dated as of September 15, 1993
between Kerr Group, Inc. and the Purchasers
identified therein is incorporated by reference
to Exhibit 2 to Form 8-K dated September 21,
1993.
10.38 Line of Credit between PNC Bank and Kerr Group,
Inc. dated May 2, 1994 is incorporated by
reference to Exhibit 10.1 to Form 10-Q for the
fiscal quarter ended June 30, 1994.
10.39 Receivables Purchase Agreement dated as of
January 19, 1995 between Kerr Group, Inc., as the
seller, and PNC Bank, N.A., as the purchaser is
incorporated by reference to Exhibit 10.31 to
Form 10-K for the fiscal year ended December 31,
1994..
10.40 Line of Credit between the Bank of Boston and
Kerr Group, Inc. dated February 9, 1995 is
incorporated by reference to Exhibit 10.32 to
Form 10-K for the fiscal year ended December 31,
1994.
10.41 Amendment dated February 24, 1995 of the
Receivables Purchase Agreement dated as of
January 19, 1995 between Kerr Group, Inc., as the
seller, and PNC Bank, N.A., as the purchaser is
incorporated by reference to Exhibit 10.33 to
Form 10-K for the fiscal year ended December 31,
1994.
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58
10.42 Amendment dated March 24, 1995 of the Note
Agreement dated as of September 15, 1993 between
Registrant and the Purchasers identified therein
is incorporated by reference to Exhibit 10.1 to
Form 10-Q for the fiscal quarter ended March 31,
1995.
10.43 Amendment dated April 18, 1995 of the Receivables
Purchase Agreement dated as of January 19, 1995
between Registrant, as the seller, and PNC Bank,
N.A., as the purchaser is incorporated by
reference to Exhibit 10.3 to Form 10-Q for the
fiscal quarter ended March 31, 1995.
10.44 Amendment dated September 25, 1995 of the Note
Agreement dated as of September 15, 1993 between
Registrant and the Purchasers identified therein
is incorporated by reference to Exhibit 10.5 to
Form 10-Q for the fiscal quarter ended September
30, 1995.
10.45 Consent to amendment dated September 25, 1995
pursuant to the Receivables Purchase Agreement
dated as of January 19, 1995 between Registrant,
as the seller, and PNC Bank, N.A., as the
purchaser identified therein is incorporated by
reference to Exhibit 10.6 to Form 10-Q for the
fiscal quarter ended September 30, 1995.
10.46 Consent to amendment dated September 29, 1995
pursuant to Line of Credit between Bank of Boston
and Registrant identified therein is incorporated
by reference to Exhibit 10.7 to Form 10-Q for the
fiscal quarter ended September 30, 1995.
10.47 Amendment Agreement dated November 30, 1995 of
the Receivables Purchase Agreement dated as of
January 19, 1995 between Registrant, as the
seller, and PNC Bank, N.A., as the purchaser.
10.48 Amended and Restated Loan and Security Agreement
dated January 5, 1996 between The First National
Bank of Boston and Registrant
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10.49 Amendment Agreement dated January 5, 1996 of the
Note Agreement dated as of September 15, 1993
between Registrant and the Purchasers identified
therein.
10.50 Intercreditor Agreement dated January 5, 1996
between The First National Bank of Boston and the
Purchasers identified in the Note Agreement dated
as of September 15, 1993.
10.51 Consent, Waiver and Amendment Agreement dated
March 15, 1996 between PNC Bank, N.A, the
Purchasers identified in the Note Agreement dated
as of September 15, 1993, The First National Bank
of Boston and Registrant.
11.1 Statement re: Computation of Per Common Share
Earnings (Loss).
21.1 Subsidiaries.
23.1 Consent of Independent Certified Public
Accountants.
99.1 Undertaking is incorporated by reference to
Exhibit 28.1 to Form 10-K for the year ended
December 31, 1982.
The Registrant has no additional long-term debt instruments in
which the total amount of securities authorized under any instrument exceeds 10%
of total assets of the Registrant and its subsidiaries on a consolidated basis.
The Registrant hereby agrees to furnish a copy of any such long-term debt
instrument upon the request of the Securities and Exchange Commission.
b. Reports on Form 8-K
None filed in the three months ended December 31,
1995
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant as duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KERR GROUP, INC.
BY:/s/ D. Gordon Strickland
------------------------
D. Gordon Strickland, President and
Chief Executive Officer
Dated: March 29, 1996
Los Angeles, California
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ Gordon C. Hurlbert March 29, 1996
- ---------------------------------------
Gordon C. Hurlbert, Director
/s/ Michael C. Jackson March 29, 1996
- ---------------------------------------
Michael C. Jackson, Director
/s/ John D. Kyle March 29, 1996
- ---------------------------------------
John D. Kyle, Director
/s/ James R. Mellor March 29, 1996
- ---------------------------------------
James R. Mellor, Director
/s/ D. Gordon Strickland March 29, 1996
- ---------------------------------------
D. Gordon Strickland, Principal
Executive Officer; Director
/s/ Robert M. O'Hara March 29, 1996
- ---------------------------------------
Robert M. O'Hara, Director
/s/ Harvey L. Sperry March 29, 1996
- ---------------------------------------
Harvey L. Sperry, Director
/s/ Geoffrey A. Whynot March 29, 1996
- ---------------------------------------
Geoffrey A. Whynot
Principal Financial Officer
/s/ J. Stephen Grassbaugh March 29, 1996
- ---------------------------------------
J. Stephen Grassbaugh
Principal Accounting Officer
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61
SCHEDULE VIII
KERR GROUP, INC.
Valuation and Qualifying Accounts
Three years ended December 31, 1995
(in thousands)
Column A Column B Column C Column D Column E
- -------------------------------- ------------ ---------------------- ----------- ---------
Additions
----------------------
(1) (2)
Balance Charged Charged Deductions Balance
at Beginning (Credited) to Other From at End
Description of Period to Earnings Account Reserves(a) of Period
- -------------------------------- ------------ ----------- -------- ----------- ---------
Allowance for doubtful accounts,
year ended:
December 31, 1993 $645 ($ 42) $ -- $ 25 $578
==== ==== ====== ==== ====
December 31, 1994 $578 $ 39 $ -- $447 $170
==== ==== ====== ==== ====
December 31, 1995 $170 $272 $ -- $ 21 $421
==== ==== ====== ==== ====
(a) These deductions represent uncollectible amounts charged against the
reserve.
-61-
62
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
KERR GROUP, INC.
FORM 10-K
for year ended December 31, 1995
INDEX TO EXHIBITS FILED SEPARATELY WITH FORM 10-K
Exhibit No. Document
- ----------- --------
10.2 Amendment dated as of January 2, 1996 of the Employment
Agreement between Registrant and Roger W. Norian.
10.4 Amendment dated as of January 2, 1996 of the Employment
Agreement between Registrant and D. Gordon Strickland.
10.6 Amendment dated as of January 2, 1996 of the Employment
Agreement between Registrant and Robert S. Reeves.
10.7 Employment Agreement, as amended, between Registrant
and Geoffrey A. Whynot dated as of November 1, 1989.
10.10 Amendment dated as of January 2, 1996 of the Employment
Agreement between Registrant and J. Stephen Grassbaugh.
10.47 Amendment Agreement dated November 30, 1995 of the
Receivables Purchase Agreement dated as of January 19, 1995
between Registrant, as the seller, and PNC Bank, N.A., as
the purchaser.
10.48 Amended and Restated Loan and Security Agreement dated
January 5, 1996 between The First National Bank of Boston
and Registrant
63
Exhibit No. Document
- ----------- --------
10.49 Amendment Agreement dated January 5, 1996 of the Note
Agreement dated as of September 15, 1993 between Registrant
and the Purchasers identified therein.
10.50 Intercreditor Agreement dated January 5, 1996 between The
First National Bank of Boston and the Purchasers identified
in the Note Agreement dated as of September 15, 1993.
10.51 Consent, Waiver and Amendment Agreement dated March 15,
1996 between PNC Bank, N.A, the Purchasers identified in
the Note Agreement dated as of September 15, 1993, The
First National Bank of Boston and Registrant
11.1 Statement re: Computation of Per Common Share Earnings
(Loss).
21.1 Subsidiaries
23.1 Consent of Independent Certified Public Accountants.