<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 1 - 7272
KERR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-0898810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 New Holland Avenue, Lancaster, PA 17602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 299-6511
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last year.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
The number of shares of Registrant's Common Stock, $.50 par value, outstanding
as of July 31, 1997 was 3,933,095.
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KERR GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -
June 30, 1997 and December 31, 1996 3 - 4
Condensed Statements of Earnings (Loss) -
Three Months and Six Months
Ended June 30, 1997 and 1996 5
Condensed Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 6
Notes to Condensed Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
Part II. Other Information 14
</TABLE>
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KERR GROUP, INC.
Condensed Balance Sheets
As of June 30, 1997 and December 31, 1996
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
Assets 1997 1996
- ------ ---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 3,717 $ 9,107
Receivables-primarily trade accounts, less allowance
for doubtful accounts of $401 at June 30, 1997 14,665 9,710
and $287 at December 31, 1996
Inventories
Raw materials and work in process 7,994 6,702
Finished goods 6,408 8,034
--------- --------
Total inventories 14,402 14,736
Prepaid expenses and other current assets 591 31
--------- --------
Total current assets 33,375 33,584
--------- --------
Property, plant and equipment, at cost 105,025 99,148
Accumulated depreciation and amortization (64,176) (60,258)
--------- --------
Net property, plant and equipment 40,849 38,890
--------- --------
Deferred income tax asset 0 0
Goodwill and other intangibles, net of
amortization of $2,567 at June 30, 1997
and $2,749 at December 31, 1996 7,163 5,682
Other assets 3,552 7,370
--------- --------
$ 84,939 $ 85,526
========= ========
</TABLE>
See accompanying notes to condensed financial statements.
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KERR GROUP, INC.
Condensed Balance Sheets
As of June 30, 1997 and December 31, 1996
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
Liabilities and Stockholders' Equity 1997 1996
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities
Short-term debt $ 50,900 $ 50,900
Borrowings under Secured Revolving Credit Facility 2,345 0
Accounts payable 9,564 7,373
Accrued expenses 5,497 5,622
-------- --------
Total current liabilities 68,306 63,895
-------- --------
Accrued pension liability 13,340 13,935
Other long-term liabilities 2,966 4,394
Stockholders' equity
Preferred Stock, 487 shares authorized and issued,
liquidation value of $22.12 per share at June 30,
1997 and $21.28 per share at December 31, 1996 9,748 9,748
Common Stock, $ .50 par value per share, 20,000
shares authorized, 4,226 shares issued 2,113 2,113
Additional paid-in capital 27,441 27,239
Retained earnings (accumulated deficit) (23,817) (20,640)
Treasury Stock, 293 shares at cost (6,913) (6,913)
Excess of additional pension liability over
unrecognized prior service cost, net of tax benefits (8,245) (8,245)
-------- --------
Total stockholders' equity 327 3,302
-------- --------
$ 84,939 $ 85,526
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
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KERR GROUP, INC.
Condensed Statements of Earnings (Loss)
for the Three Months and Six Months Ended June 30, 1997 and 1996
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 28,848 $ 27,368 $ 57,580 $ 52,464
Cost of sales 21,559 20,722 43,516 42,866
-------- -------- -------- --------
Gross profit 7,289 6,646 14,064 9,598
Research and development expenses 494 479 927 969
Plant administrative expenses 1,573 1,354 2,882 2,840
Selling and warehouse expenses 2,180 1,951 4,325 4,037
General corporate expenses 2,370 2,706 4,693 5,613
Restructuring costs 0 656 0 8,156
Financing costs 1,086 245 1,619 245
Interest expense, net 1,633 1,122 2,795 2,381
-------- -------- -------- --------
Loss from continuing operations
before income taxes (2,047) (1,867) (3,177) (14,643)
Provision (benefit) for income taxes 0 (747) 0 (5,857)
-------- -------- -------- --------
Loss from continuing operations (2,047) (1,120) (3,177) (8,786)
Discontinued operations:
Gain on sale of discontinued operations 0 0 0 1,564
Loss from discontinued operations 0 0 0 (133)
-------- -------- -------- --------
Net earnings related to
discontinued operations 0 0 0 1,431
-------- -------- -------- --------
Net loss (2,047) (1,120) (3,177) (7,355)
Preferred stock dividends 207 207 414 414
-------- -------- -------- --------
Net loss applicable to
common stockholders $ (2,254) $ (1,327) $ (3,591) $ (7,769)
======== ======== ======== ========
Net earnings (loss) per common share,
primary and fully diluted:
From continuing operations $ (0.56) $ (0.34) $ (0.90) $ (2.34)
From discontinued operations 0.00 0.00 0.00 0.36
-------- -------- -------- --------
Net loss $ (0.56) $ (0.34) $ (0.90) $ (1.98)
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
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KERR GROUP, INC.
Condensed Statements of Cash Flows
for the Six Months Ended June 30, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows provided (used) by operations Continuing operations:
Loss from continuing operations $(3,177) $ (8,786)
Add (deduct) noncash items included in
loss from continuing operations
Expenses associated with restructuring 0 4,894
Payments associated with restructuring (1,000) (2,095)
Expenses associated with financing 1,619 0
Depreciation and amortization 4,523 4,945
Change in deferred income taxes 0 (2,529)
Change in total pension liability, net 295 (1,154)
Other, net 189 (365)
Changes in operating working capital
Receivables (4,955) (1,827)
Inventories (74) 764
Other current assets (709) 154
Accounts payable 2,073 (2,022)
Accrued expenses (1,120) (1,168)
Cash flow provided (used) by discontinued operations 403 749
------- --------
Cash flow provided (used) by operations (1,933) (8,440)
------- --------
Cash flows provided (used) by investing activities Continuing operations:
Capital expenditures (6,101) (802)
Proceeds from sale of land 3,669 0
Other, net (162) 242
Discontinued operations:
Proceeds from sale of assets of Consumer Products 0 14,417
Business
Other, net 0 (289)
------- --------
Cash flow provided (used) by investing activities (2,594) 13,568
------- --------
Cash flows provided (used) by financing activities
Repayment of short-term debt 0 (4,500)
Borrowings under Secured Revolving Credit Facility 2,345 0
Payments associated with financing (3,208) 0
Dividends paid 0 (207)
Other, net 0 (245)
------- --------
Cash flow provided (used) by financing activities (863) (4,952)
------- --------
Cash and cash equivalents
Increase (decrease) during the period (5,390) 176
Balance at beginning of the period 9,107 3,904
------- --------
Balance at end of the period $ 3,717 $ 4,080
======= ========
</TABLE>
See accompanying notes to condensed financial statements
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KERR GROUP, INC.
Notes to Condensed Financial Statements
(Unaudited)
1) General
The condensed financial statements represent the accounts of Kerr Group,
Inc. (referred to as the Company). In the opinion of management, the
accompanying condensed financial statements contain all adjustments
(consisting of only normal recurring accruals and certain non-recurring
accruals for restructuring charges as described below) necessary to present
fairly the financial position of the Company as of June 30, 1997, and the
results of operations for the three months and six months ended June 30,
1997 and 1996, and changes in cash flows for the six months ended June 30,
1997 and 1996.
The results of operations for the first six months of 1997 are not
necessarily indicative of the results to be expected for the full year.
Fully diluted earnings per common share reflect when dilutive, 1) the
incremental common shares issuable upon the assumed exercise of outstanding
stock options, and 2) the assumed conversion of the Class B, Series D
Preferred Stock and the elimination of the related dividends. The
calculation of fully diluted net earnings (loss) per common share for the
three months and the six months ended June 30, 1997 and 1996 was not
dilutive.
The Company has not declared a dividend on its Class B, Series D Preferred
Stock since the first quarter of 1996. The cumulative amount of undeclared
dividends as of June 30, 1997 is $1,036,000. Under accounting rules, such
dividends are not accrued until declared, however, for financial reporting
purposes the amount of such dividends are shown on the face of the income
statement as a deduction to arrive at net earnings (loss) applicable to
common stockholders. Under the terms of the Company's $8,500,000 Secured
Revolving Credit Facility, the Company is not permitted to declare or pay
any dividends on its preferred stock.
Certain reclassifications have been made to prior years' financial
statements to conform to the 1997 presentation.
2) Financing
During April 1997, the Company entered into an $8,500,000 Secured Revolving
Credit Facility, secured by accounts receivable, for a one-year term.
In August 1997, the Company agreed to limit its borrowings to an aggregate
amount of $5,000,000 under the facility. Borrowings bear interest at 3%
above the prime rate and the lending institution received warrants to
purchase 94,735 shares of the Company's common stock at a purchase price of
$0.50 per share. The facility replaced the Accounts Receivable Agreement
under which the purchaser was not purchasing receivables because the
Company had been in default with respect to financial covenants under loan
agreements for $50,900,000 of unsecured debt since March 7, 1997. The grant
of the lien on receivables and any borrowings under the Secured Revolving
Credit Facility constitute additional defaults under the unsecured debt
loan agreements.
During the three month and six month periods ended June 30, 1997 the
Company incurred costs of $1,086,000 and $1,619,000, respectively, for
professional fees related to its refinancing efforts primarily consisting
of fees paid to the owners of the Company's unsecured debt and fees paid to
the Company's financial and legal advisors.
During the three month and six month periods ended June 30, 1996, the
Company incurred costs of $245,000 for professional fees related to its
refinancing efforts.
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<PAGE> 8
3) Receivables
Receivables as of June 30, 1997 and December 31, 1996, as shown on the
accompanying Condensed Balance Sheets, have been reduced by net proceeds of
$0 and $3,861,000, respectively, from advances pursuant to the sale of
receivables under the Company's former Accounts Receivable Agreement.
4) Income Taxes
During the three month and six month periods ended June 30, 1997, the
Company recorded charges of $798,000 and $1,239,000, respectively, to
provide a valuation reserve against its deferred income tax asset. The
increase in the valuation reserve eliminated the tax benefit the Company
would have generated during the first and second quarters of 1997, and was
required because of the continuing unwaived covenant defaults under loan
agreements governing the Company's $50,900,000 principal amount of
unsecured debt.
During the third and fourth quarters of 1996, a valuation reserve was
provided to eliminate the tax benefit recorded during the first and second
quarters of 1996.
5) Restructuring
During the first quarter of 1996, the Company recorded a pretax loss of
$7,500,000 for certain costs associated with the restructuring of the
Company, which included moving the corporate headquarters from Los Angeles,
California to Lancaster, Pennsylvania and relocating the wide-mouth jar
operations from Santa Fe Springs, California to Bowling Green, Kentucky.
The pretax loss consisted of reserves for i) severance, workers'
compensation and insurance continuation costs of $3,000,000, ii) costs
associated with subleasing the two facilities of $2,300,000, iii) asset
retirements of $1,600,000 and iv) other costs of $600,000.
During the six months ended June 30, 1997, the Company made cash payments
related to such reserves for i) costs associated with terminating the
leases of facilities of $618,000, ii) severance pay and related costs of
$324,000, and iii) other costs of $58,000. During the six months ended June
30, 1996, the Company made cash payments related to such reserves for i)
severance pay and related costs of $1,431,000 and ii) other costs of
$8,000.
In addition, during the second quarter of 1996, the Company incurred an
unusual pre-tax loss of $656,000 for restructuring costs primarily related
to relocation of personnel and equipment.
The ultimate required amount of the reserves related to the restructuring
is expected to approximate the original estimate.
6) Discontinued Operations
During the first quarter of 1996, the Company sold the manufacturing assets
of the Consumer Products Business for a purchase price of $14,417,000. The
Company recorded a pretax gain of $2,607,000 ($1,564,000 after-tax) in
connection with this sale. This pretax gain has been reduced by $5,800,000
of reserves for i) retiree health care and pension expenses of $3,800,000,
ii) severance pay, workers' compensation claims and insurance continuation
costs of $1,000,000, iii) professional fees of $500,000, iv) asset
retirements of $300,000, and v)
other costs of $200,000.
During the first six months of 1997, the Company made cash payments related
to such reserves for severance pay and related costs of $229,000. During
the first six months of 1996, the Company made cash payments related to
such reserves for i) professional fees of $338,000, ii) severance pay and
related costs of $127,000, and iii) other costs of $4,000.
The ultimate required amount of the reserves related to the disposal of the
Consumer Products Business is expected to approximate the original
estimate.
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<PAGE> 9
The gain on the sale and the results of the Consumer Products Business have
been reported separately as a component of discontinued operations in the
Condensed Statements of Earnings (Loss).
7) Subsequent Event
As previously announced, Fremont Partners and the Company signed a
definitive merger agreement for Fremont to acquire all of the outstanding
common and preferred shares of Kerr. Pursuant to the agreement, Fremont
will pay $5.40 per share for each outstanding share of Kerr common stock
and $12.50 per share for each outstanding share of Kerr Class B Cumulative
Convertible Preferred Stock, Series D. The transaction will be a cash
tender offer followed by a cash merger to acquire any shares not previously
tendered. The transaction has been recommended by Kerr's Board of Directors
and approved by Fremont.
On August 1, 1997, the Pension Benefit Guaranty Corporation (PBGC)
published a Notice of Determination to terminate the Kerr Group, Inc.
Retirement Income Plan. According to the Notice, the PBGC intends to apply
to the United States District Court for the Eastern District of
Pennsylvania for an order terminating the Plan, establishing August 1, 1997
as the date of termination of the Plan and appointing the PBGC statutory
trustee of the Plan. The PBGC advised the Company that it took this action
to insure that the PBGC's interests were adequately protected in
connection with the consummation of the tender offer.
On August 5, 1997, Fremont announced that the tender offer to purchase all
of the outstanding shares of Common and Preferred Stock of the Company had
been extended to August 11, 1997. Fremont stated that it was extending the
tender offer to permit discussions to continue among Fremont, the Company,
the PBGC and the owners of the Senior Notes.
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<PAGE> 10
KERR GROUP, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Three Months and Six Months Ended June 30, 1997 and 1996
Results of Operations
Continuing Operations
Net sales for the three months ended June 30, 1997 were $28,848,000 as compared
to $27,368,000 for the three months ended June 30, 1996, an increase of
$1,480,000 or 5%. The increase in net sales for the three months ended June 30,
1997 over the comparable period in 1996 was due primarily to higher unit sales
of pharmaceutical packaging. Net sales for the six months ended June 30, 1997
were $57,580,000 as compared to $52,464,000 for the six months ended June 30,
1997, an increase of $5,116,000 or 10%. The increase in net sales for the six
months ended June 30, 1997 over the comparable period in 1996 was due primarily
to higher unit sales and improved pricing of pharmaceutical packaging and
prescription packaging.
Cost of sales for the three months ended June 30, 1997 were $21,559,000 as
compared to $20,722,000 for the three months ended June 30, 1996, an increase of
$837,000 or 4%. Cost of sales for the six months ended June 30, 1997 were
$43,516,000 as compared to $42,866,000 for the six months ended June 30, 1996,
an increase of $650,000 or 2%. The increase in cost of sales for both periods
was primarily the result of higher unit sales.
Gross profit as a percent of net sales for the three months ended June 30, 1997
increased to 25% as compared to 24% for the three months ended June 30, 1996.
Gross profit as a percent of net sales for the six months ended June 30, 1997
increased to 24% as compared to 18% for the six months ended June 30, 1996 due
primarily to lower manufacturing costs, which were partially due to higher
production levels, and, secondarily, improved pricing of prescription packaging
and pharmaceutical packaging.
Research and development, selling, warehouse, general and administrative
expenses increased $127,000 or 2% during the three months ended June 30, 1997,
as compared to the same period in 1996. Research and development, selling,
warehouse, general and administrative expenses decreased $632,000 or 5% during
the six months ended June 30, 1997 due primarily to lower costs resulting from
the restructuring of the Company.
During the three month and six month periods ended June 30, 1997, the Company
incurred costs of $1,086,000 and $1,619,000, respectively, for professional fees
in connection with its refinancing efforts consisting primarily of fees paid to
the owners of the Company's unsecured debt and fees paid to the Company's
financial and legal advisors.
During the three month and six month periods ended June 30, 1996, the Company
incurred costs of $245,000 for professional fees related to its refinancing
efforts.
During the first quarter of 1996, the Company recorded a pretax loss of
$7,500,000 for certain costs associated with the restructuring of the Company,
which included moving the corporate headquarters from Los Angeles, California to
Lancaster, Pennsylvania and relocating the wide-mouth jar operations from Santa
Fe Springs, California to Bowling Green, Kentucky. The pretax loss consisted of
reserves for i) severance, workers' compensation and insurance continuation
costs of $3,000,000, ii) costs associated with subleasing the two facilities of
$2,300,000, iii) asset retirements of $1,600,000 and iv) other costs of
$600,000. The ultimate required amount of the reserves related to the
restructuring is expected to approximate the original estimate.
In addition, during the second quarter of 1996, the Company incurred an unusual
pre-tax loss of $656,000 for restructuring costs primarily related to relocation
of personnel and equipment.
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<PAGE> 11
The relocations of the corporate headquarters and the wide-mouth jar
manufacturing operation have been completed. The restructuring resulted in
annualized pretax cost savings of approximately $6,500,000.
Net interest expense increased $511,000 and $414,000 during the three month and
six month periods ended June 30, 1997, respectively, as compared to the same
periods in 1996, primarily as a result of the Company's unsecured debt accruing
interest at the default rate beginning in the second quarter of 1997.
The loss before income taxes increased $180,000 during the three months ended
June 30, 1997 as compared to 1996 due primarily to increased financing costs.
The loss before income taxes decreased $11,466,000 during the six months ended
June 30, 1997 as compared to the same period in 1996, due primarily to i) the
$8,156,000 pretax loss in 1996 related to the restructuring, ii) lower
manufacturing costs in 1997 and iii) improved pricing of prescription packaging
and pharmaceutical packaging.
The benefit for income taxes decreased $747,000 and $5,857,000 during the three
months and six months ended June 30, 1997, respectively, as compared to the same
period in 1996, primarily as a result of the valuation reserve recorded against
the Company's net deferred income tax asset during 1997. The increase in the
valuation reserve eliminated the tax benefit the Company would have generated
during the first and second quarters of 1997, and was required because of the
continuing unwaived covenant defaults under loan agreements governing the
Company's $50,900,000 principal amount of unsecured debt. During the third and
fourth quarters of 1996, a valuation reserve was provided to eliminate the tax
benefit recorded during the first six months of 1996.
Discontinued Operations
During the first quarter of 1996, the Company sold the manufacturing assets of
the Consumer Products Business for a purchase price of $14,417,000. The Company
recorded a pretax gain of $2,607,000 ($1,564,000 after-tax) in connection with
this sale. This pretax gain has been reduced by $5,800,000 of reserves for i)
retiree health care and pension expenses of $3,800,000, ii) severance pay,
workers' compensation claims and insurance continuation costs of $1,000,000,
iii) professional fees of $500,000, iv) asset retirements of $300,000, and v)
other costs of $200,000. The ultimate required amount of the reserves related to
the disposal of the Consumer Products Business is expected to approximate the
original estimate.
Recently Issued Accounting Pronouncements
In the first quarter of 1997, the Financial Accounting Standards Board adopted
Statement No. 128, Earnings per Share (FASB No. 128) and Statement No. 129,
Disclosure of Information about Capital Structure (FASB No. 129). FASB No. 128
simplifies the computation of earnings per common share by replacing primary and
fully diluted presentations with the new basic and diluted disclosures. FASB No.
129 establishes standards for disclosing information about an entity's capital
structure. These statements will be adopted by the Company effective December
31, 1997.
Liquidity and Capital Resources
During the six months of 1997, the principal sources of cash were $3,669,000
received in April from the sale of real estate in Santa Ana, California and
borrowings under the Company's Secured Revolving Credit Facility of $2,345,000.
The principal uses of cash were to fund i) capital expenditures of $6,101,000,
ii) a reduction in the level of advances under the Company's Accounts Receivable
Facility of $3,861,000, iii) cash costs of the Company's financing efforts of
$3,208,000 and iv) cash costs of the restructuring of $1,053,000.
During the first six months of 1996, the principal source of cash was
$14,417,000 received from the sale of the manufacturing assets of the Consumer
Products Business. The principal uses of cash were to fund i) pretax losses, ii)
net debt retirements of $4,500,000 and iii) cash costs of the restructuring of
$2,223,000.
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<PAGE> 12
The Company has not declared a dividend on its Class B, Series D Preferred Stock
since the first quarter of 1996. The cumulative amount of undeclared dividends
as of June 30, 1997 was $1,036,000. Under accounting rules, such dividends are
not accrued until declared, however, for financial reporting purposes the amount
of such dividends are shown on the face of the income statement as a deduction
to arrive at net earnings (loss) applicable to common stockholders. Furthermore,
since the third quarter of 1990, the Company has not declared any dividends on
its Common Stock. Under the terms of the Company's $8,500,000 Secured Revolving
Credit Facility, the Company is not permitted to declare or pay any dividends on
its preferred or common stock.
The ratio of current assets to current liabilities at both June 30, 1997 and
December 31, 1996 was 0.5. The ratio of current assets to current liabilities is
less than 1.0 due to the classification of the Company's outstanding Senior
Notes as a current liability because the Company is in default of certain
financial covenants. The ratio of total debt to total capitalization increased
to 99% at June 30, 1997 from 94% at December 31, 1996 due to lower stockholders'
equity and increased short-term borrowing under the Company's Secured Revolving
Credit Facility.
On July 1, 1997, Fremont Partners and the Company signed a definitive
merger agreement for Fremont to acquire all of the outstanding common and
preferred shares of Kerr. Pursuant to the agreement, Fremont will pay $5.40 per
share for each outstanding share of Kerr common stock and $12.50 per share for
each outstanding share of Kerr Class B Cumulative Convertible Preferred Stock,
Series D. The transaction will be a cash tender offer followed by a cash merger
to acquire any shares not previously tendered. The transaction has been
recommended by Kerr's Board of Directors and approved by Fremont.
On August 1, 1997, the Pension Benefit Guaranty Corporation (PBGC) published a
Notice of Determination to terminate the Kerr Group, Inc. Retirement Income
Plan. According to the Notice, the PBGC intends to apply to the United States
District Court for the Eastern District of Pennsylvania for an order
terminating the Plan, establishing August 1, 1997 as the date of termination of
the Plan and appointing the PBGC statutory trustee of the Plan. The PBGC
advised the Company that it took this action to insure that the PBGC's
interests were adequately protected in connection with the consummation of the
tender offer.
On August 5, 1997, Fremont announced that the tender offer to purchase all of
the outstanding shares of Common and Preferred Stock of the Company had been
extended to August 11, 1997. Fremont stated that it was extending the tender
offer to permit discussions to continue among Fremont, the Company, the PBGC
and the owners of the Senior Notes.
During April 1997, the Company entered into an $8,500,000 revolving credit
agreement, secured by accounts receivable, for a one-year term. In August 1997,
the Company agreed to limit its borrowings to an aggregate amount of $5,000,000
under the facility. Borrowings bear interest at 3% above the prime rate, and
the lending institution received warrants to purchase 94,735 shares of the
Company's common stock at a purchase price of $0.50 per share. The facility
replaced the Accounts Receivable Agreement under which the purchaser was not
purchasing receivables because the Company had been in default with respect to
financial covenants under loan agreements for $50,900,000 of unsecured debt
since March 7, 1997. The grant of the lien on receivables and any borrowings
under the Secured Revolving Credit Facility constitute additional defaults
under the unsecured debt loan agreements.
At June 30, 1997, the Company had unused sources of liquidity consisting of cash
and cash equivalents of $3,717,000, a tax net operating loss carryforward of
$28,300,000, a minimum tax credit carryforward of $1,068,000 and other tax
credit carryforwards of $417,000. The Company believes that its financial
resources, including i) borrowings available under the Company's one-year
$8,500,000 Secured Revolving Credit Facility, and ii) other internally generated
funds, are adequate to meet its foreseeable needs, subject to the retirement or
refinancing of the Company's $50,900,000 of unsecured debt.
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<PAGE> 13
Disclosure Regarding Forward Looking Statements
Portions of the Quarterly Report on Form 10-Q include forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved.
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<PAGE> 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11.1 Statement re: Computation of Per Common Share Earnings (Loss).
27.1 Financial Data Schedule.
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended June 30,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KERR GROUP, INC.
August 11, 1997 By /s/ D. Gordon Strickland
-------------------------------------------
D. Gordon Strickland
President, Chief Executive Officer
August 11, 1997 By /s/ Geoffrey A. Whynot
-------------------------------------------
Geoffrey A. Whynot
Vice President, Finance
Chief Financial Officer
- 14 -
<PAGE> 1
EXHIBIT 11.1
KERR GROUP, INC.
Statement Re: Computation of Per Share Earnings (Loss)
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary Net Earnings (Loss) Per Common Share
Net loss $(2,047) $(1,120) $(3,177) $(7,355)
Less Preferred Stock dividends (207) (207) (414) (414)
------- ------- ------- -------
Net loss applicable to primary earnings per common share $(2,254) $(1,327) $(3,591) $(7,769)
=======
Weighted average number of common shares outstanding 3,933 3,933 3,933 3,933
Weighted average number of common share
equivalents outstanding 73 0 37 0
------- ------- ------- -------
Weighted average number of common shares and
common share equivalents outstanding 4,006 3,933 3,970 3,933
=======
Primary net loss per common share $ (0.56) $ (0.34) $ (0.90) $ (1.98)
======= ======= ======= =======
Fully Diluted Net Earnings (Loss) Per Common Share
Net loss applicable to primary earnings per common share $(2,254) $(1,327) $(3,591) $(7,769)
Add Preferred Stock dividends 207 207 414 414
------- ------- ------- -------
Net loss applicable to fully diluted
earnings per common share $(2,047) $(1,120) $(3,177) $(7,355)
======= ======= ======= =======
Weighted average number of common shares and
common share equivalents outstanding 4,006 3,933 3,970 3,933
Common shares issuable upon assumed
conversion of Preferred Stock 709 709 709 709
Incremental common shares issuable upon
assumed exercise of outstanding stock options 0 0 0 9
------- ------- ------- -------
Adjusted weighted average number of common
shares and common share equivalents outstanding 4,715 4,642 4,679 4,651
======= ======= ======= =======
Fully diluted net loss per common share:
As computed $ (0.43) $ (0.24) $ (0.68) $ (1.58)
======= ======= ======= =======
As reported (a) $ (0.56) $ (0.34) $ (0.90) $ (1.98)
======= ======= ======= =======
</TABLE>
(a) The calculation of fully diluted net loss per common share for the three
months and six months ended June 30, 1997 and 1996 was not dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S STATEMENTS OF EARNINGS (LOSS) AND BALANCE SHEETS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,717
<SECURITIES> 0
<RECEIVABLES> 15,066
<ALLOWANCES> 401
<INVENTORY> 14,402
<CURRENT-ASSETS> 33,375
<PP&E> 105,025
<DEPRECIATION> 64,176
<TOTAL-ASSETS> 84,939
<CURRENT-LIABILITIES> 68,306
<BONDS> 0
0
9,748
<COMMON> 2,113
<OTHER-SE> (11,534)
<TOTAL-LIABILITY-AND-EQUITY> 84,939
<SALES> 57,580
<TOTAL-REVENUES> 57,580
<CGS> 43,516
<TOTAL-COSTS> 43,516
<OTHER-EXPENSES> 14,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,795
<INCOME-PRETAX> (3,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,177)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
