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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, 1996
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 Number)
500 New Holland Avenue, Lancaster, Pennsylvania 17602
(Address of principal executive office) (Zip Code)
Registrant's telephone number,
including area code: (717) 299-6511
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 February 28, 1997, was $7,708,974.
The number of shares of the Registrant's Common Stock, $.50 par value,
outstanding as of February 28, 1997, was 3,933,095.
(ii)
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KERR GROUP, INC.
Form 10-K Annual Report
For The Fiscal Year Ended December 31, 1996
PART I
ITEM 1. BUSINESS
1. General
Kerr Group, Inc. (the "Registrant" or the "Company"), a Delaware
corporation which was founded in 1903, is a major producer of plastic packaging
products and, until March 15, 1996, also operated the Consumer Products
Business.
Present operations include the manufacture and sale of plastic
packaging products, including child-resistant closures, tamper-evident closures,
prescription packaging products, jars, other closures and containers and the
sale of glass prescription bottles ("Continuing Operations"). Operations in the
discontinued 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 together with the sale of other related products,
including iced tea tumblers and beverage mugs ("Discontinued Operations").
On March 15, 1996, the Company sold to Alltrista Corporation ("Buyer")
for $14,417,000 certain assets of the Consumer Products Business, consisting of
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 Company also assigned to Buyer the lease on
the Jackson, Tennessee plant where the Company manufactured metal caps and lids
for the Consumer Products Business. The Company also appointed the Buyer as
sales agent to sell the inventory of home canning supplies produced by the
Company before March 15, 1996. The Company received $17,391,000 during the
remainder of 1996 from the sale of its Consumer Products Business inventory and
the collection of accounts receivable of the Consumer Products Business. The
Company used the proceeds i) to reduce debt and the level of advances under the
Company's Accounts Receivable Agreement, ii) to fund the cash costs of the
restructuring of the Company undertaken during 1996 and iii) for working capital
purposes.
On March 15, 1996, the Company announced a restructuring which involved
the consolidation of the Company's wide mouth jar and closure manufacturing
facility into its existing tamper-evident closure facility in Bowling Green,
Kentucky and the relocation of the Company's principal executive office from Los
Angeles, California to Lancaster, Pennsylvania where the headquarters of the
Company's plastic products business was located. The
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restructuring, which was completed by the end of 1996, is expected to result in
annualized pretax cost savings of approximately $6,500,000 primarily from
reduced costs for employment, rent payments, manufacturing overhead, utilities
and freight. The full benefit of these cost savings should be realized in 1997.
a. Principal Products and Markets; Sales and Customers
Plastic closures are sold to customers in the pharmaceutical, food,
distilled spirits, toiletries and cosmetics and household chemical industries.
Prescription plastic closures and containers and glass prescription bottles 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. The products of the Company are sold nationally,
principally by the Company's sales force.
No customer accounted for more than 10% of the Company's net sales in
1996, 1995 or 1994. Information regarding revenue and sales for the Company's
last three fiscal years is set forth in Item 8, Financial Statements and
Supplemental Data.
b. Competition
Competition in the markets in which the Company operates is highly
fragmented and the Company has a number of large competitors who compete for
sales on the basis of price, service and quality of product. The Company
believes that it is one of the three largest manufacturers of child-resistant
plastic closures. The Company has one major competitor in the market for
prescription plastic closures and containers and glass prescription bottles, who
has substantially larger market share than the Company. The Company 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 largest suppliers of single and double walled jars to the personal care
and cosmetic markets.
c. Backlog
The Company 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 Company are resins. The Company
has historically been able to obtain adequate supplies of resins 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 Company has experienced substantial fluctuations 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. The Company, consistent with industry practice, is
generally able to pass through resin cost increases for all product lines except
the prescription packaging product line.
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However, in times of rapidly increasing resin prices, as occurred in late 1994
and during the first half of 1995, the Company's ability to pass through the
full impact of resin price increases on a timely basis is limited.
e. Product Development, Engineering, Patents and Licensing
The Company maintains active research and development, and engineering
groups. These groups are responsible for i) developing new products and
enhancements to existing products, ii) improving manufacturing technology in
order to reduce costs, and iii) ensuring that products meet stringent quality
standards. The Company believes that its ability to market innovative,
high-quality products provides the Company with a competitive advantage. To the
extent competitors are more successful than the Company in introducing and
marketing new products, the Company's sales and profitability could be adversely
affected.
Expenditures related to the Company's research and development group
during the years ended December 31, 1996, 1995 and 1994 were $1,991,000,
$1,708,000 and $2,110,000, respectively.
Expenditures related to the Company's engineering group during the
years ended December 31, 1996, 1995 and 1994 were $1,493,000, $1,618,000 and
$1,496,000, 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.
f. Environmental Matters; Legislation
The Company 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
Company'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 Company's operations.
The Company 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, 1996, the Company had approximately 875 employees,
of which approximately 200 were office, supervisory and sales personnel.
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h. Seasonality
Seasonality does not have a material effect on the operations of the
Company.
i. Working Capital
In general, the working capital practices followed by the Company are
typical of the businesses in which it operates.
As of December 31, 1996, the Company had an Accounts Receivable
Agreement that met the working capital needs of the Company. The Agreement
permitted the Company to sell its trade accounts receivable on a nonrecourse
basis. Under the Agreement, the maximum amount that could be advanced to the
Company pursuant to the sale of trade accounts receivable at any time was
$8,500,000. The Company retained collection and service responsibility, as agent
for the purchaser, over any receivables sold.
The Company is presently in default with respect to interest coverage
and net worth covenants under the Loan Agreements which govern the unsecured
Senior Notes and Bank Note issued by the Company. Under the terms of the Loan
Agreements relating to the Senior Notes and the Bank Note, the Company is not
permitted to sell the accounts receivable under the Accounts Receivable
Agreement because of the default. The Company is in discussions with the owners
of the Senior Notes and Bank Note regarding obtaining an extension of the waiver
which expired on March 7, 1997. The discussions with the owners also include
negotiations for the purchase by the Company of the Senior Notes and the Bank
Note. The funds for the purchase of the Senior Notes and Bank Note would be
obtained from a senior secured loan and a subordinated secured loan which the
Company is discussing with institutional lenders and with respect to which loan
agreements are being negotiated. Consummation of any purchase of the Senior
Notes and Bank Note is subject to definitive agreements being reached with the
new lenders as well as the holders of the Senior Notes and Bank Note. There can
be no assurance that the owners of the Senior Notes and the Bank Note will
extend the waiver of the defaults, or agree to sell the Senior Notes and the
Bank Note for a purchase price that is acceptable to the Company or that the
senior secured loan and the subordinated secured loan can be obtained to finance
the purchase. In the event the Company does not obtain an extension of the
waiver, the Company does not intend to make its quarterly payment of interest
due under the Senior Notes and Bank Note due on March 31, 1997.
The lender proposing to make the subordinated secured loan to the
Company has indicated that it is willing to purchase the accounts receivable of
the Company through June 30, 1997 on terms and conditions acceptable to the
lender in its sole and reasonable discretion. The terms and conditions to be
negotiated include, without limitation, pricing, credit criteria, reserves,
servicing and recourse. The lender's willingness to purchase the Company's
accounts receivable will be subject to the negotiation, execution and delivery
of purchase documents in form and substance satisfactory to the lender. There
can be no assurance that the Company and the lender will reach definitive
agreement on the terms of such purchase. The sale of the accounts receivable to
this lender, in the absence of a waiver of the existing default, will constitute
a further default by the Company under the existing Loan Agreements.
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As part of its overall restructuring, the Company is involved in
discussions with the Pension Benefit Guaranty Corporation relating to the
Company's pension liabilities. The Company expects these discussions to
continue.
The Company expects to receive approximately $3,500,000 from the sale
of real property located in Santa Ana, California in April 1997. The Company had
$5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company
reaches satisfactory agreement with the lender regarding the new accounts
receivable facility, the Company believes that it will have sufficient funds
available to finance its working capital requirements through June 30, 1997.
ITEM 2. PROPERTIES
The Company's manufacturing activities are conducted at the four
facilities described in the following table.
<TABLE>
<CAPTION>
Building Area
Location Purpose of Facility (square feet)
- -------- ------------------- -------------
<S> <C> <C>
Lancaster, Pennsylvania Plastic Closure and 490,000
Container Plant;
Warehouses
Jackson, Tennessee Plastic Closure, Vial and 198,000
Bottle Plant; Warehouse
Ahoskie, North Carolina Plastic Closure Plant; 153,000
Warehouse
Bowling Green, Kentucky Plastic Closure Plant; 168,000
Warehouse
</TABLE>
The Lancaster, Pennsylvania and Ahoskie, North Carolina facilities are
owned by the Company. The Jackson, Tennessee and Bowling Green, Kentucky
facilities are leased by the Company. The Company's principal executive offices
are located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602. In
addition, the Company rents three area sales offices.
In the opinion of the Company's management, its manufacturing
facilities are suitable and adequate for the purposes for which they are being
used.
The Company has for sale land in Santa Ana, California that was the
site of a glass container manufacturing plant.
In 1996, the Company's plastic products manufacturing facilities
operated at approximately 72% of capacity.
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ITEM 3. LEGAL PROCEEDINGS
On February 11, 1997, the State Teachers Retirement System ("Teachers")
filed and served a complaint against the Company for unlawful detainer of
certain premises located at 1840 Century Park East, Los Angeles, California, the
Company's former principal executive offices (Teachers v. Kerr Group, Inc., et
al., No. BC165 718, Superior Court of California, County of Los Angeles). On
February 18, 1997, after the Company relinquished possession of the premises,
Teachers agreed that the Company need not file an answer to the complaint.
However, counsel for Teachers advised that Teachers may elect to amend the
complaint to state a claim for breach of contract.
In November 1996, the Company was named a third-party defendant in
Adhesives Research, Inc., et al. v. Alford Industries, et al. v. A&A Waste Oil
Co., Inc., et al., No. 1:CV-95-1975 (M.D.Pa.). This suit was brought in the
United States District Court for the Middle District of Pennsylvania initially
by numerous plaintiffs seeking to recover from named defendants their costs to
clean up environmental contamination at a site in Newberry Township, York
County, Pennsylvania known as the Industrial Solvents & Chemical Company
("ISCC") site. Certain defendants identified other parties, including the
Company, as third-party defendants in this litigation. The third-party complaint
alleges that the Company and other parties generated hazardous substances that
have been or are threatened to be released at the ISCC site. The third-party
complaint further alleges claims for cost recovery and contribution under
federal and state law for costs incurred or to be incurred in connection with
those releases or threatened releases. The Company is participating in
negotiations to resolve its liability through payment based on a formula that
takes into account the Company's allocated share of liability. The Company has
already paid certain past costs associated with cleanup of the ISCC site. Under
current settlement proposals, the Company's remaining payment would be
approximately $20,000. There can be no assurance, however, that settlement will
be reached or that settlement will be reached on the terms currently being
proposed. A reserve has been established for the estimated cost of settlement.
As the Company 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
Company, 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 Company 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 Company 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 Company and other parties pursuant to the New
Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. Pursuant
to the Directive, the Company 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
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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 Company entered into a de
minimis 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 Company will be dismissed from the lawsuit in accordance with the
terms of a Consent Decree which is expected to be entered by the Court within
six months. The Company has not admitted any liability for disposal of wastes at
the GEMS site. The Company is one of approximately ninety companies
participating in the de minimis settlement. One of the Company's insurance
carriers has 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 Company's maximum exposure
in connection with this site is $75,000, however, the Company believes it will
incur no costs related to this site.
As the Company reported in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, in March 1986, the Company and other parties were
designated by the United States Environmental Protection Agency ("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 Company 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.
Remedial construction has been completed, however, operation and maintenance
obligations remain. At this time the Company does not anticipate further
expenditures in connection with this matter.
As the Company reported in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, in September 1985, the Company and other parties
were designated by the EPA as PRPs responsible for the cleanup of certain
hazardous wastes that have been disposed of at the Northside Sanitary Landfill
("NSL") site located northwest of Indianapolis, Indiana. The EPA has combined
the NSL site with the adjacent Environmental Conservation and Chemical
Corporation ("ECC") site. On November 12, 1991, a Consent Decree between the EPA
and the PRPs at the site was entered by the United States District Court for the
Southern District of Indiana, captioned United States v. Aluminum Corporation of
America, No. IP91 591C. Based upon the Company's percentage share of the total
amount of wastes disposed of at the site, the Company estimates its remaining
share of the costs under the Consent Decree will be approximately $5,000. A
reserve has been established for such costs.
As the Company reported in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, in November 1981, the EPA advised the Company that
it was one of several companies that had disposed of wastes at the Carolawn
Company ("CC") site located in Chester County, South Carolina. At the time of
notice, the EPA had completed certain cleanup activities at the CC site and
requested that the Company and other parties which had disposed of wastes at the
site contribute to the cost of these activities. On August 31, 1983, an action,
United
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States of America v. Carolawn Company, Inc., et al., No. 83-2162-0, was
commenced in the United States District Court for the District of South
Carolina. On June 23, 1988, a Partial Consent Decree was entered in the United
States District Court for the District of South Carolina (No. 83-2162-0). On
December 4, 1991, a Partial Consent Decree For Remedial Design And Construction
at the CC site was entered by the United States District Court for the District
of South Carolina (No. 0-91-2177-0). Negotiations are currently underway to
amend the Partial Consent Decree to address operations and maintenance of the
remedy. Based upon the Company's percentage share of the total amount of wastes
disposed of at the CC site, the Company estimates its share of operation and
maintenance costs will be approximately $16,500. A reserve has been established
for such costs.
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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.
<TABLE>
<CAPTION>
Positions Held With
Registrant and Periods
Name and Age During Which Held
------------------------- -----------------------------
<S> <C>
D. Gordon Strickland (50) President and Chief Executive
Officer, since March 15, 1996;
Senior Vice President, Finance and
Chief Financial Officer, since 1986;
Robert S. Reeves (67) Senior Vice President, Sales, since 1992;
Senior Vice President, General Manager,
Commercial Glass Container Division, since
1985
Geoffrey A. Whynot (38) Vice President, Finance, Chief Financial
Officer, since March 15, 1996; Vice
President, Treasurer since 1991
</TABLE>
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.
Geoffrey A. Whynot has served as Vice President, Treasurer of
Registrant since 1991.
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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 February 28, 1997, there were approximately 1,257
and 109 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Common Stock Preferred Stock
- --------------------------------------------------------------------------------------------------
Cash Cash
Calendar Year High Low Dividends High Low Dividends
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter $9 7/8 $5 3/4 $ -- $20 $17 3/4 $.425
Second Quarter 6 1/4 3 3/4 -- 18 1/8 13 1/2 --
Third Quarter 4 3/8 2 3/8 -- 14 12 1/8 --
Fourth Quarter 4 3/8 2 1/8 -- 12 3/8 7 1/2 --
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
</TABLE>
The cumulative Preferred Stock dividend requirement as of December 31, 1996, was
$829,000. 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 December 31, 1996 is $622,000. Under the terms of an
agreement with its lenders, the Company is not permitted to declare or pay any
dividends on its preferred stock at December 31, 1996.
The payment of Common Stock dividends is restricted by the Company's Senior Note
agreement. Under such restrictions, the payment of Common Stock dividends is not
permitted at December 31, 1996.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $ 107,369 $ 109,187 $106,792 $ 98,533 $ 92,557
Gross profit 24,305 24,582 33,012 29,121 25,731
Earnings (loss) from continuing operations
before interest and income taxes (a) (12,722) (1,416) 7,152 6,562 3,953
Earnings (loss) from continuing operations
before income taxes (17,425) (6,024) 3,534 2,576 287
Provision (benefit) for income taxes (b) 6,837 (2,401) 1,441 (711) 119
--------- --------- -------- -------- --------
Earnings (loss) from continuing operations (24,262) (3,623) 2,093 1,865 168
Earnings (loss) from discontinued operations --
Consumer Products Business (c) 1,969 (1,684) 1,311 (2,198) 2,419
Metal Crown Business (d) -- -- -- -- (5,284)
Extraordinary loss on retirement of debt -- -- -- (1,300) --
--------- --------- -------- -------- --------
Net earnings (loss) (22,293) (5,307) 3,404 (1,633) (2,697)
Preferred stock dividends (e) 829 829 829 829 829
--------- --------- -------- -------- --------
Net earnings (loss) applicable to common
stockholders $ (23,122) $ (6,136) $ 2,575 $ (2,462) $ (3,526)
========= ========= ======== ======== ========
Earnings (loss) per common share:
Earnings (loss) per common share from
continuing operations (a) (b) $ (6.38) $ (1.16) $ 0.34 $ 0.28 $ (0.18)
Earnings (loss) per common share from
discontinued operations --
Consumer Products Business (c) 0.50 (0.44) 0.36 (0.60) 0.66
Metal Crown Business (d) -- -- -- -- (1.44)
Extraordinary loss per common share
on retirement of debt -- -- -- (0.35) --
--------- --------- -------- -------- --------
Net earnings (loss) per common share $ (5.88) $ (1.60) $ 0.70 $ (0.67) $ (0.96)
========= ========= ======== ======== ========
Cash dividends per common share $ -- $ -- $ -- $ -- $ --
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net property, plant and equipment $ 38,890 $ 46,818 $ 48,341 $ 40,424 $ 36,383
Depreciation and amortization 9,398 8,675 7,495 7,167 6,447
Capital expenditures 2,091 10,859 14,176 9,336 7,758
Total assets 85,526 119,497 122,660 115,866 102,501
Senior debt (f) 45,044 50,000 50,000 50,000 --
Subordinated long-term debt -- -- -- -- 40,000
Stockholders' equity before
pension adjustment $ 11,547 $ 34,047 $ 38,260 $ 34,899 $ 36,464
Excess of additional pension liability over
unrecognized prior service cost,
net of tax benefits (8,245) (10,140) (5,207) (6,835) --
--------- --------- -------- -------- --------
Stockholders' equity $ 3,302 $ 23,907 $ 33,053 $ 28,064 $ 36,464
========= ========= ======== ======== ========
Weighted average number of
common shares outstanding 3,933 3,842 3,674 3,669 3,675
</TABLE>
(a) The loss from continuing operations before interest and income taxes for
1996 includes pretax restructuring costs of $10,011,000 and financing costs
of $1,600,000. See Note 3 of notes to financial statements for further
discussion. The loss from continuing operations before interest and income
taxes for 1995 includes a pretax loss on revaluation of land of $1,000,000.
(b) The provision for income taxes for 1996 includes a charge of $13,691,000
($3.48 per common share) to provide a valuation reserve against its
deferred income tax asset. 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 5 of notes to consolidated
financial statements for further information.
(c) Earnings from discontinued operations for 1996 include a $2,102,000
after-tax gain ($0.53 per common share) on the sale of the manufacturing
assets of the Consumer Products Business. See Note 4 of notes to financial
statements. The 1993 loss for the Consumer Products Business includes a
$2,754,000 after-tax loss ($0.75 per common share) associated with the
relocation of the Company's home canning cap and lid manufacturing
operations.
(d) Loss from discontinued operations - Metal Crown Business in 1992 includes a
$2,600,000 after-tax loss ($0.71 per common share) on sale of the business.
(e) 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 December 31, 1996 is $622,000. Under the terms of an
agreement with its lenders, the Company is not permitted to declare or pay
any dividends on its preferred stock at December 31, 1996.
(f) As of December 31, 1996 and 1995, the Company's outstanding senior debt was
classified as a current liability because the Company was in default of
certain financial covenants for which waivers have been received for a
period of less than one year.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995
CONTINUING OPERATIONS
Net sales of the Company decreased 1.7% to $107,369,000 in 1996 from
$109,187,000 in 1995 due primarily to lower unit sales of tamper-evident
closures and, to a lesser degree, wide-mouth jars and closures.
The Company's manufacturing facilities operated at approximately 72% of capacity
during 1996.
Cost of sales of the Company decreased to $83,064,000 in 1996 compared to
$84,605,000 in 1995 primarily due to lower unit sales.
Gross profit as a percent of net sales increased slightly to 22.6% for 1996 as
compared to 22.5% for 1995.
Research, selling, warehouse, general and administrative expenses decreased
$418,000 or 1.7% during 1996, as compared to 1995.
The Company manufactures a variety of plastic closures, prescription packaging
products, bottles and jars. Sales and profitability of these products are
affected by the cost of resin, which can fluctuate significantly. Under industry
practice, the Company generally passes through resin cost increases and
decreases for all products except for prescription packaging products. However,
during periods in which resin costs increase substantially, results could be
adversely affected because the Company may not be able to obtain general price
increases from customers due to the magnitude of resin price increases and the
Company may not be able to pass on resin price increases because of competitive
pricing.
The Company maintains active research and development, and engineering groups.
These groups are responsible for i) developing new products and enhancements to
existing products, ii) improving manufacturing technology in order to reduce
costs, and iii) ensuring that products meet stringent quality standards. The
Company believes that its ability to market innovative, high-quality products
provides the Company with a competitive advantage. To the extent competitors are
more successful than the Company in introducing and marketing new products, the
Company's sales and profitability could be adversely affected.
The loss before unusual items, interest and taxes increased to $1,111,000 in
1996 as compared to $416,000 in 1995. Although full-year results have worsened,
the trend in earnings has improved. Earnings before unusual items, interest and
taxes for the second half of 1996 improved to $2,750,000, as compared to a loss
before unusual items, interest and taxes for the first half of 1996 of
$3,861,000. This improvement was the result of reduced unit costs due to
increased production and lower costs resulting from the effects of restructuring
the Company. The loss in the first half of 1996 also reflected increased
reserves for customer rebates and inventory obsolescence.
The increase in reserves for customer rebates is due to the completion of a
detailed analysis by the Company in the first quarter of 1996 of the historical
amount and timing of customer deductions, and credit memos and other payments
issued by the Company, by customer category, which required an increase in the
accrual. The increase in reserves for inventory obsolescence is the result of
including certain additional types of closures in the calculation of the reserve
beginning in 1996, because the Company believed it represented a more accurate
measure of such contingency.
15
<PAGE> 16
Unusual items for 1996 consist of i) restructuring costs of $7,500,000 recorded
during the first quarter, ii) additional restructuring costs of $2,511,000
recorded subsequent to the first quarter and iii) financing costs of $1,600,000.
The unusual item for 1995 relates to the write-down in the book value of land of
$1,000,000.
During the first quarter of 1996, the Company recorded an unusual 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 pay, workers' compensation claims and insurance
continuation costs of $3,000,000, ii) costs associated with terminating the
leases of the two vacated facilities of $2,300,000, iii) asset retirements of
$1,600,000 and iv) other costs of $600,000. During 1996, the Company made cash
payments related to such reserves for i) severance pay and related costs of
$2,638,000, ii) costs associated with terminating the leases of the two
facilities of $478,000 and iii) other costs of $89,000.
In addition, during 1996, the Company incurred unusual pretax losses of
$2,511,000 for restructuring costs primarily related to relocation of personnel
and equipment. Accounting rules require these costs to be expensed as incurred.
The relocation of the corporate headquarters and the wide-mouth jar
manufacturing operation have been completed. The cost to complete the
restructuring is expected to approximate the original estimate. The
restructuring is expected to result in annualized pretax cost savings of
approximately $6,500,000 primarily from reduced costs for employment, rent
payments, manufacturing overhead, utilities and freight. The full benefit of
these cost savings should be realized in 1997.
During 1996, the Company incurred financing costs of $1,600,000 consisting of i)
fees paid to the Company's advisors in its negotiations with lenders, ii)
reimbursement of the lenders' fees paid to their advisors in the negotiations,
iii) certain fees associated with prospective lenders and iv) expensing of a
portion of the previously capitalized financing costs associated with the
existing debt.
Net interest expense increased $95,000 during 1996 compared to 1995.
The change in the provision for income taxes during 1996 as compared to 1995 was
the result of the Company recording a charge of $13,691,000 to provide a
valuation reserve against its deferred income tax asset. The valuation reserve
was provided due to the uncertainty related to the Company's financing as
described below under "Liquidity and Capital Resources".
Due to competitive pressures, there are occasions when the Company is unable to
pass on cost increases to customers. Other than the inability on all occasions
to pass on cost increases, inflation and changes in prices did not have a
material effect on the Company's results of operations.
DISCONTINUED OPERATIONS
During 1996, the Company sold the manufacturing assets and liquidated primarily
all of the working capital of its discontinued Consumer Products Business. In
connection with such sale, the Company recorded $4,900,000 of reserves
consisting of i) severance pay, workers' compensation claims and insurance
continuation of $1,400,000, ii) retiree health care and pension expenses of
$1,200,000, iii) estimated net costs associated with elimination of operations
and liquidation of working capital of $1,100,000, iv) professional fees of
$700,000, v) asset retirements of $300,000, and vi) other costs of $200,000.
After deductions for such reserves, the Company incurred in 1996 a pretax gain
of $3,503,000 ($2,102,000 after-tax) in connection with the sale of the
manufacturing assets of the Consumer Products Business.
16
<PAGE> 17
During 1996, the Company made cash payments related to such reserves for i) net
costs associated with elimination of operations and liquidation of working
capital of $1,079,000, ii) severance pay and related costs of $1,215,000, iii)
professional fees of $665,000 and iv) other costs of $199,000.
The aggregate amount of reserves related to the disposal of the Consumer
Products Business is expected to approximate the original estimate.
Net sales of the Consumer Products Business declined to $18,317,000 in 1996
compared to $29,808,000 in 1995 due to the sale of the business. The after-tax
loss related to the operations of the Consumer Products Business declined to
$133,000 in 1996 compared to a loss of $1,684,000 in 1995 due to the sale of the
business.
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
CONTINUING OPERATIONS
Net sales of the Company increased 2.2% to $109,187,000 in 1995 from 1994 due
primarily to the pass through of resin price increases. The Company's
manufacturing facilities operated at approximately 72% of capacity during 1995.
Cost of sales of the Company increased to $84,605,000 in 1995 compared to
$73,780,000 in 1994 primarily due to higher resin costs.
Gross profit as a percent of net sales decreased to 22.5% for 1995 as compared
to 30.9% for 1994 due to substantially higher resin costs and competitive
pricing, primarily in the wide mouth jar and closure business.
Research, selling, warehouse, general and administrative expenses decreased
$862,000 or 3.3% during 1995, as compared to 1994.
The loss before unusual items, interest and taxes was $416,000 in 1995 compared
to earnings before unusual items, interest and taxes of $7,152,000 in 1994
primarily due to substantially higher resin costs and competitive pricing,
primarily in the wide mouth jar and closure business.
In 1995, the Company incurred a $1,000,000 unusual loss related to the
write-down in the book value of land formerly used by the Company as a glass
container manufacturing plant. Such write-down was necessitated by additional
declines in the market value of commercial real estate in Southern California
during 1995.
Net interest expense increased $990,000 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 pretax results.
DISCONTINUED OPERATIONS
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.
The after-tax loss related to the operations of the Consumer Products Business
was $1,684,000 in 1995 compared to net earnings of $1,311,000 in 1994. The 1995
loss was due to the sale of higher cost inventory produced during 1994, higher
customer rebates and lower sales volume due to adverse weather conditions.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
On March 15, 1996, the Company sold certain assets, including the manufacturing
assets, of the Consumer Products Business for a purchase price of $14,417,000.
From March 16, 1996, through December 31, 1996, the Company received $17,391,000
from the sale by the Company of the inventory of the Consumer Products Business
and from the collection of the related accounts receivable. The Company used
these proceeds primarily to i) reduce debt by $9,100,000, ii) reduce the level
of advances under the Company's Accounts Receivable Agreement by $4,342,000,
iii) fund the $5,716,000 cash costs of the restructuring of the Company, iv)
fund the $3,158,000 of cash costs associated with the sale of assets, and
elimination of operations and liquidation of working capital of the Consumer
Products Business, and v) increase its cash balances by $5,203,000. Other
significant uses of cash during 1996 were payments to the pension plan of
$6,989,000, of which $3,224,000 was related to the 1995 plan year minimum
pension contribution.
During 1995, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $10,859,000. Cash flow was provided primarily
through net advances on accounts receivable sold under the Company's Accounts
Receivable Agreement of $7,357,000.
During 1994, the principal use of cash flow was to fund capital expenditures of
$14,176,000. Cash flow was provided through the reduction of the Company's cash
balances of $9,068,000 and cash from financing activities of $5,457,000. During
1994, inventories increased by $5,578,000, due primarily to higher quantities
and costs of resin, and higher quantities of finished goods.
During 1995, the Company 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 Company's recorded pension liability by $1,891,000.
During 1996 and 1995, the Company funded its defined benefit pension plan by
$3,245,000 more than the accrued pension expense related to the 1995 plan year.
Although the amount of the annual pension contribution is dependent upon a
variety of factors, the Company expects to fund amounts in excess of its accrued
pension expense for the foreseeable future.
Capital expenditures of approximately $9,000,000 are planned for 1997.
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 December 31, 1996 is $622,000. 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 an agreement with its lenders, the Company is not permitted to declare
or pay any dividends on its preferred stock at December 31, 1996.
Since the third quarter of 1990, the Company has not declared any dividends on
its Common Stock. The Company's Senior Note Agreement restricts the payment of
dividends on Common Stock. Under such restrictions, the payment of Common Stock
dividends is not permitted at December 31, 1996.
The ratio of current assets to current liabilities at December 31, 1996 and 1995
was 0.5 and 0.6, respectively. 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 was in
default of certain financial covenants for which waivers have been received for
a period of less than one year. At December 31, 1996 and 1995, the ratio of
total debt to total capitalization was 94% and 70%, respectively. The increase
in the ratio of total debt to total capitalization is due to lower stockholders'
equity, primarily the result of providing a valuation reserve against the
Company's net deferred tax asset.
18
<PAGE> 19
The Company's net deferred income tax assets as of December 31, 1996 have been
eliminated by a valuation reserve of $13,691,000. The valuation reserve has been
provided due to the uncertainty related to the Company's financing as described
below.
As of December 31, 1996, the Company had an Accounts Receivable Agreement
(Receivable Agreement) which matured on March 7, 1997 that met the working
capital needs of the Company. The Receivable Agreement permitted the Company to
sell its trade accounts receivable on a nonrecourse basis. Under the Receivable
Agreement, the maximum amount that could be advanced to the Company pursuant to
the sale of trade accounts receivable at any time was $8,500,000. The Company
retained collection and service responsibility, as agent for the purchaser, over
any receivables sold. Advances under such Receivable Agreement were subject to
certain limitations. As of December 31, 1996, receivables as shown on the
accompanying Consolidated Balance Sheet have been reduced by net proceeds of
$3,861,000 from advances pursuant to the sale of receivables under the Company's
Receivable Agreement. The Receivable Agreement contained covenants identical to
the Senior Notes.
The Company is presently in default with respect to interest coverage and net
worth covenants under the Loan Agreements which govern the unsecured Senior
Notes and Bank Note issued by the Company. Under the terms of the Loan
Agreements relating to the Senior Notes and the Bank Note, the Company is not
permitted to sell the accounts receivable under the Accounts Receivable
Agreement because of the default. The Company is in discussions with the owners
of the Senior Notes and Bank Note regarding obtaining an extension of the waiver
which expired on March 7, 1997. The discussions with the owners also include
negotiations for the purchase by the Company of the Senior Notes and the Bank
Note. The funds for the purchase of the Senior Notes and Bank Note would be
obtained from a senior secured loan and a subordinated secured loan which the
Company is discussing with institutional lenders and with respect to which loan
agreements are being negotiated. Consummation of any purchase of the Senior
Notes and Bank Note is subject to definitive agreements being reached with the
new lenders as well as the holders of the Senior Notes and Bank Note. There can
be no assurance that the owners of the Senior Notes and the Bank Note will
extend the waiver of the defaults, or agree to sell the Senior Notes and the
Bank Note for a purchase price that is acceptable to the Company or that the
senior secured loan and the subordinated secured loan can be obtained to finance
the purchase. In the event the Company does not obtain an extension of the
waiver, the Company does not intend to make its quarterly payment of interest
due under the Senior Notes and Bank Note due on March 31, 1997.
The lender proposing to make the subordinated secured loan to the Company has
indicated that it is willing to purchase the accounts receivable of the Company
through June 30, 1997 on terms and conditions acceptable to the lender in its
sole and reasonable discretion. The terms and conditions to be negotiated
include, without limitation, pricing, credit criteria, reserves, servicing and
recourse. The lender's willingness to purchase the Company's accounts receivable
will be subject to the negotiation, execution and delivery of purchase documents
in form and substance satisfactory to the lender. There can be no assurance that
the Company and the lender will reach definitive agreement on the terms of such
purchase. The sale of the accounts receivable to this lender, in the absence of
a waiver of the existing default, will constitute a further default by the
Company under the existing Loan Agreements.
As part of its overall restructuring, the Company is involved in discussions
with the Pension Benefit Guaranty Corporation relating to the Company's pension
liabilities. The Company expects these discussions to continue.
The Company expects to receive approximately $3,500,000 from the sale of real
property located in Santa Ana, California in April 1997. The Company had
$5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company
reaches satisfactory agreement with the lender regarding the new accounts
receivable facility, the Company believes that it will have sufficient funds
available to finance its working capital requirements through June 30, 1997.
19
<PAGE> 20
At December 31, 1996, the Company had unused sources of liquidity consisting of
cash and cash equivalents of $9,107,000, additional advances available under the
Receivable Agreement of $3,965,000, 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.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-K contains statements which may constitute "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.
Those statements include statements regarding the intent, belief or current
expectations of Kerr Group, Inc. and members of its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. The Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events or changes to future operating results over time.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report 22
Balance Sheets - December 31, 1996 and 1995 23-24
Statements of Earnings (Loss) - Three Years Ended December 31, 1996 25
Statements of Cash Flows - Three Years Ended December 31, 1996 26
Statements of Common Stockholders' Equity -
Three Years Ended December 31, 1996 27
Notes to Financial Statements 28-46
Schedule VIII - Valuation and Qualifying Accounts -
Three Years Ended December 31, 1996 67
</TABLE>
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Kerr Group, Inc.
We have audited the financial statements of Kerr Group, Inc. as listed in the
accompanying index. In connection with our audits of the financial statements,
we have also audited the financial statement schedule as listed in the
accompanying index. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Kerr Group, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
The accompanying financial statements for 1996 have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in default of its current loan agreements
and has not been successful as yet in securing a new credit facility which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG PEAT MARWICK LLP
Harrisburg, Pennsylvania
March 25, 1997
22
<PAGE> 23
BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9,107 $ 3,904
Receivables - primarily trade accounts, less allowance for doubtful accounts
of $287 in 1996 and $212 in 1995 9,710 7,154
Inventories
Raw materials and work in process 6,702 7,815
Finished goods 8,034 9,933
--------- ---------
Total inventories 14,736 17,748
Prepaid expenses and other current assets 27 3,106
Current net assets related to discontinued operations 4 12,847
--------- ---------
Total current assets 33,584 44,759
--------- ---------
Property, plant and equipment, at cost
Land 427 427
Buildings and improvements 8,624 12,881
Machinery and equipment 87,207 86,646
Furniture and office equipment 2,890 5,771
--------- ---------
99,148 105,725
Accumulated depreciation and amortization (60,258) (58,907)
--------- ---------
Net property, plant and equipment 38,890 46,818
Deferred income taxes -- 8,057
Goodwill and other intangibles, net of amortization of $2,749 in 1996 and
$2,247 in 1995 5,682 6,983
Other assets 7,370 8,026
Non-current net assets related to discontinued operations -- 4,854
--------- ---------
$ 85,526 $ 119,497
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- ------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 5,856 $ 6,500
Senior debt due 1997 through 2003 classified as current 45,044 50,000
Accounts payable 7,373 9,707
Current pension liability -- 3,777
Other current liabilities 5,622 5,113
--------- ---------
Total current liabilities 63,895 75,097
--------- ---------
Pension liability 13,935 18,318
Other long-term liabilities 4,394 2,175
Stockholders' equity
Preferred Stock, 487 shares authorized and issued,
liquidation value of $21.28 per share at December 31, 1996
and $20 per share at December 31, 1995 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 27,239 27,239
Retained earnings (accumulated deficit) (20,640) 1,860
Treasury Stock, at cost, 293 shares (6,913) (6,913)
Excess of additional pension liability over unrecognized
prior service cost, net of tax benefits (8,245) (10,140)
--------- ---------
Total stockholders' equity 3,302 23,907
--------- ---------
$ 85,526 $ 119,497
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
STATEMENTS OF EARNINGS (LOSS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 107,369 $ 109,187 $106,792
Cost of sales 83,064 84,605 73,780
--------- --------- --------
Gross profit 24,305 24,582 33,012
Research and development expenses 1,991 1,708 2,110
Plant administrative expenses 5,013 4,490 4,707
Selling and warehouse expenses 8,031 7,680 7,790
General corporate expenses 10,381 11,120 11,253
Restructuring costs 10,011 -- --
Financing costs 1,600 -- --
Loss on revaluation of land -- 1,000 --
Interest expense, net 4,703 4,608 3,618
--------- --------- --------
Earnings (loss) from continuing operations before income taxes (17,425) (6,024) 3,534
Provision (benefit) for income taxes 6,837 (2,401) 1,441
--------- --------- --------
Net earnings (loss) from continuing operations (24,262) (3,623) 2,093
Discontinued operations:
Gain on sale of discontinued operations, net of income tax
provision of $1,401 2,102 -- --
Earnings (loss) from discontinued operations, net of income
tax provision (benefit) of ($89), ($1,117) and $904 (133) (1,684) 1,311
--------- --------- --------
Net earnings (loss) related to discontinued operations 1,969 (1,684) 1,311
--------- --------- --------
Net earnings (loss) (22,293) (5,307) 3,404
Preferred stock dividends 829 829 829
--------- --------- --------
Net earnings (loss) applicable to common stockholders $ (23,122) $ (6,136) $ 2,575
========= ========= ========
Earnings (loss) per common share:
Earnings (loss) per common share from continuing operations $ (6.38) $ (1.16) $ 0.34
Earnings (loss) per common share from discontinued operations 0.50 (0.44) 0.36
--------- --------- --------
Net earnings (loss) per common share $ (5.88) $ (1.60) $ 0.70
========= ========= ========
Weighted average shares outstanding 3,933 3,842 3,674
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOW PROVIDED (USED) BY OPERATIONS
Earnings (loss) from continuing operations $(24,262) $ (3,623) $ 2,093
Add (deduct) noncash items included in earnings (loss)
Expenses associated with restructuring, in excess of cash payments 4,307 -- --
Expenses associated with financing 1,600 -- --
Depreciation and amortization 9,398 8,675 7,495
Change in deferred income taxes 7,080 (2,482) 1,705
Reduction in total pension liability, net (4,813) 294 (242)
Other, net (98) 130 258
Changes in other operating working capital
Receivables (2,556) 7,268 (2,254)
Inventories 1,964 661 (5,578)
Other current assets 937 1,267 (94)
Accounts payable (2,366) (2,936) 3,929
Accrued expenses (1,138) 1,674 (567)
Cash flow provided (used) by discontinued operations 11,640 2,078 (4,420)
-------- -------- --------
Total cash flow provided (used) by operations 1,693 13,006 2,325
CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES
Continuing Operations:
Capital expenditures (2,091) (10,859) (14,176)
Proceeds from liquidation of long-term certificates of deposit -- 375 1,000
Other, net 377 (1,301) (2,587)
Discontinued Operations:
Capital expenditures (234) (981) (1,472)
Proceeds from sale of assets of Consumer Products Business 14,417 -- --
Other, net (1,840) 1,200 385
-------- -------- --------
Cash flow provided (used) by investing activities 10,629 (11,566) (16,850)
CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES
Repayment of Senior Notes and Note payable to bank (5,600) -- --
Net borrowings under lines of credit -- 1,000 5,500
Payments associated with financing (1,312) -- --
Dividends paid (207) (829) (829)
Other, net -- 32 786
-------- -------- --------
Cash flow provided (used) by financing activities (7,119) 203 5,457
CASH AND CASH EQUIVALENTS
Increase (decrease) during the year 5,203 1,643 (9,068)
Balance at beginning of the year 3,904 2,261 11,329
-------- -------- --------
Balance at end of the year $ 9,107 $ 3,904 $ 2,261
======== ======== ========
SIGNIFICANT NON-CASH TRANSACTIONS
Contribution of 250,000 shares of Common Stock to Pension Plan $ -- $ 1,891 $ --
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Number Of Excess Of
Shares Of Retained Additional Pension Notes
Common Additional Earnings Liability Over Receivable
Stock Common Paid-In (Accum. Treasury Unrecognized From ESOP
Outstanding Stock Capital Deficit) Stock Prior Service Cost Trusts
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
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) --
Net loss -- -- -- (22,293) -- -- --
Dividends on Preferred Stock -- -- -- (207) -- -- --
Pension adjustment -- -- -- -- -- 1,895 --
----- ------ ------- -------- -------- -------- -----
Balance, December 31, 1996 3,933 $2,113 $27,239 $(20,640) $ (6,913) $ (8,245) $ --
===== ====== ======= ======== ======== ======== =====
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL DESCRIPTION OF BUSINESS
The Company's operations consist of the manufacture and sale of a variety of
plastic packaging products including child-resistant closures, tamper-evident
closures, prescription packaging products, jars and other plastic closures and
containers.
The Company 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.
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
estimated useful lives used in computing the depreciation provisions are as
follows:
<TABLE>
<S> <C>
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 15 years
Furniture and equipment 5 to 10 years
</TABLE>
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 fair value of net tangible assets acquired during 1987
is amortized on a straight-line basis over 40 years. Other intangible assets are
being amortized by the straight-line method over their respective initial
estimated lives ranging from 2 to 17 years.
Effective January 1, 1996, the Company adopted Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of (FASB No. 121). FASB 121 requires that
impairments, measured using fair market value, are recognized whenever events or
changes in circumstances indicate that the carrying amount of long-lived assets
may not be recoverable. Adoption of this statement did not affect the Company's
results of operations. The assessment of the recoverability of goodwill will be
impacted if future operating cash flows are not achieved.
REVENUE RECOGNITION
The Company recognizes revenue at the time the product is shipped to the
customer.
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.
28
<PAGE> 29
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company accounts for postretirement benefits in accordance with Financial
Accounting Standards Board Statement No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (FASB No. 106). As more fully
described in Note 7, the Company has elected to amortize the impact of FASB No.
106 ratably over 20 years.
STOCK OPTIONS
Effective January 1, 1996, the Company adopted the Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FASB
No. 123). FASB No. 123 requires the Company to choose between two different
methods of accounting for stock options. The statement defines a
fair-value-based method of accounting for stock options but allows an entity to
continue to measure compensation cost for stock options using the accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25). The Company has elected to continue using the accounting methods
prescribed by APB No. 25. The amount of the proforma compensation expense,
required to be disclosed under the FASB No. 123, is not material.
INCOME TAXES
The Company accounts for income taxes under the Financial Accounting Standards
Board 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.
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
(both declared and undeclared dividends).
Fully diluted net earnings (loss) per common share reflect when dilutive i) the
incremental common shares issuable upon the assumed exercise of outstanding
stock options and ii) the assumed conversion of the Preferred Stock and the
elimination of the related Preferred Stock dividends. The calculation of fully
diluted net earnings (loss) per common share for 1996, 1995 and 1994 was not
dilutive.
FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles 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, 1996 and 1995, and the
reported amounts of income and expenses for each of the three years ended
December 31, 1996. 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 1996 presentation.
29
<PAGE> 30
NOTE 2 - ISSUES AFFECTING LIQUIDITY
During the fourth quarter of 1996, the holders of $50,900,000 of the Company's
existing unsecured debt sold the debt. Representatives of the new owners of the
debt informed the Company that they do not intend to pursue the previously
announced restructuring of this debt, pursuant to which a portion of this debt
was to have been repaid with the proceeds of a new secured credit facility, and
the balance of which was to have been converted into preferred stock and
subordinated debt. The new owners initially indicated that they preferred a
restructuring that would involve the exchange of debt for substantially all of
the equity of the Company. The Company rejected such exchange and there is no
assurance that the Company and the owners of the debt will reach an agreement on
the terms of any such exchange.
The Company is presently in default with respect to interest coverage and net
worth covenants under the Loan Agreements which govern the unsecured Senior
Notes and Bank Note issued by the Company. Under the terms of the Loan
Agreements relating to the Senior Notes and the Bank Note, the Company is not
permitted to sell the accounts receivable under the Accounts Receivable
Agreement because of the default. The Company is in discussions with the owners
of the Senior Notes and Bank Note regarding obtaining an extension of the waiver
which expired on March 7, 1997. The discussions with the owners also include
negotiations for the purchase by the Company of the Senior Notes and the Bank
Note. The funds for the purchase of the Senior Notes and Bank Note would be
obtained from a senior secured loan and a subordinated secured loan which the
Company is discussing with institutional lenders and with respect to which loan
agreements are being negotiated. Consummation of any purchase of the Senior
Notes and Bank Note is subject to definitive agreements being reached with the
new lenders as well as the holders of the Senior Notes and Bank Note. There can
be no assurance that the owners of the Senior Notes and the Bank Note will
extend the waiver of the defaults, or agree to sell the Senior Notes and the
Bank Note for a purchase price that is acceptable to the Company or that the
senior secured loan and the subordinated secured loan can be obtained to finance
the purchase. In the event the Company does not obtain an extension of the
waiver, the Company does not intend to make its quarterly payment of interest
due under the Senior Notes and Bank Note due on March 31, 1997.
The lender proposing to make the subordinated secured loan to the Company has
indicated that it is willing to purchase the accounts receivable of the Company
through June 30, 1997 on terms and conditions acceptable to the lender in its
sole and reasonable discretion. The terms and conditions to be negotiated
include, without limitation, pricing, credit criteria, reserves, servicing and
recourse. The lender's willingness to purchase the Company's accounts receivable
will be subject to the negotiation, execution and delivery of purchase documents
in form and substance satisfactory to the lender. There can be no assurance that
the Company and the lender will reach definitive agreement on the terms of such
purchase. The sale of the accounts receivable to this lender, in the absence of
a waiver of the existing default, will constitute a further default by the
Company under the existing Loan Agreements.
As part of its overall restructuring, the Company is involved in discussions
with the Pension Benefit Guaranty Corporation relating to the Company's pension
liabilities. The Company expects these discussions to continue.
The Company expects to receive approximately $3,500,000 from the sale of real
property located in Santa Ana, California in April 1997. The Company had
$5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company
reaches satisfactory agreement with the lender regarding the new accounts
receivable facility, the Company believes that it will have sufficient funds
available to finance its working capital requirements through June 30, 1997.
30
<PAGE> 31
NOTE 3 - RESTRUCTURING AND FINANCING COSTS
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 pay, workers' compensation claims and insurance
continuation costs of $3,000,000, ii) costs associated with terminating the
leases of the two vacated facilities of $2,300,000, iii) asset retirements of
$1,600,000 and iv) other costs of $600,000. During 1996, the Company made cash
payments related to such reserves for i) severance pay and related costs of
$2,638,000, ii) costs associated with terminating the leases of the two
facilities of $478,000 and iii) other costs of $89,000. In addition to such cash
costs, during 1996 charges were made to reserves relating to asset retirements
of $1,499,000.
In addition, during 1996, the Company incurred pretax losses of $2,511,000 for
restructuring costs primarily related to relocation of personnel and equipment.
Accounting rules require these costs to be expensed as incurred.
The relocation of the corporate headquarters and the wide mouth jar
manufacturing operation have been completed. The cost to complete the
restructuring is expected to approximate the original estimate.
During 1996, the Company incurred financing costs of $1,600,000 consisting of i)
fees paid to the Company's advisors in its negotiations with lenders, ii)
reimbursement of the lenders' fees paid to their advisors in the negotiations,
iii) certain fees associated with prospective lenders and iv) expensing a
portion of the previously capitalized financing costs associated with the
existing debt.
NOTE 4 - DISCONTINUED OPERATIONS
On March 15, 1996, the Company sold certain assets, including the manufacturing
assets, of the Consumer Products Business for a purchase price of $14,417,000.
From March 16, 1996 through December 31, 1996, the Company received $17,391,000
from the sale by the Company of the inventory of the Consumer Products Business
and from the collection of the related accounts receivable.
In connection with such sale, the Company recorded $4,900,000 of reserves
consisting of i) severance pay, workers' compensation claims and insurance
continuation of $1,400,000, ii) retiree health care and pension expenses of
$1,200,000, iii) estimated net costs associated with elimination of operations
and liquidation of working capital of $1,100,000, iv) professional fees of
$700,000, v) asset retirements of $300,000, and vi) other costs of $200,000.
After deduction for such reserves, the Company incurred in 1996 a pretax gain of
$3,503,000 ($2,102,000 after-tax) in connection with the sale of the
manufacturing assets of the Consumer Products Business.
During 1996, the Company made cash payments related to such reserves for i) net
costs associated with elimination of operations and liquidation of working
capital of $1,079,000, ii) severance pay and related costs of $1,215,000, iii)
professional fees of $665,000 and iv) other costs of $199,000. In addition to
such cash costs, charges were made to such reserves relating to i)
reclassifications to retiree benefit plan liabilities of $1,220,000 and ii)
asset retirements of $251,000.
The aggregate amount of reserves related to the disposal of the Consumer
Products Business is expected to approximate the original estimate.
31
<PAGE> 32
NOTE 4 - DISCONTINUED OPERATIONS (continued)
The results of the discontinued operations have been reported separately in the
Statement of Earnings (Loss). Summarized results of the discontinued operations
for the years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales $ 18,317 $ 29,808 $32,364
Costs and expenses 17,851 31,398 29,151
Allocated interest expense 688 1,211 998
-------- -------- -------
Earnings (loss) before income taxes (222) (2,801) 2,215
Provision (benefit) for income taxes (89) (1,117) 904
-------- -------- -------
Earnings (loss) from discontinued operations (133) (1,684) 1,311
Gain on sale of manufacturing assets 2,102 -- --
-------- -------- -------
Total earnings (loss) related to discontinued operations $ 1,969 $ (1,684) $ 1,311
======== ======== =======
</TABLE>
Interest expense was allocated to the Consumer Products Business based upon the
ratio of the Consumer Products Business net assets to total Company net assets.
NOTE 5 - INCOME TAXES
Total income tax provision (benefit) for the years ended December 31, 1996, 1995
and 1994 was allocated as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Tax provision (benefit) from continuing operations
before valuation reserve $ (6,854) $(2,401) $1,441
Income tax valuation reserve adjustment related to
continuing operations 13,691 -- --
-------- ------- ------
Subtotal 6,837 (2,401) 1,441
Tax provision (benefit) from discontinued operations 1,312 (1,117) 904
Stockholders' equity, related to excess of pension liability
over unrecognized prior service costs before valuation reserve 1,328 (3,281) 878
-------- ------- ------
$ 9,477 $(6,799) $3,223
======== ======= ======
</TABLE>
32
<PAGE> 33
NOTE 5 - INCOME TAXES (continued)
The provision (benefit) for income taxes related to continuing operations for
the years ended December 31, 1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current
U.S. Federal $ -- $ -- $ 81
State -- -- --
------ ------- ------
Total current -- -- 81
Deferred
U.S. Federal 5,402 (1,880) 1,090
State 1,435 (521) 270
------ ------- ------
Total deferred 6,837 (2,401) 1,360
------ ------- ------
Total provision (benefit) for income taxes $6,837 $(2,401) $1,441
====== ======= ======
</TABLE>
The significant components of deferred income taxes (benefits) related to
continuing operations for the years ended December 31, 1996, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Reduction of deferred income taxes attributable to
recognition of alternative minimum tax credits and
tax net operating loss carryforwards $ (5,200) $(3,782) $ (16)
Temporary differences associated with restructuring costs (1,108) -- --
Temporary differences associated with the sales of
discontinued operations 150 (466) 1,531
Additional costs inventoried for tax purposes (638) (44) 64
Excess (deficit) of pension contributions paid over pension expense 517 1,513 46
Excess (deficit) of tax over book depreciation,
including assets retired or sold 418 668 (19)
Other, net (993) (290) (246)
Plus: Increase in balance of valuation reserve for deferred
income tax assets related to the income tax provision 13,691 -- --
-------- ------- -------
Total $ 6,837 $(2,401) $ 1,360
======== ======= =======
</TABLE>
33
<PAGE> 34
NOTE 5 - INCOME TAXES (continued)
Total provision (benefit) for income taxes from continuing operations for the
years ended December 31, 1996, 1995 and 1994 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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Computed "expected" tax provision (benefit) $ (5,925) $(2,048) $1,202
Increase (reduction) in provision resulting from:
State income tax provision (benefit), net of Federal tax effect (983) (358) 210
Increase in balance of valuation reserve for deferred income
tax assets related to the income tax provision 13,691 -- --
Other, net 54 5 29
-------- ------- ------
Actual tax provision (benefit) $ 6,837 $(2,401) $1,441
======== ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liabilities at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 11,577 $ 6,882
Pension liabilities --
Excess of additional pension liability over unrecognized prior service cost 5,415 6,742
Accrued pension liability (464) (19)
Tax credit carryforwards 1,485 1,158
Accrued retiree health liability 1,001 551
Accrued reserves associated with discontinued operations 215 274
Inventory 1,064 675
Accrued vacation pay 532 461
Reserves associated with restructuring 1,108 --
Other 507 670
-------- --------
Total gross deferred income tax assets 22,440 17,394
Less valuation reserve for deferred income tax assets (13,691) --
-------- --------
Deferred income tax assets, net of valuation reserve 8,749 17,394
Deferred income tax liabilities:
Property, plant and equipment, principally due to differences in depreciation (6,116) (5,744)
Excess of book basis over tax basis of land and buildings formerly
used as a glass container manufacturing plant (1,337) (1,252)
Other (1,296) (590)
-------- --------
Total gross deferred income tax liabilities (8,749) (7,586)
-------- --------
Net deferred income tax assets $ -- $ 9,808
======== ========
</TABLE>
34
<PAGE> 35
NOTE 5 - INCOME TAXES (continued)
The Company's net deferred income tax assets as of December 31, 1996 have been
eliminated by a valuation reserve of $13,691,000. The valuation reserve has been
provided due to the uncertainty related to the Company's financing as described
in Note 2 of the notes to the financial statements.
At December 31, 1996, the Company had net operating loss carryforwards for
Federal income tax purposes of $28,300,000 which are available to offset future
Federal taxable income, expiring in the years 2006 through 2011.
The Company also has an alternative minimum tax credit carryforward of
$1,068,000 and other tax credit carryforwards (primarily investment tax credits)
of $417,000, 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 represent Federal
alternative minimum taxes and state taxes, were $0, $24,000 and $761,000 for
1996, 1995 and 1994, respectively.
NOTE 6 - OTHER CURRENT LIABILITIES
At December 31, 1996 and 1995, other current liabilities were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accrued wages and vacation pay $1,671 $1,994
Accrued interest 1,267 2,617
Accrued and withheld taxes 236 29
Accrued reserves associated with restructuring 1,483 --
Other accrued expenses 965 473
------ ------
Total accrued expenses $5,622 $5,113
====== ======
</TABLE>
NOTE 7 - RETIREMENT BENEFITS
PENSIONS
The Company has a defined benefit pension plan (the "Retirement Income Plan"),
which covers substantially all employees. The Retirement Income Plan generally
provides benefits based on years of service and average final pay. The Company's
policy is to fund amounts sufficient to satisfy the funding requirements of the
Employee Retirement Income Security Act of 1974. During 1996 and 1995, the
Company funded the Retirement Income Plan by $3,245,000 more than the accrued
pension expense related to the 1995 plan year. During 1995 and 1994, the Company
funded the Retirement Income Plan by $1,983,000 more than the accrued pension
expense related to the 1994 plan year.
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 was
valued at $1,891,000 which was based upon the current market value of the stock
on the date of the contribution.
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.
35
<PAGE> 36
NOTE 7 - RETIREMENT BENEFITS (continued)
Net pension expense related to continuing operations for the years ended
December 31, 1996, 1995 and 1994 included the following components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost (benefit earned during period) $ 668 $ 468 $ 534
Interest cost on projected benefit obligation 7,380 7,364 7,018
Actual loss (return) on assets (6,474) (16,080) 597
Net amortization and deferral 579 9,460 (6,552)
------- -------- -------
Net pension expense $ 2,153 $ 1,212 $ 1,597
======= ======== =======
</TABLE>
The funded status of the defined benefit plans at December 31, 1996 and 1995 was
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligation
Vested benefit obligation $ 95,731 $ 99,237
Nonvested benefit obligation 2,385 1,942
--------- ---------
Accumulated benefit obligation 98,116 101,179
Effect of future salary increases 2,610 2,812
--------- ---------
Projected benefit obligation 100,726 103,991
Plan assets at fair value (a) 84,182 79,084
--------- ---------
Projected benefit obligation in excess of plan assets 16,544 24,907
Unrecognized net transition obligation (394) (474)
Unrecognized prior service costs (826) (936)
Unrecognized net loss (16,201) (19,660)
--------- ---------
Accrued pension (asset) liability before adjustment (877) 3,837
Adjustment required to recognize additional minimum pension liability 14,812 18,258
--------- ---------
Accrued pension liability related to the defined benefit plan $ 13,935 $ 22,095
========= =========
</TABLE>
(a) Plan assets include 368,200 shares of Company Common Stock at a value of
$874,000 at December 31, 1996 and $3,682,000 at December 31, 1995.
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 $8,245,000 at December 31, 1996, and $10,140,000 at
December 31, 1995, and an intangible pension asset of $1,152,000 at December 31,
1996, and $1,376,000 at December 31, 1995.
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, 1996, assets held by the master trust
consisted primarily of cash, U.S. government obligations, corporate bonds and
common stocks.
36
<PAGE> 37
NOTE 7 - RETIREMENT BENEFITS (continued)
The defined benefit plan assumptions as of December 31, 1996, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.25% 8.75%
Increase in compensation rate 5 % 5 % 5 %
Long-term rate of return on assets 9.5 % 9.5 % 9.5 %
</TABLE>
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
Consumer Products Business. In connection with the sale of the business, the
Company's pension plan had a curtailment loss of $100,000 pursuant to FASB
Statement No. 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits. Such curtailment
loss was included as component of the gain on the sale of the Consumer Products
Business.
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.
Effective January 1, 1993, the Company adopted FASB No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. 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 related to continuing operations
for the years ended December 31, 1996, 1995 and 1994 included the following
components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost (benefit earned during period) $ 51 $ 41 $ 54
Interest cost on accumulated benefit obligation 690 855 1,082
Actual return on assets -- -- --
Net amortization and deferral 509 478 525
------ ------ ------
Net retiree health care and life insurance expense $1,250 $1,374 $1,661
====== ====== ======
</TABLE>
37
<PAGE> 38
NOTE 7 - RETIREMENT BENEFITS (continued)
The funded status of the retiree health care and life insurance plans at
December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Actuarial present value of accumulated postretirement benefit obligation:
Retirees $ 7,692 $ 9,210
Fully eligible active participants 691 735
Other active participants 955 1,055
------- --------
Accumulated benefit obligation 9,338 11,000
Plan assets at fair value -- --
------- --------
Accumulated benefit obligation in excess of plan assets 9,338 11,000
Unrecognized net transition obligation (8,405) (10,612)
Unrecognized prior service costs -- --
Unrecognized net gain (loss) 1,594 992
------- --------
Accrued postretirement benefit liability $ 2,527 $ 1,380
======= ========
</TABLE>
The retiree health care and life insurance plans assumptions are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 7.25% 8.75%
Health care cost trend rates --
Indemnity plans 8.75% trending down 8.75% trending down 8.75% trending down
to 6% to 6% to 6%
Managed care plans 6.75% trending down 6.75% trending down 6.75% trending down
to 4% to 4% to 4%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The effect of a one percentage point annual increase in these assumed cost trend
rates at December 31, 1996, would increase the postretirement benefit obligation
by approximately $370,000 and would increase the service and interest cost
components of the annual expense by approximately $35,000.
38
<PAGE> 39
NOTE 8 - FINANCING
At December 31, 1996, the Company's debt consists of $50,900,000 of Senior Notes
and an unsecured Bank Note held by a group of investors. The Company is in
discussions with these investors regarding the possible exchange of such debt
for equity or possible repayment through the refinancing of the debt. This debt
consists of the following components as of December 31, 1996 and December 31,
1995 (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Senior Notes - Series A, 10-year notes originally issued September 21, 1993,
original principal amount of $41,000,000, bearing interest at 9.45% $36,936 $41,000
Senior Notes - Series B, 6-year notes originally issued September 21, 1993,
original principal amount of $9,000,000, bearing interest at 8.99% 8,108 9,000
Bank Note, due date extended to March 7, 1997, bearing interest at the
Prime rate (8.25% at December 31, 1996) 5,856 6,500
------- -------
$50,900 $56,500
======= =======
</TABLE>
Sinking fund payments were scheduled to begin under the 10-year notes in 1998
and under the 6-year notes in 1997. The Senior Notes and Bank Note are
unsecured.
The Senior Notes and Bank Note 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, 1996. As of December 31, 1996, the
Company is not in compliance with certain of the financial covenants and has
obtained waivers of such covenants through March 7, 1997.
The Senior Notes contain a provision which requires the payment of a prepayment
penalty in the event the Senior Notes are repaid prior to their scheduled
maturity date. If the Senior Notes had been repaid on March 25, 1997, the
prepayment penalty would have equaled approximately $3,000,000.
As of December 31, 1996, the Company's $45,044,000 of outstanding Senior Notes
is classified as a current liability because the Company was in default of
certain financial covenants for which waivers have been received for a period of
less than one year (currently through March 7, 1997). See further discussion at
Note 2 of notes to financial statements.
As of December 31, 1996, the Company had an Accounts Receivable Agreement
(Receivable Agreement) which matured on March 7, 1997 that met the working
capital needs of the Company. The Receivable Agreement permitted the Company to
sell its trade accounts receivable on a nonrecourse basis. Under the Receivable
Agreement, the maximum amount that could be advanced to the Company pursuant to
the sale of trade accounts receivable at any time was $8,500,000. The Company
retained collection and service responsibility, as agent for the purchaser, over
any receivables sold. Advances under such Receivable Agreement were subject to
certain limitations. As of December 31, 1996, receivables as shown on the
accompanying Balance Sheet have been reduced by net proceeds of $3,861,000 from
advances pursuant to the sale of receivables under the Receivable Agreement. The
Receivable Agreement contained covenants identical to the Senior Notes. The
Company is not permitted to sell accounts receivable under the Receivable
Agreement as long as there exists a default under the Senior Notes.
39
<PAGE> 40
NOTE 8 - FINANCING (continued)
The Bank Note 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 Company's financial performance.
During early 1995, the Company had an additional bank line of credit which was
replaced by the Receivable Agreement.
During 1996, the Company had maximum borrowings under the Senior Notes and Bank
Note of $60,000,000. During 1996, the weighted average interest rate under the
Senior Notes and Bank Note was 9.3% and the weighted average borrowings
outstanding was $53,199,000.
During 1995, the Company had maximum borrowings outstanding under the lines of
credit of $12,000,000. During 1995, the weighted average interest rate under its
lines of credit was 8.7% and the weighted average borrowings outstanding under
its lines of credit was $7,528,000.
Total cash payments of interest related to continuing operations during 1996,
1995 and 1994 were $5,618,000, $2,752,000, and $3,794,000, respectively.
See discussion of issues affecting liquidity at Note 2 of notes to consolidated
financial statements.
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
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 Bank Note approximates its carrying amount because such
debt has a floating interest rate tied to the Prime rate.
The fair value of the Company's $45,044,000 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 10 - PREFERRED STOCK
CLASS B PREFERRED STOCK
At December 31, 1996 and 1995, 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, 1996 and 1995, 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 plus cumulative unpaid dividends. No
purchases or redemptions of or dividends on Common Stock may occur unless all
accumulated dividends have been paid on the Preferred Stock.
40
<PAGE> 41
NOTE 10 - PREFERRED STOCK (continued)
At December 31, 1996, each share of Preferred Stock had a liquidating value of
$21.28 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, 1996, 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.
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 December 31, 1996 is $622,000. 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. The Company
was not permitted to declare or pay any dividends on its preferred stock at
December 31, 1996
NOTE 11 - 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 from continuing operations for these plans
was $396,000 in 1994. 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. Options granted in 1996 and 1995
were fully vested on the date of grant. All of the Company's currently
outstanding options issued prior to 1995 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 1996 had triggering prices
of $10.00 per common share. 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 $10.00 per Common Share, which requirement was met
during 1994, and the options issued during 1992 are now exercisable.
41
<PAGE> 42
NOTE 11 - COMMON STOCK (continued)
The following tabulation summarizes changes under the Company's Stock Option
Plans for employees during the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding:
Beginning 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
Granted 75,000 3 15/16 204,000 7 9/16 6,500 9 7/16 - 10 3/8
Exercised -- (6,000) 5 3/8 (10,400) 5 3/8 - 7 1/8
Canceled (134,900) 5 3/8 - 8 5/16 (23,000) 5 3/8 - 8 5/16 (18,000) 5 3/8 - 8 5/16
Expired (40,000) 7 1/8 -- --
-------- ------- -------
End of year 327,200 3 15/16 - 10 3/8 427,100 5 3/8 - 10 3/8 252,100 5 3/8 - 10 3/8
Exercisable at end of year:
Currently exercisable 49,500 83,200 70,900
Exercisable if Common
Stock trades at
triggering price of
$10.00 75,000 -- --
Exercisable if Common
Stock trades at
triggering price of
$12.50 185,900 277,300 57,501
-------- ------- -------
Total 310,400 360,500 128,401
Available for grant at
end of year 81,397 21,497 22,497
</TABLE>
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.
42
<PAGE> 43
NOTE 11 - 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, 1996, 1995
and 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Number Of Number Of Number Of
Options Price Range Options Price Range Options Price Range
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding:
Beginning of year 60,000 $8 3/16 60,000 $8 3/16 60,000 $8 3/16
Granted 10,000 3 15/16 -- --
Exercised -- -- --
Expired -- -- --
------ ------ ------
End of year 70,000 3 15/16 - 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 $10.00
per share or above 10,000 -- --
Exercisable if Common
Stock trades at $12.50
per share or above 60,000 60,000 60,000
------ ------ ------
Total 70,000 60,000 60,000
Available for grant at
end of year 70,000 80,000 80,000
</TABLE>
The aggregate option price for all outstanding options at December 31, 1996,
1995 and 1994 was $2,696,000, $3,698,000, and $2,359,000, 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.
Effective January 1, 1996, the Company adopted the Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FASB
No. 123). FASB No. 123 requires the Company to choose between two different
methods of accounting for stock options. The statement defines a
fair-value-based method of accounting for stock options but allows an entity to
continue to measure compensation cost for stock options using the accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25). The Company has elected to continue using the accounting methods
prescribed by APB No. 25. The amount of the proforma compensation expense,
required to be disclosed under the FASB No. 123, is not material.
43
<PAGE> 44
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 related to continuing operations
under these agreements was $3,465,000, $2,842,000 and $2,381,000 in 1996, 1995
and 1994, respectively.
At December 31, 1996, the Company was obligated under various noncancelable
leases. Calendar year minimum rental commitments under the Company's leases are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Total Real Personal
Years Ended December 31, Commitment Property Property
- --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
1997 $1,708 $1,288 $420
1998 1,636 1,255 381
1999 1,462 1,224 238
2000 1,355 1,224 131
2001 1,321 1,224 97
2002 through 2014 8,546 8,542 4
</TABLE>
Future minimum rental commitments are lower than in prior years due to the
cancellation of the lease for the Santa Fe Springs facility as a result of the
plant closing and the relinquishing of possession of the Company's former
principal executive office.
The amounts above exclude rentals related to the Company's former principal
executive office of which the Company relinquished possession in early 1997. The
Company has provided a reserve for the estimated cost to settle potential claims
of the landlord of this location.
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.
44
<PAGE> 45
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. The estimated
ultimate liability of the environmental indemnities related to these businesses
is not material to the consolidated results of operations or the consolidated
balance sheet of the Company. During 1996, the Company made cash payments
related to environmental remediation of $256,000. As of December 31, 1996, the
Company has accrued a reserve of approximately $212,000 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.
45
<PAGE> 46
NOTE 14 - CONDENSED QUARTERLY DATA FOR 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 Sept. 30 Dec. 31
- ---------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996
Net sales $ 25,096 $ 27,368 $ 28,024 $ 26,881
Gross profit 2,952 6,646 7,833 6,874
Net loss from continuing operations (a) (b) (7,666) (1,120) (4,498) (10,978)
Net earnings related to discontinued operations (c) 1,431 0 0 538
-------- -------- -------- --------
Net loss (6,235) (1,120) (4,498) (10,440)
Preferred stock dividends (d) 207 207 207 208
-------- -------- -------- --------
Net loss applicable to common stockholders $ (6,442) $ (1,327) $ (4,705) $(10,648)
======== ======== ======== ========
Net loss per common share:
From continuing operations $ (2.00) $ (0.34) $ (1.20) $ (2.84)
From discontinued operations 0.36 -- -- 0.13
-------- -------- -------- --------
Net loss $ (1.64) $ (0.34) $ (1.20) $ (2.71)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three Months Ended March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1995
Net sales $ 27,362 $ 26,189 $ 28,240 $ 27,396
Gross profit 6,895 6,180 6,339 5,168
Net loss from continuing operations (e) (375) (736) (786) (1,726)
Net earnings related to discontinued operations (12) 451 (313) (1,810)
-------- -------- -------- --------
Net loss (387) (285) (1,099) (3,536)
Preferred stock dividends 207 207 207 208
-------- -------- -------- --------
Net loss applicable to common stockholders $ (594) $ (492) $ (1,306) $ (3,744)
======== ======== ======== ========
Net loss per common share:
From continuing operations $ (0.16) $ (0.25) $ (0.25) $ (0.49)
From discontinued operations -- 0.12 (0.08) (0.46)
-------- -------- -------- --------
Net loss $ (0.16) $ (0.13) $ (0.33) $ (0.95)
======== ======== ======== ========
</TABLE>
(a) Net loss from continuing operations includes after-tax costs associated
with restructuring and financing of $4,500,000 for the quarter ended March
31, 1996, $541,000 for the quarter ended June 30, 1996, $768,000 for the
quarter ended September 30, 1996 and $1,930,000 for the quarter ended
December 31, 1996. See Note 3 of notes to financial statements for further
discussion.
(b) Net loss from continuing operations includes charges to provide valuation
reserves against the Company's deferred income tax asset of $4,000,000 for
the quarter ended September 30, 1996 and $9,691,000 for the quarter ended
December 31, 1996. See Note 5 of notes to financial statements for further
discussion.
(c) Net earnings from discontinued operations includes an after-tax gain of
$1,564,000 for the quarter ended March 31, 1996 and a subsequent adjustment
to increase such after-tax gain by $538,000 during the quarter ended
December 31, 1996. The increase in such gain was primarily related to a
reduction in the reserve previously provided related to pension accounting.
(d) 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 December 31, 1996 is $622,000. The Company was not
permitted to declare or pay any dividends on its preferred stock at
December 31, 1996.
(e) Net loss from continuing operations for the quarter ended December 31, 1995
includes a pretax loss of $1,000,000 related to the write-down in the book
value of land formerly used by the Company as a glass container
manufacturing plant.
46
<PAGE> 47
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
47
<PAGE> 48
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 following table sets forth the name, the age, the
principal occupation for the last five years of each director of the Company.
Mr. Strickland has been President and Chief Executive Officer and a director
since 1996. Mr. Strickland had served as Senior Vice President, Finance and
Chief Financial Officer of the Company since 1986. Mr. Elish has been Chairman
of the Board since 1996 having recently retired from his position as Chairman
and Chief Executive Officer of Weirton Steel Corporation, a position he had held
for more than the preceding five years. Messrs. O'Hara, Hurlbert, Jackson,
Mellor and Sperry have been executives and a partner, respectively, with the
corporations, including subsidiaries, or the firm, as the case may be, with
which they are now associated or its predecessor for more than the past five
years. Mr. Kyle retired in 1993 from his position as Senior Vice President of
Chemical Bank, a position he had held for more than the preceding five years.
<TABLE>
<CAPTION>
Name Principal Occupation Director Since
- ---- -------------------- --------------
<S> <C> <C>
Herbert Elish
Age 63 (1) (2) Chairman of the Board; Previously Chairman and 1996
Chief Executive Officer of Weirton Steel
Corporation from 1987 through December 1995;
Director Hampshire Group, Limited.
Gordon C. Hurlbert,
Age 72 (3) Chairman of the Board of Directors, CSC 1985
Industries, Inc. (Copperweld Steel);
Director of Carolina Power & Light Company.
Michael C. Jackson,
Age 56 (1) Advisory Director, Lehman Brothers, Inc., 1985
investment bankers; Director of Hampshire
Group, Limited.
John D. Kyle,
Age 61 (2) (3) Retired Senior Vice President, Chemical Bank. 1973
James R. Mellor,
Age 66 (1) Chairman, Chief Executive Officer and Director of 1980
General Dynamics Corporation, a defense,
aerospace, and shipbuilding company;
Director of Bergen Brunswig Corporation and
Computer Sciences Corporation.
Robert M. O'Hara,
Age 70 (3) Chairman and Chief Executive Officer of Falcon 1980
Management (formerly OMS Company), investments
and management services; Director of TBC Corp.
</TABLE>
48
<PAGE> 49
<TABLE>
<S> <C> <C>
Harvey L. Sperry,
Age 66 (2) Partner, Willkie Farr & Gallagher, attorneys, 1973
Director of Hampshire Group, Limited.
D. Gordon Strickland,
Age 50 (2) President and Chief Executive Officer of the 1996
Company; previously Senior Vice President,
Finance and Chief Financial Officer of the
Company since 1986.
</TABLE>
(1) Member of the Stock Option and Compensation Committee.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's executive officers, directors and ten percent
stockholders are required under Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange.
Copies of these reports must also be furnished to the Company. Based solely upon
its review of copies of such reports furnished to the Company through the date
hereof, or written representations that no reports were required to be filed,
the Company believes that during the fiscal year ended December 31, 1996, all
filing requirements applicable to its officers, directors and ten percent
stockholders were complied with in a timely manner.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding the
compensation of the Company's Chief Executive Officer and the two other most
highly compensated executive officers (the "Executive Group") for each of the
last three fiscal years. Information is also provided for Mr. Roger W. Norian,
who served as the Company's Chief Executive Officer from June 6, 1980 until
March 15, 1996.
49
<PAGE> 50
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards
------------------------------------------ --------------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Bonus Compensation Award(s) Options/SARs Compensation
Principal Position Year Salary ($) ($) (4) ($)(1) ($)(4) (#) ($)(2)
- ------------------ ---- ---------- ------- ------ ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C>
D. Gordon Strickland 1996 300,000 25,000 520,956(3) -- 100,000 --
President and 1995 289,000 -- -- -- 20,000 --
Chief Executive 1994 267,000 9,000 -- 10,302 -- --
Officer
Robert S. Reeves 1996 224,000 10,000 -- -- 30,000 1,500
Senior Vice 1995 224,000 -- -- -- 12,000 1,500
President, Sales 1994 224,000 6,200 -- 7,097 -- 1,500
Geoffrey A. Whynot, 1996 133,013 10,000 175,130(3) -- 16,000 --
Vice President, 1995 131,693 -- -- -- 16,000 1,257
Finance, Chief 1994 127,700 5,000 -- 5,545 8,000 2,339
Financial Officer
Roger W. Norian 1996 118,750 -- 1,203,432(5) -- -- --
1995 570,000 -- -- -- 75,000 1,500
1994 570,000 15,000 -- 17,178 -- 1,500
</TABLE>
(1) Except as otherwise noted, perquisites and other personal benefits
received by each named executive officer (including, for certain of the
named executive officers, payments of premiums on life insurance
policies, tax preparation fees and car use allowances) in each instance
aggregated less than the lesser of $50,000 or 10% of such officer's
annual salary and bonus.
(2) Includes for Messrs. Strickland, Reeves, Whynot and Norian, respectively,
$0, $1,500, $0 and $0 for 1996 contributions by the Company pursuant to
the Company's Employees' Savings Plan.
(3) Includes reimbursements to Messrs. Strickland and Whynot of $230,000 and
$69,000, respectively, which was equal to the loss on the sale of their
residences in Los Angeles plus $217,438 and $56,911, respectively, gross
up for federal and state taxes resulting from the reimbursements. In both
cases the reimbursements were part of the 1996 restructuring of the
Company, which included moving the Company headquarters from Los Angeles,
California to Lancaster, Pennsylvania.
(4) Pursuant to the Kerr Group, Inc. Key Executive Incentive Bonus Plan (the
"Bonus Plan"), Messrs. Strickland, Reeves, Whynot and Norian received 50%
of their total bonus ($18,000, $12,400, $10,000 and $30,000,
respectively) for 1994 in cash on or about March 1, 1995. These amounts
are reflected in the respective bonus columns for 1994. The remaining 50%
is reflected as an award of restricted stock received by them on March 1,
1997 except in the case of Mr. Norian, who was not eligible under the
Plan to receive the restricted stock. No dividends have been paid on the
restricted stock. The number of shares of restricted stock awarded to
Messrs. Strickland, Reeves and Whynot was 1,212, 835 and 673,
respectively. The number of shares of restricted stock awarded was
calculated by dividing the dollar equivalent of the remaining portion of
their respective bonuses ($9,000, $6,200 and $5,000, respectively) by a
number equal to 90% of the
50
<PAGE> 51
average closing price of the Common Stock during the month of December
1994. The average closing price of the Common Stock during December 1994
was $8.24. The aggregate restricted stock holdings for Messrs.
Strickland, Reeves and Whynot as of December 31, 1996 was 1,212, 835 and
673, respectively. The dollar value of such restricted stock holdings for
Messrs. Strickland, Reeves and Whynot as of December 31, 1996 was $2,878,
$1,983 and $1,598, respectively, which was calculated using the closing
price of the Common Stock on December 31, 1996, which was $2.375 per
share.
(5) Includes a $1,140,000 severance payment in accordance with Mr. Norian's
employment agreement and a $60,932 payment for unused and pro-rata
vacation.
Option/SAR Grants in Last Fiscal Year
The following table sets forth information regarding grants of stock
options made to the Executive Group and Mr. Norian during the last fiscal year.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (2)
- ------------------------------------------------------------------------------------------- --------------------------
Number of Percent of Total
Securities Options Granted Exercise or
Underlying to Employees in Base Price Expiration
Name Options Granted Fiscal Year (3) ($/sh) Date 5% 10%
- -------------------- --------------- ---------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
D. Gordon Strickland 65,000 86.7 $3.9375(4) 6/20/01 $70,688 $156,163
Robert S. Reeves -- -- -- -- -- --
Geoffrey A. Whynot -- -- -- -- -- --
Roger W. -- -- -- -- -- --
Norian (1)
</TABLE>
(1) Mr. Norian served as the Company's Chief Executive Officer from June 6,
1980 until March 15, 1996.
(2) The Potential Realizable Value is calculated based on an assumption that
the fair market value of the Common Stock appreciates at the annual rates
shown (5% and 10%), compounded annually, from the date of grant until the
end of the option term. The 5% and 10% assumed rates are mandated by the
Securities and Exchange Commission for the purposes of calculating
realizable value and do not represent the Company's estimate or
projection of future stock prices.
(3) Based on 75,000 options granted to employees in 1996.
(4) None of these options granted in 1996 are exercisable unless and until
the stock price reaches $10.00 per share and remains at or above that
level for at least 10 consecutive trading days.
51
<PAGE> 52
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
The following table provides information regarding the
exercise of options during the Company's last fiscal year and the number and
value of unexercised options held at year end by each of the named executive
officers and Mr. Norian.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options/SARs In-the-money
at FY-End (#) Options/SARs at FY-End ($)
------------- --------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable (2)
---- --------------- ------------ ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
D. Gordon
Strickland 0 0 10,000 90,000 0 0
Robert S.
Reeves 0 0 5,000 17,000 0 0
Geoffrey A.
Whynot 0 0 7,000 9,000 0 0
Roger W.
Norian (1) 0 0 0 0 0 0
</TABLE>
(1) Mr. Norian served as the Company's Chief Executive Officer from June 6,
1980 until March 15, 1996.
(2) In 1996, Mr. Strickland was granted options to purchase 65,000 shares of
Common Stock at an exercise price of $3.9375 per share. In 1995, Messrs.
Strickland, Reeves and Whynot were granted options to purchase 20,000,
12,000 and 8,000 shares of Common Stock, respectively at an exercise
price of $7.56 per share. In 1993, Messrs. Strickland and Reeves were
each granted options to purchase 5,000 shares of Common Stock at an
exercise price of $8.3125 per share. The amounts set forth in this column
were calculated using the difference in the fiscal year-end closing price
of the Common Stock, $2.375 per share, from the exercise price per share.
Options granted in 1996 are not exercisable unless and until the stock
price reaches $10.00 per share and remains at or above that level for at
least 10 consecutive trading days. None of the options granted in 1993 or
1995 are exercisable unless and until the stock price reaches $12.50 per
share and remains at or above that level for at least 10 consecutive
trading days. In addition, options granted in 1992 were not exercisable
unless and until the stock price reached $10.00 per share and remained at
or above that level for at least ten consecutive trading days, which
occurred in 1994.
Pension Plans
The Company maintains a funded Retirement Income Plan which
provides eligible employees with retirement benefits equal to 28% of final five
year average remuneration up to social security covered compensation, plus 43%
of final five year average remuneration in excess of social security covered
compensation for 30 years of service, with a proportionate reduction for less
than 30 years of service. Five years of service are required in order to vest
under the Retirement Income Plan. The Company also maintains 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 under the Retirement Income Plan and the
Pension Restoration Plan when expressed as a single-life annuity on the life of
the participant is limited to $200,000.
52
<PAGE> 53
The following table sets forth estimated annual retirement
benefits payable on a straight life annuity basis upon retirement at age 65
under the Company's Retirement Income Plan and Pension Restoration Plan (without
regard to lower accruals on earnings below social security covered compensation)
for covered employees based on their average remuneration and years of service.
Remuneration covered by the Retirement Income Plan primarily includes salary and
bonus (including such bonus amounts paid in the form of stock), as set forth in
the Summary Compensation Table. Upon a Change of Control of the Company, as
defined in the Pension Restoration Plan, amounts accrued under the Pension
Restoration Plan will be paid out in a lump sum. Messrs. Strickland, Reeves and
Whynot have, as of December 31, 1996, 10, 13 and 9 years, respectively, of
credited service under the pension plans.
<TABLE>
<CAPTION>
Final 5 Year Years of Service
Average -------------------------------------------
Remuneration 10 20 30 or more
------------ -- -- ----------
<S> <C> <C> <C>
$ 100,000 ........... $14,333 $28,667 $ 43,000
150,000 ........... 21,500 43,000 64,500
200,000 ........... 28,667 57,333 86,000
250,000 ........... 35,833 71,667 107,500
300,000 ........... 43,000 86,000 129,000
</TABLE>
Compensation of Directors
The directors who are not employees of the Company are
currently compensated for services as directors at the rate of $22,500 per year
and $500 for each meeting of the Board of Directors attended. Mr. Elish, for
serving as Chairman of the Board, also receives an annual fee of $50,000. In
addition, the Company has established an unfunded retirement plan for directors
of the Company who serve in such capacity for ten years or more, retire after
February 1, 1985, and do not receive any other retirement benefits from the
Company. Pursuant to such plan, the Company will pay $1,000 per month for not
more than ten years to a qualifying director. In 1993, the six directors who
were not employees of the Company each received options to purchase 10,000
shares of Common Stock at a price of $8.19 per share pursuant to the Company's
Stock Option Plan For Non-Employee Directors. These options are not exercisable
unless and until the closing price of the Common Stock on the New York Stock
Exchange reaches $12.50 per share and remains at or above that level for at
least 10 consecutive trading days. Upon his election to the Board in 1996, Mr.
Elish received options to purchase 10,000 shares of Common Stock at a price of
$3.9375 per share pursuant to the Company's Stock Option Plan for Non-Employee
Directors. These options are not exercisable unless and until the closing price
of the Common Stock on the New York Stock Exchange reaches $10.00 per share and
remains at or above that level for at least 10 consecutive trading days. In
1992, the Board of Directors adopted the Director Stock Purchase Plan pursuant
to which non-employee directors may elect to defer the receipt of all or a
portion of their fees. The amounts deferred are contributed to a trust which
will then purchase Common Stock using such amounts on behalf of the
participating directors. The Common Stock Purchase Plan for Directors became
effective on October 1, 1992.
53
<PAGE> 54
Employment Contracts and Termination of Employment
and Change-in-Control Arrangements
Each member of the Executive Group currently has an employment
agreement with the Company.
Mr. Strickland has an employment agreement with the Company
for an indefinite term until terminated by either Mr. Strickland or the Company
as set forth in the agreement. Mr. Strickland's employment agreement provides
for a salary of $300,000 annually. Mr. Strickland's employment agreement also
provides for the continued payment of his salary and certain insurance benefits
for a period of two years following his termination of employment by the Company
for reasons other than "just cause" or permanent disability, or in the event
that Mr. Strickland elects to terminate his employment following his
reassignment or relocation. Mr. Strickland's employment agreement also provides
that if a change of control (including a sale of all of the assets) of the
Company occurs, the obligations of the Company terminate, except for the
continuation of certain insurance benefits for a two year period, and the
Company will pay $600,000 to Mr. Strickland.
The Company entered into an employment agreement with Mr.
Reeves as of February 17, 1983 for an indefinite term until terminated by either
Mr. Reeves or the Company as set forth in the agreement. Mr. Reeves' employment
agreement provides for a salary of $224,000 annually. Mr. Reeves' employment
agreement also provides for the continued payment of his salary and certain
insurance benefits for a period of eighteen months following his termination of
employment by the Company without cause.
The Company entered into an employment agreement with Mr.
Whynot as of November 16, 1989 for an indefinite term until terminated by either
Mr. Whynot or the Company as set forth in the agreement. Mr. Whynot's employment
agreement provides for a salary of $145,000 annually. Mr. Whynot's employment
agreement also provides for the continued payment of his salary and certain
insurance benefits for a period of twelve months following his termination of
employment by the Company without cause.
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, Messrs. Elish, Jackson
and Mellor served as members of the Compensation Committee. None of such members
of the Compensation Committee are or have been officers or employees of the
Company.
Mr. Jackson is an Advisory Director of Lehman Brothers, Inc.,
which performs investment banking services for the Company from time to time.
Messrs. Elish, Sperry and Jackson currently serve as directors
of Hampshire Group, Limited.
54
<PAGE> 55
Report of the Compensation Committee of the Board of Directors
In establishing and monitoring the executive compensation
program for the Company, the Compensation Committee looks at both the total
compensation program and each component thereof to assure that it is both
competitive and sensitive to individual and Company performance. In addition,
the compensation determined by the Compensation Committee is subject to the
terms of existing employment agreements with each member of the Executive Group.
The Company utilizes a consultant in the field of executive compensation matters
to assist the Compensation Committee in establishing and implementing
compensation programs that are consistent with these objectives and reflective
of the Company's financial performance.
In 1993, the Compensation Committee established and
implemented the Bonus Plan. Under the Bonus Plan, each participating executive,
including Mr. Strickland, the Company's Chief Executive Officer, is eligible to
receive incentive compensation which is determined both qualitatively and
quantitatively. The qualitative portion is based on the achievement of specific
objectives for each participant and the quantitative portion is based on the
achievement of financial objectives established by the Compensation Committee
for the particular year. For 1996, each participant received a qualitative
portion of the incentive compensation. However, in early 1996, the Compensation
Committee determined that it was not reasonable or appropriate to establish
quantitative bonus targets, in view of the Company's anticipated financial
results.
COMPENSATION COMMITTEE
Herbert Elish
Michael C. Jackson
James R. Mellor
Performance Graph
The graph set forth below charts the yearly percentage change in
the Company's cumulative total stockholder return against each of the Standard &
Poor's 500 Index and the Manufacturing-Diversified Industries Index, in each
case assuming an investment of $100 on December 31, 1991 and the cumulation and
reinvestment of dividends paid thereafter through December 31, 1996.
55
<PAGE> 56
[LINE GRAPH]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Dec. 1991 Dec. 1992 Dec. 1993 Dec. 1994 Dec. 1995 Dec. 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kerr Group, Inc. 100.00 104.00 134.00 134.00 160.00 38.00
S & P 500 Index 100.00 107.72 118.48 120.04 165.05 203.23
MFG-DIVFD Industrials 100.00 108.38 131.55 136.20 191.72 264.17
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information available to the
Company with respect to the ownership of the Company's Common Stock, par value
$.50 per share ("Common Stock") by i) each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, ii) each
director of the Company, iii) each named executive officer designated in Item 11
of Form 10-K captioned "Executive Compensation", and iv) all directors and
executive officers as a group. Unless otherwise indicated, all shares of common
stock are owned directly and of record and the person owning such shares has
sole voting and investment power with respect thereto.
56
<PAGE> 57
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Beneficial Shares
Beneficial Owner Ownership Outstanding
---------------- --------- -----------
<S> <C> <C>
The Gabelli Funds, Inc.
655 Third Avenue
New York, New York 626,479 (1) 15.4%
Wynnefield Partners
Small Cap Value, L.P.
One Penn Plaza, Suite 4720
New York, New York 392,500 (2) 10.0%
U.S. Trust Company of California, N.A.
Kerr Retirement Income Plan Trust
515 S. Flower Street, Suite 2800
Los Angeles, California 368,200 (3) 9.4%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, Suite 650
Santa Monica, California 282,700 (4) 7.1%
Harvey L. Sperry 22,696 (5) *
D. Gordon Strickland 22,410 (6) *
Robert S. Reeves 19,023 (6) *
James R. Mellor 15,788 (5) *
Gordon C. Hurlbert 14,455 (5) *
Geoffrey A. Whynot 12,806 (6) *
Herbert Elish 11,149 (5) *
Michael C. Jackson 10,938 (5) (7) *
Robert M. O'Hara 9,905 (5) *
John D. Kyle 6,625 (5) *
All Directors and Executive
Officers as a Group (10 in number) 145,795 (8) 3.7%
</TABLE>
* Less than one percent.
(1) According to Amendment No. 41 to the Schedule 13D filed jointly by
Gabelli Funds, Inc., GAMCO Investors, Inc., Gabelli Performance
Partnership, Gabelli International Limited and Gabelli Asset Management
Company International Advisory Services, Ltd. (collectively, the "Gabelli
Entities") with the Securities and Exchange Commission (the "SEC") on
March 8, 1997 (as amended, the "Schedule 13D"), the Gabelli Entities
beneficially owned 490,000 shares of Common Stock. Under applicable SEC
rules, the Gabelli Entities are also deemed to own beneficially an
additional 136,479 shares of Common Stock which the Gabelli Entities
57
<PAGE> 58
have the right to acquire at any time upon conversion of the 93,832
shares of Convertible Preferred Stock beneficially owned by the Gabelli
Entities.
The additional shares of Common Stock which may be acquired by the
Gabelli entities upon such conversion, together with the 490,000 shares
of Common Stock indicated as beneficially owned by the Gabelli Entities
in the table above, represent an aggregate of 626,479 shares, or
approximately 15.4% of the total shares of Common Stock outstanding as of
March 14, 1997, including, for this calculation only, the number of
shares of Common Stock that the Gabelli Entities have the right to
acquire upon conversion of the Convertible Preferred Stock reported as
beneficially owned by them. The Schedule 13D states that the Gabelli
Entities have not acquired the shares of Common Stock for the purpose of
changing or influencing the control of the Company.
(2) According to Amendment No. 3 to the Schedule 13D filed by Wynnefield
Partners Small Cap Value, L.P. and Wynnefield Small Cap Value Offshore
Fund, Ltd. (collectively, "Wynnefield Partners") with the SEC on February
25, 1997 (as amended, the "Scheduled 13D"), Wynnefield Partners
beneficially owned 392,500 shares or 10.0% of the Common Stock. The
schedule 13D states that Wynnefield Partners purchased the shares for
investment and to enhance the partnership's ability to monitor and
evaluate the Company's efforts to restructure its existing debt and to
carefully evaluate any proposed related recapitalization which would
affect shareholder value.
(3) U.S. Trust Company of California, N.A., Kerr Retirement Income Plan Trust
(the "Trust") filed a Schedule 13G with the SEC on February 9, 1996
stating that it held 368,200 shares or 9.4% of the Common Stock. The
Trust holds these shares for the benefit of the participants in the
Company's Retirement Income Plan. The Schedule 13G states that the Trust
has not acquired the shares of Common Stock for the purpose of changing
or influencing the control of the Company.
(4) According to Amendment No. 9 to the Schedule 13G filed by Dimensional
Fund Advisors, Inc. ("Dimensional") with the SEC on February 5, 1997 (as
amended, the "Schedule 13G"), Dimensional, a registered investment
adviser, is deemed to have beneficial ownership of 282,700 shares or 7.1%
of the Common Stock as of December 31, 1996. Dimensional reported that it
had the power to make investment decisions regarding all shares of Common
Stock owned beneficially by it on behalf of its clients, which are
unrelated and no one of whom owns beneficially more than 5% of the
outstanding shares of Common Stock. The Schedule 13G states that
Dimensional has not acquired the shares of Common Stock for the purpose
of changing or influencing the control of the Company. Dimensional
reported that it had sole voting power with respect to 173,700 shares of
the Common Stock. Persons who are officers of Dimensional also serve as
officers of DFA Investment Dimensions Group Inc. ("Dimensional Fund") and
DFA Investment Trust Company ("Dimensional Trust"), each a registered
open-end investment company. Dimensional reported that in their
capacities as officers of Dimensional Fund and Dimensional Trust these
persons vote 35,400 additional shares which are owned by Dimensional Fund
and 73,600 shares which are owned by Dimensional Trust.
(5) Includes 14,455, 10,938, 11,149, 6,625, 22,696, 15,788 and 9,905 shares
of Common Stock purchased for the accounts of Messrs. Hurlbert, Jackson,
Elish, Kyle, Sperry, Mellor and O'Hara, respectively, by the trustee
under the Director Stock Purchase Plan. Currently, the participating
directors have voting and dispositive power with respect to such shares
only upon termination of their services as a director of the Company.
Excludes 10,000 shares issuable under stock options granted to each
non-employee director pursuant to the Company's 1993 Stock Option Plan
for Non-Employee Directors. These options are not exercisable unless and
until the closing price of the Common Stock on the New York Stock
Exchange reaches $12.50 per share, or $10.00 per share for stock options
issued to Mr. Elish in 1996, and remains at or above that level for at
least 10 consecutive trading days. Does not include 10,000 shares of
Common Stock held by Mr. Sperry in a self-directed Keogh Plan.
(6) Includes, respectively for Messrs. Strickland, Reeves and Whynot, 10,000,
5,000 and 7,000 shares issuable under presently exercisable stock options
held by such person. Also includes, respectively for Messrs. Strickland,
Reeves and Whynot, 4,306, 5,937 and 2,072 shares which have been
allocated for voting and all other purposes under ESOP I, and 5,369,
5,731 and 2,649 shares which have been allocated for voting and all other
purposes under ESOP II.
58
<PAGE> 59
(7) Includes 1,088 shares issuable upon conversion of 748 shares of
Convertible Preferred Stock held by Mr. Jackson, of which 658 shares are
held pursuant to a self-directed Keogh Plan and 90 shares are held
directly.
(8) Includes 56,038 shares of Common Stock purchased for the accounts of the
Company's non-employee directors by the trustee under the Company's
Common Stock Purchase Plan for Non-Employee Directors (the "Director
Stock Purchase Plan") and 22,000 shares (including shares designated in
Note 6 above) issuable upon exercise of stock options. Also includes
12,315 shares (including shares designated in Note 5 above) which have
been allocated for voting and all other purposes under ESOP I and 13,749
shares (including shares designated in Note 5 above) which have been
allocated for voting and all other purposes under ESOP II, for the
Company's present officers included in the group, who have the power to
vote such shares, but may not obtain or dispose of such shares except
under limited circumstances.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Sperry is a partner in the law firm of Willkie Farr &
Gallagher, counsel to the Company.
Mr. Jackson is an Advisory Director of Lehman Brothers Inc.,
which performs investment banking services for the Company from time to time.
In 1991, Mr. Strickland received a loan from the Company in
the principal amount of $100,000. The loan has $92,000 of principal outstanding,
bears interest at 7.76% per annum, and is due in installments payable in 1998
through 2001. Interest accrues on the loan and is due in 2001 when the final
installment of principal is due. If Mr. Strickland terminates employment with
the Company, the principal and accrued interest becomes due; however, Mr.
Strickland's employment agreement provides that in the event the Company elects
to terminate its obligations under the employment agreement within 180 days
following a change in control, Mr. Strickland's obligation to repay the
remaining principal and accrued interest is terminated. In that event, Mr.
Strickland would be paid by the Company the amount of federal and state taxes,
grossed up, resulting from the termination of Mr. Strickland's obligation to
repay the loan.
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, 1996:
VIII - Valuation and Qualifying Accounts, page 67.
59
<PAGE> 60
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.
(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
dated as of March 15, 1996 between the
Registrant and D. Gordon Strickland.
10.2 Amendment to Amended and Restated
Employment Agreement dated as of January
2, 1997 between Registrant and D. Gordon
Strickland.
10.3 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.
10.4 Amendment dated as of January 2, 1996 of
the Employment Agreement between
Registrant and Robert S. Reeves is
incorporated by reference to Exhibit 10.6
to Form 10-K for the fiscal year ended
December 31, 1996.
10.5 Employment Agreement, as amended, between
Registrant and Geoffrey A. Whynot dated
as of November 1, 1989 is incorporated by
reference to Exhibit 10.7 to Form 10-K
for the fiscal year ended December 31,
1996.
60
<PAGE> 61
10.6 Amendment dated as of November 17, 1995
of the Employment Agreement between the
Registrant and Geoffrey A. Whynot.
10.7 1984 Stock Option Plan is incorporated by
reference to Exhibit 4.7 to Registration
Statement No. 2-92722.
10.8 1987 Stock Option Plan is incorporated by
reference to Exhibit 10.12 to Form 10-K
for the fiscal year ended December 31,
1986.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
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<PAGE> 62
10.17 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.
10.18 Directors' Retirement Consulting Plan is
incorporated by reference to Exhibit
10.22 to Form 10-K for the fiscal year
ended December 31, 1984.
10.19 Key Executive Bonus Plan is incorporated
by reference to Exhibit 10.2 to Form 10-Q
for the fiscal quarter ended June 30,
1993.
10.20 Pension Restoration Plan is incorporated
by reference to Exhibit 10.19 to Form
10-K for the fiscal year ended December
31, 1994.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
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<PAGE> 63
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
63
<PAGE> 64
10.35 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, is
incorporated by reference to Exhibit
10.47 to Form 10-K for the fiscal year
ended December 31, 1995.
10.36 Amended and Restated Loan and Security
Agreement dated January 5, 1996 between
The First National Bank of Boston and
Registrant is incorporated by reference
to Exhibit 10.48 to Form 10-K for the
fiscal year ended December 31, 1995.
10.37 Amendment Agreement dated January 5, 1996
of the Note Agreement dated as of
September 15, 1993 between Registrant and
the Purchasers identified therein is
incorporated by reference to Exhibit
10.49 to Form 10-K for the fiscal year
ended December 31, 1995.
10.38 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 is incorporated by reference to
Exhibit 10.50 to Form 10-K for the fiscal
year ended December 31, 1995.
10.39 Consent, Waiver and Amendment Agreement
dated February 24, 1997 between PNC Bank,
N.A., the Purchasers identified in the
Note Agreement dated as of September 15,
1993, the purchasers of Note formerly
held by The First National Bank of Boston
and the Registrant.
11.1 Statement re: Computation of Per Common
Share Earnings (Loss).
23.1 Consent of Independent Certified Public
Accountants.
27.1 Financial Data Schedule
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.
64
<PAGE> 65
b. Reports on Form 8-K
On October 10, 1996, the Company filed a Form 8-K
Current Report with respect to a commitment from a
lender to provide secured financing for the Company.
On November 18, 1996, the Company filed a Form 8-K
Current Report with respect to the sale by the holders
of the Company's existing unsecured debt.
65
<PAGE> 66
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 27, 1997
Lancaster, Pennsylvania
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.
<TABLE>
<S> <C>
/s/ Herbert Elish March 27, 1997
-----------------------------------
Herbert Elish, Director
/s/ Gordon C. Hurlbert March 27, 1997
-----------------------------------
Gordon C. Hurlbert, Director
/s/ Michael C. Jackson March 27, 1997
-----------------------------------
Michael C. Jackson, Director
/s/ John D. Kyle March 27, 1997
-----------------------------------
John D. Kyle, Director
/s/ James R. Mellor March 27, 1997
-----------------------------------
James R. Mellor, Director
/s/ D. Gordon Strickland March 27, 1997
-----------------------------------
D. Gordon Strickland, Principal
Executive Officer; Director
/s/ Robert M. O'Hara March 27, 1997
-----------------------------------
Robert M. O'Hara, Director
/s/ Harvey L. Sperry March 27, 1997
-----------------------------------
Harvey L. Sperry, Director
/s/ Geoffrey A. Whynot March 27, 1997
-----------------------------------
Geoffrey A. Whynot
Principal Financial Officer
</TABLE>
66
<PAGE> 67
SCHEDULE VIII
KERR GROUP, INC.
Valuation and Qualifying Accounts
Three years ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
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
- -------------------------------- ------------ ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts,
year ended:
December 31, 1994 $433 $ 19 $ -- $ 441 $ 11
==== ==== ===== ===== ====
December 31, 1995 $ 11 $220 $ -- $ 19 $212
==== ==== ===== ===== ====
December 31, 1996 $212 $156 $ -- $ 81 $287
==== ==== ===== ===== ====
</TABLE>
Note: Allowance for doubtful accounts presented in the table above is related to
continuing operations only. Allowance for doubtful accounts associated with the
Consumer Products Business of the Registrant has been reported as a component of
net current assets related to discontinued operations in the Registrant's
Balance Sheets.
(a) These deductions represent uncollectible amounts charged against the
reserve.
67
<PAGE> 68
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
KERR GROUP, INC.
FORM 10-K
for year ended December 31, 1996
INDEX TO EXHIBITS FILED SEPARATELY WITH FORM 10-K
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
10.1 Amended and Restated Employment Agreement dated as of
March 15, 1996 between the Registrant and D. Gordon
Strickland.
10.2 Amendment to Amended and Restated Employment
Agreement dated as of January 2, 1997 between
Registrant and D. Gordon Strickland.
10.6 Amendment dated as of November 17, 1995 of the
Employment Agreement between the Registrant and
Geoffrey A. Whynot.
10.39 Consent, Waiver and Amendment Agreement dated
February 24, 1997 between PNC Bank, N.A., the
Purchasers identified in the Note Agreement dated as
of September 15, 1993, the purchasers of Note
formerly held by The First National Bank of Boston
and the Registrant.
11.1 Statement re: Computation of Per Common Share
Earnings (Loss).
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT, originally dated as of June 16, 1986, and amended
and restated as of March 15, 1996, between Kerr Group, Inc., a Delaware
corporation (the "Company"), and D. Gordon Strickland (the "Employee").
1. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Term. a) The Agreement shall commence and take effect on
the date hereof, and end on the date this Agreement is terminated by either the
Company or the Employee as hereinafter provided in this paragraph 2.
(b) The Company may at its election terminate the obligations
of the Company under this Agreement as follows:
(1) If the Employee becomes ill or is injured so that
he is unable to perform the services required of him hereunder and such
inability to perform continues for a period in excess of 180 consecutive days
and such inability is continuing at the time of such notice, then the Company
may terminate its obligations hereunder on 30 days notice provided that the
Employee shall receive disability payments under the Company's group disability
benefits during the period commencing on the date of such termination and ending
on the date such disability ends or age 65, whichever first occurs.
(2) For just cause upon notice of such termination to
the Employee. Termination of the Employee's
<PAGE> 2
employment by the Company shall constitute a termination "for just cause" only
if such termination is for one or more of the following reasons: (i) the failure
of the Employee to render services to the Company in accordance with his
obligations under this Agreement, which failure amounts to an extended and gross
neglect of his duties to the Company; (ii) the continued use of non-prescription
drugs and alcohol by the Employee to an extent that he is unable to fulfill his
duties under this Agreement; and (iii) the commission by the Employee of an act
of fraud or embezzlement against the Company or the Employee's having been
convicted of a felony involving moral turpitude.
(3) Without cause upon notice to the Employee provided that,
for a period of two years after such termination, the Company shall (i) pay to
Employee an amount each month equal to the Salary which Employee is being paid
each month at the date of the notice of termination and (ii) provide for
Employee the same fringe benefits, consisting of medical, dental, life and
disability insurance, which were provided to Employee at the date of the notice
of termination. If the Company may elect, in accordance with paragraph 2(b)(1)
hereof, to terminate this Agreement then such election shall be deemed to have
been made under paragraph 2(b)(1) and not in accordance with this paragraph
2(b)(3). The Company shall be deemed to have elected to terminate this Agreement
in accordance with this paragraph 2(b)(3) if the title or duties of the Employee
are, without the written approval of the Employee, changed from that of Chief
Executive Officer or the Employee is, without the written
-2-
<PAGE> 3
approval of the Employee, required to reside other than in the area of
Lancaster, Pennsylvania in order to perform his duties for the Company; provided
that the Employee, within 30 days after the occurrence of such an event, shall
notify the Company that the Company is so deemed to have elected to terminate
this Agreement. The Employee shall have no further obligation under this
Agreement from and after such termination except as provided in paragraphs 6, 7
and 8 hereof.
(c) Employee may terminate his obligations under Paragraphs 4
and 5 hereof upon 90 days prior notice thereof to the Company and, from and
after the delivery of such notice, the Company shall have no further obligations
under this Agreement unless it shall elect by notice to the Employee, to
continue to pay the Employee as herein provided for the 90-day period commencing
with the date of delivery of the notice and in such event the Employee shall
continue to perform his obligations under paragraphs 4 and 5 during such period.
(d) The obligations of the Company under this Employment
Agreement shall terminate simultaneously with the occurrence of any of the
following events and upon such termination the Company shall pay to Employee, by
delivery of a certified or bank check, in an amount determined by multiplying by
twenty four the Salary then being paid to Employee in accordance with paragraph
3(a) and provide to Employee for 24 months the fringe benefits described in
paragraph 2(b)(3):
(i) 50% or more of the shares of the Company's Common
Stock is acquired, directly or indirectly, by an
-3-
<PAGE> 4
individual, partnership, corporation, trust or unincorporated
organization (collectively "Person") or by Persons acting with a common
design, either formally or informally;
(ii) The Company merges with or into another Person
and is not the survivor of such merger or because of such merger the
Company becomes a wholly-owned subsidiary or the Company sells all of
its fixed assets to another Person or Persons; or
(iii) The majority of the Board of Directors of the
Company consists of directors who were not selected by or nominated
with the approval of a majority of the directors of the Company in
office on the date hereof (the "Present Directors") or who were not
selected by or nominated with the approval of a majority of directors
selected or nominated by a majority of the Present Directors.
The Employee shall have no further obligation under this Employment Agreement
from and after such termination except as provided in paragraphs 6, 7 and 8
hereof.
3. Compensation. The Company shall:
(a) pay the Employee a salary ("Salary") at the rate of
$25,000.00 per month during each month of the term hereof, payable in equal
semi-monthly installments;
(b) pay the Employee a bonus each fiscal year during the term
hereof in an amount, if any, determined by the Compensation and Stock Option
Committee of the Board of Directors
-4-
<PAGE> 5
or in accordance with any incentive compensation plan approved by such
Committee;
(c) pay to the Employee the sum of $448,000, which consists of
(i) $230,000, which is the loss to be sustained by the Employee upon the sale of
his residence in Los Angeles and which sale is required because of the
relocation of the Principal Executive Office of the Company to Lancaster,
Pennsylvania, and (ii) $218,000, which is the gross up for federal and state
income taxes required to be paid to the Employee as a result of the payment of
$230,000;
(d) pay to the Employee the amount, if any, by which the
purchase price for his residence in Lancaster, Pennsylvania exceeds the sale
price, with such amount grossed up for federal and state income taxes, if such
sale occurs before September 30, 1997 and after this Agreement is terminated in
accordance with paragraphs 2(b)(1) or (3) or 2(d);
(e) provide the Employee with a car allowance of $870 each
month; and
(f) reimburse the Employee not in excess of $3,580 annually to
pay the premium on a life insurance policy in the amount of $1 million on the
life of the Employee, which policy is owned by the Employee.
In addition to the foregoing, the Employee shall be eligible
for and participate in such fringe benefits as are generally available to
executives of the Company and shall be entitled to receive such increases in
Salary as the Company may from time to time deem appropriate.
-5-
<PAGE> 6
4. Duties. The Employee shall be the Chief Executive Officer
of the Company, and hereby promises to perform and discharge well and faithfully
the duties which may be assigned to him from time to time by the Company in
connection with the conduct of its business. Election or appointment as a
director or officer of the Company or any subsidiary thereof during the term of
this Agreement will not be a basis for the Employee to receive additional
compensation.
5. Extent of Services. The Employee shall devote his entire
time, attention and energies to the business of the Company and shall not during
the term of this Agreement be engaged in any other business activity whether or
not such business activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing the Employee from
investing his personal assets in businesses which do not compete with the
Company in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor, and except that the Employee may purchase securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his owning beneficially at any time equity securities of any
corporation engaged in a business competitive with that of the Company.
6. Disclosure of Information. The Employee recognizes and
acknowledges that the Company's trade secrets, know-how and proprietary
processes as they may exist from time to
-6-
<PAGE> 7
time are valuable, special and unique assets of the Company's business, access
to and knowledge of which are essential to the performance of the Employee's
duties hereunder. Except when duly authorized by the Company, the Employee will
not, during or after the term of his employment by the Company, in whole or in
part, disclose such secrets, know-how or processes to any person, firm,
corporation, association or other entity, nor shall the Employee make use of any
such property for his own purposes or for the benefit of any person, firm,
corporation or other entity (except the Company) under any circumstances during
or after the term of his employment, provided that after the term of his
employment these restrictions shall not apply to such secrets, know-how and
processes which are then in the public domain (provided that the Employee was
not responsible, directly or indirectly, for such secrets, know-how or processes
entering the public domain without the Company's consent).
7. Inventions. The Employee hereby sells, transfers and
assigns to the Company or to any person or entity designated by the Company all
of the entire right, title and interest of the Employee in and to all
inventions, ideas, disclosures and improvements, whether patented or unpatented,
and copyrightable material, made or conceived by the Employee, solely or
jointly, during the term hereof which relate to methods, apparatus, designs,
products, processes or devices, sold, leased, used or under construction or
development by the Company or any subsidiary, or which otherwise relate to or
pertain to the business, functions or operations of the Company or any
-7-
<PAGE> 8
subsidiary, or which arise from the efforts of the Employee during the course of
his employment for the Company. The Employee shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details and data pertaining to the aforementioned inventions, ideas, disclosures
and improvements; and the Employee shall execute and deliver to the Company such
formal transfers and assignments as may be required of the Employee to permit
the Company or any person or entity designated by the Company to file and
prosecute the patent applications and, as to copyrightable material, to obtain
copyright thereof. Any invention relating to the business of the Company or any
subsidiary and disclosed by the Employee within one (1) year following the
termination of this Agreement shall be deemed to fall within the provisions of
this paragraph unless proved to have been first conceived and made following
such termination.
8. Injunctive Relief. If there is a breach or threatened
breach of the provisions of paragraphs 6 or 7 of this Agreement, the Company
shall be entitled to an injunction restraining the Employee from such breach.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other remedies for such breach or threatened breach.
9. Insurance. The Company may, at its election and for its
benefit, insure the Employee against accidental loss or death and the Employee
shall submit to such physical examinations and supply such information as may be
required in connection therewith.
-8-
<PAGE> 9
10. Notices. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and if sent by registered
mail to his residence in the case of the Employee or to the Company at 500 New
Holland Avenue, Lancaster, Pennsylvania 17602, Attention: Secretary, or to such
officer or address as the Company shall notify Employee.
11. Waiver of Breach. A waiver by the Company or Employee of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
12. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
13. Entire Agreement. This instrument contains the entire
agreement of the parties. It may be changed only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day first hereinabove written.
KERR GROUP, INC.
By: /s/ Richard H. Dittmar
-----------------------------------------
Title: Vice President, Employee Relations
-------------------------------------
/s/ D. Gordon Strickland
---------------------------------------------
D. GORDON STRICKLAND
-9-
<PAGE> 10
AMENDMENT TO
EMPLOYMENT AGREEMENT
WHEREAS, Kerr Group, Inc. (the "Company") and D. Gordon
Strickland (the "Employee") have entered into an Employment Agreement, dated as
of June 16, 1986 (the "Employment Agreement"); and
WHEREAS, pursuant to Paragraph 13 of the Employment Agreement,
the Company and the Employee have agreed to amend the Employment Agreement.
NOW, THEREFORE, as of the date written below, the Employment
Agreement is amended as follows:
1. The third sentence of Paragraph 2(b)(3) shall be deleted and replaced with:
Notwithstanding anything in this Paragraph 2(b)(3) to the
contrary, the Salary to be paid to Employee upon termination of
employment pursuant hereto shall not be reduced by any amounts paid to
Employee on account of any compensation received by Employee from other
employment. Furthermore, the Company shall not be obligated to provide
any such fringe benefit after Employee shall receive such fringe
benefit at least as favorable to Employee from another employer.
IN WITNESS WHEREOF, the parties have executed this Amendment
on the 2nd day of January, 1996.
KERR GROUP, INC.
By: /s/ D. Gordon Strickland
-----------------------------------------
President
-10-
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDMENT AGREEMENT dated as of January 2, 1997 between Kerr
Group, Inc., a Delaware corporation (the "Company"), and D. Gordon Strickland
(the "Employee").
WHEREAS, the Company and the Employee are parties to an
Amended and Restated Employment Agreement dated as of March 15, 1996; and
WHEREAS, the Company and the Employee desire to amend the
Amended and Restated Employment Agreement as follows:
1. Amendment of Paragraph 2(b)(3). Paragraph 2(b)(3) of the
Amended and Restated Employment Agreement is hereby amended to read in its
entirety as follows:
"(3) Without cause upon notice to the Employee provided that,
for a period of two years after such termination, the Company shall (i) pay to
Employee an amount each month equal to the Salary which Employee is being paid
each month at the date of the notice of termination and (ii) provide for
Employee the same fringe benefits, consisting of medical, dental, life and
disability insurance, which were provided to Employee at the date of the notice
of termination. If the Company may elect, in accordance with paragraph 2(b)(1)
hereof, to terminate this Agreement then such election shall be deemed to have
been made
<PAGE> 2
under paragraph 2(b)(1) and not in accordance with this paragraph 2(b)(3). If
the Company elects to terminate the obligations of the Company in accordance
with this paragraph 2(b)(3) within 180 days after the occurrence of the events
described in paragraph 2(d)(i), (ii) or (iii), then, in lieu of paying any
amounts to the Employee in accordance with this paragraph 2(b)(3) except
providing the fringe benefits, the Company shall pay to the Employee the amounts
provided in paragraph 2(d) when required by paragraph 2(d), terminate the
obligations under the promissory notes and pay to the Employee the amount,
including the gross up, all as described in paragraph 2(d). The Company shall be
deemed to have elected to terminate this Agreement in accordance with this
paragraph 2(b)(3) if the title or duties of the Employee are, without the
written approval of the Employee, changed from that of Chief Executive Officer
or the Employee is, without the written approval of the Employee, required to
reside other than in the area of Lancaster, Pennsylvania in order to perform his
duties for the Company; provided that the Employee, within 30 days after the
occurrence of such an event, shall notify the Company that the Company is so
deemed to have elected to terminate this Agreement. The Employee shall have no
further obligation under this Agreement from and after such termination except
as provided in paragraphs 6, 7, 7A and 8 hereof."
2. Amendment of Paragraph 2(d). Paragraph 2(d) is hereby
amended to read in its entirety as follows:
-2-
<PAGE> 3
"(d) Within 180 days after the occurrence of any of the
following events, the Employee may elect to terminate the obligations of the
Employee under this Agreement, except as hereinafter provided, and the Company
shall pay to the Employee, upon such termination, by delivery of a certified or
bank check, an amount determined by multiplying by 24 the Salary then being paid
to the Employee in accordance with paragraph 3(a), provide to Employee for 24
months the fringe benefits described in paragraph 2(b)(3), terminate the
obligations of the Employee then existing under promissory notes, dated
September 3, 1986 and June 11, 1991, delivered by the Employee to the Company
and pay to the Employee the amount of federal and state taxes, grossed up,
resulting from the termination of the obligations under the promissory notes:
(i) 50% or more of the shares of the Company's Common
Stock are acquired, directly or indirectly, by an individual,
partnership, corporation, trust or unincorporated organization
(collectively "Person") or by Persons acting with a common design,
either formally or informally;
(ii) The Company merges with or into another Person
and is not the survivor of such merger or because of such merger the
Company becomes a wholly-owned subsidiary or the Company sells all of
its fixed assets to another Person or Persons; or
-3-
<PAGE> 4
(iii) The majority of the Board of Directors of the
Company consists of directors who were not selected by or nominated
with the approval of a majority of the directors of the Company in
office on the date hereof (the "Present Directors") or who were not
selected by or nominated with the approval of a majority of directors
selected or nominated by a majority of the Present Directors.
The Employee shall have no further obligation under this Employment Agreement
from and after such termination except as provided in paragraphs 6, 7, 7A and 8
hereof."
3. New Paragraph 7A. A new paragraph to be entitled, "7A.
Noncompetition" is hereby added to the Amended and Restated Employment Agreement
and shall read in its entirety as follows:
"7A. Noncompetition. If the Employee shall terminate this
Agreement in accordance with paragraphs 2(c) or 2(d) or if the Company shall
terminate this Agreement in accordance with paragraph 2(b)(3) and the Company
shall have performed, and continues to perform, all of its obligations under
this Agreement, then for a period of 2 years after the date of termination the
Employee shall not (i) engage in any business which competes directly or
indirectly with the business conducted by the Company at the date of such
termination in any area where
-4-
<PAGE> 5
the Company is conducting the business on such date and (ii) shall not induce
any employee, customer or lessee or lessor to terminate his, her or its
relationship with the Company."
4. Amendment of Paragraph 8. Paragraph 8 is hereby amended to
read in its entirety as follows:
"8. Injunctive Relief. If there is a breach or threatened
breach of the provisions of paragraphs 6, 7 or 7A of this Agreement, the Company
shall be entitled to an injunction restraining the Employee from such breach.
Nothing herein shall be construed as prohibiting the Company from pursuing any
other remedies for such breach or threatened breach."
5. Ratification. Except as hereby amended, the Amended and
Restated Agreement is hereby ratified, confirmed and approved in all respects.
IN WITNESS WHEREOF, the Company and the Employee have executed
this Amendment to the Amended and Restated Employment Agreement as of the date
first above written.
KERR GROUP, INC.
By: /s/ Herbert Elish
------------------------
/s/ D. Gordon Strickland
------------------------
D. Gordon Strickland
-5-
<PAGE> 1
EXHIBIT 10.6
AMENDMENT TO
EMPLOYMENT AGREEMENT
WHEREAS, Kerr Group, Inc. (The "Company") and Geoffrey A. Whynot (the
"Employee") have entered into an Employment Agreement, dated as of November 1,
1989 and amended as of November 17, 1995 (the "Employment Agreement"); and
WHEREAS, pursuant to Paragraph 13 of the Employment Agreement, the
Company and the Employee have agreed to amend the Employment Agreement.
NOW, THEREFORE, effective as of the date written below, the Employment
Agreement is amended as follows:
1. The second sentence of Paragraph 2(b)(3) shall be deleted and replaced with:
Notwithstanding anything in this Paragraph 2(b)(3) to the
contrary, the Salary to be paid to Employee upon termination of
employment pursuant hereto shall not be reduced by any amounts paid to
Employee on account of any compensation received by Employee from other
employment. Furthermore, the Company shall not be obligated to provide
any such fringe benefit after Employee shall receive such fringe
benefit at least as favorable to Employee from another employer.
IN WITNESS WHEREOF, the parties have executed this Amendment on the 2nd
day of January, 1996.
KERR GROUP, INC.
By: /s/ Roger W. Norian
----------------------
President
/s/ Geoffrey A. Whynot
----------------------
<PAGE> 1
EXHIBIT 10.39
WAIVER AGREEMENT
Waiver Agreement (this "Agreement"), dated as of February 24,
1997, by and among Kerr Group, Inc., a Delaware corporation (the "Company"); PNC
Bank, National Association ("PNC"); Bear, Stearns Securities Corp. ("Bear,
Stearns Securities"); Silver Oak Capital, L.L.C., as agent for Angelo, Gordon &
Co. and certain managed funds and accounts ("Angelo, Gordon"); Bear Stearns &
Co., Inc. ("Bear Stearns"); Halcyon/Alan B. Slifka Management Company LLC
("Halcyon"); Intermarket Corp. ("Intermarket"); and Swiss Bank (together with
Bear, Stearns Securities; Angelo, Gordon; Bear Stearns; Halcyon; and
Intermarket, the "Current Debt Holders," and, collectively, together with PNC,
the "Lenders").
R E C I T A L S:
WHEREAS, PNC and the Company entered into that certain
Receivables Purchase Agreement, dated as of January 1, 1995 (as amended, the
"Receivables Purchase Agreement"); and
WHEREAS, John Hancock Mutual Life Insurance Company ("John
Hancock"), New York Life Insurance Company ("New York Life"), Massachusetts
Mutual Life Insurance Company ("Massachusetts Mutual"), Massmutual/Carlson CBO,
N.V. ("Massmutual" and, together with John Hancock, New York Life and
Massachusetts Mutual, the "Former Note Holders"), predecessors in interest to
the Current Debt Holders, and the Company entered into certain Note Agreements,
each dated as of September 15, 1993, providing for the issuance and sale of
$41,000,000 aggregate principal amount of the Company's 9.45% Series A Senior
Notes due September 15, 2003 (the "Series A Senior Notes")and $9,000,000
aggregate principal amount of the Company's 8.99% Series B Senior Notes due
September 15, 1999 (collectively with the Series A Senior Notes, the "Senior
Notes")(as amended, the "Note Agreements"); and
WHEREAS, The First National Bank of Boston ("Bank of Boston"),
a predecessor in interest to the Current Debt Holders, and the Company entered
into that certain Letter Agreement, dated February 9, 1995 pursuant to which
Bank of Boston extended certain financial accommodations to the Company,
including a loan in the maximum principal amount of $10,000,000 evidenced by a
promissory note dated February 1, 1995 to Bank of Boston in the
<PAGE> 2
original principal amount of $10,000,000 (collectively, the "Letter Agreement");
and
WHEREAS, Bank of Boston and the Company further entered into
that certain Amended and Restated Loan and Security Agreement, dated as of
January 5, 1996, pursuant to which Bank of Boston amended and restated the
financial accommodations extended to the Company under the Letter Agreement,
which are presently evidenced by an amended and restated commercial promissory
note dated January 5, 1996 to Bank of Boston in the original principal amount of
$10,000,000 (collectively, the "Restated Loan Agreement"); and
WHEREAS, pursuant to a certain Agreement, dated as of January
5, 1996 (the "January Consent"), PNC waived certain provisions of the
Receivables Purchase Agreement, the Former Note Holders waived certain
provisions of the Note Agreements and Bank of Boston waived certain provisions
of the Letter Agreement; and
WHEREAS, pursuant to a certain Amendment Agreement, dated as
of January 5, 1996 (the "Amendment Agreement"), the Former Note Holders and the
Company amended certain provisions of the Note Agreements; and
WHEREAS, in consideration of Bank of Boston entering into the
Restated Loan Agreement, the Company granted to Bank of Boston liens on and
security interests in certain of its assets, which liens and security interests
were consented to by PNC and the Former Note Holders in accordance with the
terms of the January Consent; and
WHEREAS, in further consideration of Bank of Boston entering
into the Restated Loan Agreement, Santa Fe Plastics Corporation, a California
corporation ("Santa Fe"), executed and delivered to Bank of Boston a Continuing
Guaranty, dated as of January 5, 1996 (the "Santa Fe Guaranty"), pursuant to
which Santa Fe guaranteed the payment of the Additional Obligations (as such
term is defined in the Restated Loan Agreement) to Bank of Boston; and
WHEREAS, on March 15, 1996, the Company sold to Alltrista
Corporation, an Indiana corporation ("Alltrista"), substantially all of its
equipment, contract rights (other than those relating to the sale of finished
home canning inventory), trademarks, and licenses used by the Company in its
consumer products/home canning business, and retained Alltrista as its
2
<PAGE> 3
sales agent for its finished home canning inventory (the "Alltrista
Transaction"); and
WHEREAS, in connection with the Alltrista Transaction,
pursuant to a certain Agreement dated as of March 15, 1996 (the "March
Consent"), PNC agreed to waive certain provisions, and to amend certain other
provisions, of the Receivables Purchase Agreement, the Former Note Holders
agreed to waive certain provisions of the Note Agreements, and Bank of Boston
agreed to waive certain provisions, and to amend certain other provisions, of
the Restated Loan Agreement, such waivers having been extended by subsequent
agreements, dated, respectively, as of May 15, 1996, as of June 10, 1996 (the
"June Consent"), as of July 1, 1996 (the "July Consent"), as of July 31, 1996,
as of August 30, 1996 (the "September Consent"), as of September 30, 1996 (the
"October Consent"), as of December 6, 1996, as of December 31, 1996, and as of
January 25, 1997 (collectively, the "Consents"), to and including February 22,
1997; and
WHEREAS, the Current Debt Holders are the successors in
interest to the Former Note Holders under the Note Agreements and to Bank of
Boston under the Letter Agreement and the Restated Loan Agreement, and Bear,
Stearns Securities is the registered holder, as the case may be, and legal owner
of the indebtedness of the Company under the Note Agreements, the Letter
Agreement and the Restated Loan Agreement; and
WHEREAS, the Company now further requests that PNC waive
certain provisions of the Receivables Purchase Agreement, the Current Debt
Holders waive certain provisions of the Note Agreements, and the Current Debt
Holders waive certain provisions, and amend certain other provisions, of the
Restated Loan Agreement.
WHEREAS, the Company and the Current Debt Holders are
discussing a restructuring of the debt of the Company involving the exchange of
debt of the Company for equity in the Company;
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereby agree as follows:
3
<PAGE> 4
SECTION 1. Waiver.
Subject to the further provisions of this Agreement:
(a) The Current Debt Holders (i) waive from and including
March 30, 1996 through and including March 7, 1997 any Default or Event of
Default (each as defined in the Note Agreements) solely arising out of the
Company's failure to comply with the provisions of Section 10.1 or 10.9 of the
Note Agreements, and (ii) waive from and including March 1, 1996 through and
including March 7, 1997 any Default or Event of Default solely arising out of
the Company's failure to comply with the provisions of Section 10.8 or 10.16 of
the Note Agreements;
(b) PNC (i) waives from and including March 30, 1996 through
and including March 7, 1997 any default or Termination Event (each as defined in
the Receivables Purchase Agreement) solely arising out of the Company's failure
to comply with Section 10.1 or 10.9 of the Note Agreements, including without
limitation any default or Termination Event arising under Section 6.17 of the
Receivables Purchase Agreement to the extent such default or Termination Event
solely relates to Section 10.1 or 10.9 of the Note Agreements, and (ii) waives
from and including March 1, 1996 through and including March 7, 1997 any default
or Termination Event solely arising out of the Company's failure to comply with
Section 10.8 or 10.16 of the Note Agreements, including without limitation any
default or Termination Event arising under Section 6.17 of the Receivables
Purchase Agreement to the extent such default or Termination Event solely
relates to Section 10.8 or 10.16 of the Note Agreements.
(c) The Current Debt Holders (i) waive from and including
March 30, 1996 through and including March 7, 1997 any default or Event of
Default (each as defined in the Restated Loan Agreement) solely arising out of
the Company's failure to comply with Section 10.1 or 10.9 of the Note
Agreements, and (ii) waive from and including March 1, 1996 through and
including March 7, 1997 any default or Event of Default solely arising out of
the Company's failure to comply with Section 10.8 or 10.16 of the Note
Agreements.
SECTION 2. Amendment to Restated Loan Agreement and
Receivables Purchase Agreement.
4
<PAGE> 5
(a) Amendment to Restated Loan Agreement. The Current Debt
Holders and the Company hereby agree that the definition of "Maturity Date" in
the Restated Loan Agreement is amended by deleting "February 22, 1997" and
inserting therefor "March 7, 1997."
(b) Receivables Purchase Agreement. PNC and the Company hereby
agree that the definition of "Termination Date" in the Receivables Purchase
Agreement is amended by deleting "February 22, 1997" and inserting therefor
"March 7, 1997."
SECTION 3. Expenses. Without limiting the generality of any
provision of the Receivables Purchase Agreement (as amended), the Note
Agreements (each as amended), or the Restated Loan Agreement (as amended), the
Company agrees that it will pay the reasonable fees, expenses and client charges
of counsel for each of the Lenders, for any service rendered in connection with
the transactions contemplated hereby (including, but not limited to,
negotiations between the Company and the Current Debt Holders involving a
restructuring of the debt involving the exchange of debt of the Company for
equity in the Company) and with respect to this Agreement, and the Company
further agrees that it will hereafter promptly pay any additional reasonable
fees, expenses and client charges of counsel for the Lenders, for any services
rendered in connection with the transactions contemplated hereby (including, but
not limited to, any negotiations between the Company and the Lenders involving a
restructuring of the debt involving the exchange of debt of the Company for
equity in the Company) and with respect to this Agreement.
SECTION 4. Representations, Warranties and Covenants.
(a) Corporate Power and Authority. Each party hereto
represents that it has all requisite corporate power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action on the part of each such party.
(b) Compliance with Other Instruments, etc. The Company
represents that the consummation of the transactions contemplated by this
Agreement will not result in any breach of, or constitute a default under, or
result in the creation of any mortgage, lien, pledge, charge, security interest
or other encumbrance in respect of any property of the Company under, any
5
<PAGE> 6
indenture, mortgage, deed of trust, bank loan or credit agreement, corporate
charter, by-law, or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties may be bound or affected,
or violate any existing law, governmental rule or regulations, or any order of
any court, arbitrator or governmental body, applicable to the Company or any of
its properties.
(c) Governmental Consent. The Company represents that no
consent, approval or authorization of, or registration, filing or declaration
with, any governmental authority is required for the validity of the execution
and delivery by the Company of this Agreement or the consummation of the
transactions contemplated hereby or thereby.
(d) Dividends. The Company shall not declare or pay any
dividends on its preferred stock on or before March 7, 1997.
SECTION 5. Effectiveness. This Agreement shall become
effective upon the delivery to the Company of a copy of this Agreement executed
by each of the Lenders.
SECTION 6. Counterparts; Separate Agreements. This Agreement
may be executed simultaneously in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
SECTION 7. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to conflicts of law principles.
SECTION 8. Headings. The headings of the several sections of
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of this Agreement.
SECTION 9. No Other Changes. (a) Except as expressly stated
herein, the Receivables Purchase Agreement (as amended), the Note Agreements
(each as amended), the Restated Loan Agreement (as amended), and the Consents
are unaffected hereby and shall remain in full force and effect in accordance
with the respective terms thereof.
(b) Except as expressly set forth herein, the Lenders do not
waive, and nothing herein shall be deemed a waiver of, (i)
6
<PAGE> 7
any breaches or defaults under the Note Agreements (each as amended), the
Receivables Purchase Agreement (as amended), the Restated Loan Agreement (as
amended), or any of the Consents, as the case may be, or any other agreements
executed concurrently therewith or pursuant thereto, whether known or unknown,
previously or hereafter arising, or of any nature or character whatsoever, or
(ii) any of their respective rights or remedies thereunder or under applicable
law, including (but not limited to) any Make-Whole Premium (as such term is
defined in the Note Agreements) to which the Note Purchasers may be entitled
pursuant to the terms of Section 9 of the Note Agreements (including, without
limitation, on account of the payments due under the terms of (A) Section 4(a)
and Schedule 1 to the March Consent, (B) Section 3 and Schedule 1 to the June
Consent, (C) Section 3 and Schedule 1 to the July Consent, (D) Section 3 and
Schedule 1 to the August Consent, (E) Section 3 and Schedule 1 to the September
Consent, and (F) Section 3 of the October Consent). Notwithstanding anything
potentially to the contrary herein, the Current Debt Holders do not waive any of
their respective rights or remedies to any Make-Whole Premiums to which the
Current Debt Holders may be entitled pursuant to the terms of Section 9 of the
Note Agreements (including, without limitation, on account of any of the
payments made pursuant to the Consents, including those listed in the previous
sentence).
SECTION 10. Reaffirmation. The Company hereby represents and
warrants to the applicable Lender that each of the representations and
warranties contained in the Restated Loan Agreement, the Note Agreements or the
Receivables Purchase Agreement, as the case may be, were true and correct in all
material respects when made and, except to the extent (a) that a particular
representation or warranty by its terms expressly applies only to an earlier
date, or (b) the Company has previously advised such Lender in writing as
contemplated under the respective agreement, are true and correct in all
material respects as of the date of this Agreement.
SECTION 11. Conflict of Terms. In the event of any
inconsistency between the provisions of this Agreement and any provision of the
Note Agreements (each as amended), the Receivables Purchase Agreement (as
amended), the Letter Agreement or the Restated Loan Agreement (as amended), as
the case may be, the terms and provisions of this Agreement shall govern and
control.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have signed, or caused
their duly elected officer to sign on the date first written above.
KERR GROUP, INC.
By: /s/ Geoffrey A. Whynot
------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Thomas J. McCool
------------------------------------
BEAR, STEARNS SECURITIES CORP.
By: /s/ W. Grant Jones
------------------------------------
SILVER OAK CAPITAL, L.L.C.
By: /s/ Michael L. Gordon
------------------------------------
BEAR STEARNS & CO., INC.
By: /s/ Gregory A. Hanley
------------------------------------
HALCYON/ALAN B. SLIFKA
MANAGEMENT COMPANY LLC
By: /s/ James W. Snyder
------------------------------------
8
<PAGE> 9
INTERMARKET CORP.
By: /s/ Thomas P. Borger
------------------------------------
SWISS BANK
By: /s/ Leila Shakkoor
------------------------------------
By: /s/ Christine Daley
------------------------------------
9
<PAGE> 1
EXHIBIT 11.1
KERR GROUP, INC.
Statement Re: Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share data)
-------------------------------------
<S> <C> <C> <C> <C> <C>
Primary Net Earnings (Loss) Per
Common Share
Net earnings (loss) ($22,293) ($5,307) $ 3,404 ($1,633) ($2,697)
Less Preferred Stock dividends (829) (829) (829) (829) (829)
-------- ------- ------- ------- -------
Net earnings (loss) applicable to primary
earnings (loss) per common share ($23,122) ($6,136) $ 2,575 ($2,462) ($3,526)
======== ======= ======= ======= =======
Weighted average number of
common shares outstanding 3,933 3,842 3,674 3,669 3,675
======== ======= ======= ======= =======
Primary net earnings (loss) per
common share ($ 5.88) ($ 1.60) $ 0.70 ($ 0.67) ($ 0.96)
======== ======= ======= ======= =======
Fully Diluted Net Earnings (Loss) Per
Common Share
Net earnings (loss) applicable to primary
earnings (loss) per common share ($23,122) ($6,136) $ 2,575 ($2,462) ($3,526)
Add Preferred Stock dividends 829 829 829 829 829
-------- ------- ------- ------- -------
Net earnings (loss) applicable to
fully diluted earnings (loss)
per common share ($22,293) ($5,307) $ 3,404 ($1,633) ($2,697)
======== ======= ======= ======= =======
Weighted average number of
common shares outstanding 3,933 3,842 3,674 3,669 3,675
Common shares issuable from assumed
conversion of Preferred Stock 709 709 709 709 709
Incremental common shares
issuable upon assumed exercise
of outstanding stock options 0 31 22 6 3
-------- ------- ------- ------- -------
Adjusted weighted average number
of common shares outstanding 4,642 4,582 4,405 4,384 4,387
======== ======= ======= ======= =======
Fully diluted net earnings (loss)
common share:
As computed ($ 4.80) ($ 1.16) $ 0.77 ($ 0.37) ($ 0.61)
======== ======= ======= ======= =======
As reported (a) ($ 5.88) ($ 1.60) $ 0.70 ($ 0.67) ($ 0.96)
======== ======= ======= ======= =======
</TABLE>
(a) The calculation of fully diluted net earnings (loss) per common share for
all years was not dilutive.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent
Certified Public Accountants
To the Board of Directors
of Kerr Group, Inc.:
We consent to the incorporation by reference in the Registration Statement No.
2-92721 on Form S-3, Registration Statement No. 33-3517 on Form S-3,
Registration Statement No. 33-18463 on Form S-8 and Registration Statement No.
33-31347 on Forms S-3 and S-8 of Kerr Group, Inc. (Kerr or the Company) of our
report relating to the balance sheets of Kerr as of December 31, 1996 and 1995
and the related statements of earnings (loss), common stockholders' equity and
cash flows and related schedule for each of the years in the three-year period
ended December 31, 1996, which report appears in the December 31, 1996 annual
report on Form 10-K of Kerr.
Our report dated March 25, 1997, contains an explanatory paragraph that states
that the Company is in default of its current loan agreement and has not been
successful in securing a new credit facility which raises substantial doubt
about its ability to continue as a going concern. The financial statements and
financial statement schedule do not include any adjustments that might result
from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Harrisburg, Pennsylvania
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND CONSOLIDATED BALANCE
SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,107
<SECURITIES> 0
<RECEIVABLES> 9,997
<ALLOWANCES> 287
<INVENTORY> 14,736
<CURRENT-ASSETS> 33,584
<PP&E> 99,148
<DEPRECIATION> 60,258
<TOTAL-ASSETS> 85,526
<CURRENT-LIABILITIES> 63,895
<BONDS> 0
0
9,748
<COMMON> 2,113
<OTHER-SE> (8,559)
<TOTAL-LIABILITY-AND-EQUITY> 85,526
<SALES> 107,369
<TOTAL-REVENUES> 107,369
<CGS> 83,064
<TOTAL-COSTS> 83,064
<OTHER-EXPENSES> 37,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,703
<INCOME-PRETAX> (17,425)
<INCOME-TAX> 6,837
<INCOME-CONTINUING> (24,262)
<DISCONTINUED> 1,969
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,293)
<EPS-PRIMARY> (5.88)
<EPS-DILUTED> (5.88)
</TABLE>
