<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period Ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-7272
KERR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-0898810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Century Park East, Los Angeles, CA 90067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 556-2200
Former name, former address and former fiscal year, if changed since last year.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No [ ]
The number of shares of Registrant's Common Stock, $.50 par value, outstanding
as of April 30, 1996 was 3,933,095.
<PAGE> 2
Item 1 of Part I of the Form 10-Q of Kerr Group, Inc. for the quarterly period
ended March 31, 1996 (the "Form 10-Q") is hereby amended and restated in its
entirety as stated below:
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE> 3
KERR GROUP, INC.
Consolidated Balance Sheets
As of March 31, 1996 and December 31, 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (As Restated)
March 31, December 31,
Assets 1996 1995
- ------ ----------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,044 $ 3,904
Receivables-primarily trade accounts,
less allowance for doubtful accounts
of $278 at March 31, 1996 and $212
at December 31, 1995 7,906 7,154
Inventories
Raw materials and work in process 6,634 7,815
Finished goods 9,418 9,933
--------- ---------
Total inventories 16,052 17,748
Prepaid expenses and other current assets 2,566 3,106
Current net assets related to discontinued operations 16,668 12,847
Total current assets 48,236 44,759
--------- ---------
Property, plant and equipment, at cost 103,115 105,725
Accumulated depreciation and amortization (59,817) (58,907)
--------- ---------
Net property, plant and equipment 43,298 46,818
--------- ---------
Deferred income taxes 11,222 8,057
Goodwill and other intangibles, net of amortization
of $2,339 at March 31, 1996 and $2,247 at
December 31, 1995 6,476 6,983
Other assets 7,515 8,026
Non-current net assets related to discontinued operations 0 4,854
--------- ---------
$ 116,747 $ 119,497
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
KERR GROUP, INC.
Consolidated Balance Sheets
As of March 31, 1996 and December 31, 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (as Restated)
March 31, December 31,
Liabilities and Stockholders' Equity 1996 1995
- ------------------------------------ ----------- -------------
<S> <C> <C>
Current liabilities
Short-term debt $ 6,040 $ 6,500
Senior debt due 1997 through 2003
classified as current 46,460 50,000
Accounts payable 10,124 9,739
Accrued expenses 13,444 8,858
--------- ---------
Total current liabilities 76,068 75,097
--------- ---------
Pension liability 17,182 18,318
Other long-term liabilities 4,515 2,175
Stockholders' equity
Preferred Stock, 487 shares authorized
and issued, at liquidation value of
$20 per share 9,748 9,748
Common Stock, $ .50 par value per share,
20,000 shares authorized, 4,226 shares
issued 2,113 2,113
Additional paid-in capital 27,239 27,239
Retained earnings (accumulated deficit) (4,582) 1,860
Treasury Stock, 293 shares at cost (6,913) (6,913)
Excess of additional pension liability
over unrecognized prior service
cost, net of tax benefits (8,623) (10,140)
--------- ---------
Total stockholders' equity 18,982 23,907
--------- ---------
$ 116,747 $ 119,497
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
KERR GROUP, INC.
Condensed Consolidated Statements of Earnings (Loss)
for the Three Months Ended March 31, 1996 and 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
---------
1996 1995
-------- --------
<S> <C> <C>
Net sales $ 25,096 $ 27,362
Cost of sales 22,729 21,029
-------- --------
Gross profit 2,367 6,333
Selling, warehouse, general and
administrative expenses 6,384 5,886
Loss on restructuring 7,500 0
Interest expense 1,359 1,129
Interest and other income (100) (46)
-------- --------
Loss from continuing operations before income taxes (12,776) (636)
Benefit for income taxes (5,110) (261)
-------- --------
Loss from continuing operations (7,666) (375)
Discontinued Operations:
Gain on sale of discontinued operations 1,564 0
Loss from discontinued operations (133) (12)
-------- --------
Net earnings (loss) from discontinued operations 1,431 (12)
-------- --------
Net loss (6,235) (387)
Preferred stock dividends 207 207
-------- --------
Net loss applicable to common stockholders $ (6,442) $ (594)
======== ========
Net earnings (loss) per common share, primary and fully diluted:
From continuing operations $ (2.00) $ (0.16)
From discontinued operations 0.36 0.00
-------- --------
Net loss $ (1.64) $ (0.16)
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
KERR GROUP, INC.
Condensed Consolidated Statements of Cash Flow
for the Three Months Ended March 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Cash flows provided (used) by operations
Continuing operations:
Loss from continuing operations $ (7,666) $ (375)
Add (deduct) noncash items included in
loss from continuing operations
Loss on restructuring, net of tax 4,500 0
Depreciation and amortization 2,556 2,028
Change in deferred income taxes (2,130) 308
Reduction in total pension liability, net 15 242
Payments associated with restructuring (1,188) 0
Other, net (92) (181)
Changes in other operating working capital
Receivables (752) (92)
Inventories 648 673
Other current assets 150 (54)
Accounts payable 385 (4,146)
Accrued expenses (1,304) 135
-------- -------
Cash flow provided (used) by continuing operations (4,878) (1,462)
Cash flow provided (used) by discontinued operations (3,932) (3,430)
Total cash flow provided (used) by operations (8,810) (4,892)
Cash flows provided (used) by investing activities
Continuing operations:
Capital expenditures (231) (995)
Other, net 260 402
Discontinued operations:
Capital expenditures (234) (116)
Proceeds from sale of assets of Consumer Products Business 14,417 0
Other, net (55) (114)
Cash flow provided (used) by investing activities 14,157 (823)
Cash flows provided (used) by financing activities
Net borrowings (repayments) under lines of credit (460) 3,800
Repayment of Senior Notes (3,540) 0
Dividends paid (207) (207)
Other, net 0 32
-------- -------
Cash flow provided (used) by financing activities (4,207) 3,625
Cash and cash equivalents
Increase (decrease) during the period 1,140 (2,090)
Balance at beginning of the period 3,904 2,261
-------- -------
Balance at end of the period $ 5,044 $ 171
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE> 7
KERR GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1) General
The condensed consolidated financial statements include the accounts of Kerr
Group, Inc. and its wholly owned subsidiary (collectively referred to as the
Company). In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals and certain non-recurring accruals for
restructuring charges as described below) necessary to present fairly the
financial position of the Company as of March 31, 1996, the results of
operations for the three months ended March 31, 1996 and 1995, and changes in
cash flows for the three months ended March 31, 1996 and 1995.
The results of operations for the first three months of 1996 are not
necessarily indicative of the results to be expected for the full year.
Fully diluted earnings per common share reflect when dilutive, 1) the
incremental common shares issuable upon the assumed exercise of outstanding
stock options, and 2) the assumed conversion of the Preferred Stock and the
elimination of the related Preferred Stock dividends. The calculation of
fully diluted net earnings (loss) per common share for the three months ended
March 31, 1996 and 1995 was not dilutive.
2) Discontinued Operations
On March 15, 1996, the Company sold the manufacturing assets of the Consumer
Products Business for a purchase price of $14,417,000. These proceeds were
utilized for working capital, to reduce debt, including $3,500,000 of debt
secured by liens on certain machinery and equipment of the Company, and to
fund costs of the restructuring (see Note 3). The Company also expects to
receive approximately $16,500,000, primarily during the remainder of 1996,
from the sale by the Company of the inventory of the Consumer Products
Business and from the collection of the accounts receivable of the Consumer
Products Business.
In connection with such sale, the Company recorded $5,800,000 of reserves
consisting of i) retiree health care and pension expenses of $3,800,000, ii)
severance and related costs of $1,000,000, iii) professional fees of
$500,000, iv) asset retirements of $300,000, and v) other costs of $200,000.
After deductions for such reserves, the Company incurred in the first quarter
of 1996 a one-time pre-tax gain of $2,607,000 ($1,564,000 after-tax or $0.40
per common share) in connection with the sale of the manufacturing assets of
the Consumer Products Business.
The assets and liabilities of the discontinued Consumer Products Business
have been reclassified on the Consolidated Balance Sheets from the previously
reported classification to separately identify them as current net assets and
non-current net assets related to discontinued operations. These net assets
consist of net working capital, net property, plant and equipment, other
assets and intangible assets, less related liabilities.
The results of the Consumer Products Business have been reported separately
as a component of discontinued operations in the Condensed Consolidated
Statements of Earnings (Loss). The presentation of this business as
discontinued had no effect on net loss, net loss applicable to common
stockholders or net loss per common share from the amounts previously
reported.
7
<PAGE> 8
3) Restructuring
During the first quarter of 1996, the Company recorded an unusual loss of
$7,500,000 ($4,500,000 after-tax or $1.14 per common share) for the costs
associated with the restructuring of the Company, which include 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 pre-tax loss consists
primarily of reserves of $3,000,000 for severance and related costs,
$2,200,000 for losses on the sublease of two facilities, and $1,900,000 for
asset retirements.
The restructuring is expected to result in annualized pre-tax cost savings of
approximately $6,500,000. These cost savings are expected to be substantially
realized in 1997.
In addition to the presently recorded restructuring loss, the Company will
also incur non-recurring pre-tax losses during 1996 and early 1997 associated
with the restructuring of approximately $2,400,000 ($1,440,000 after-tax or
$0.37 per common share) primarily related to equipment and personnel
relocation costs, and inefficiencies related to the relocation of operations.
Accounting rules require these costs to be expensed as incurred.
4) Receivables
Receivables as of March 31, 1996 and December 31, 1995, as shown on the
accompanying Consolidated Balance Sheets, have been reduced by net proceeds
of $5,904,000 and $7,357,000, respectively, from advances pursuant to the
sale of receivables under the Company's Accounts Receivable Facility. In
addition, receivables as of March 31, 1996 and December 31, 1995, related to
discontinued operations, included in Current Net Assets Related to
Discontinued Operations on the accompanying Consolidated Balance Sheets, have
been reduced by net proceeds of $1,767,000 and $343,000, respectively, from
advances pursuant to the sale of receivables under the Company's Accounts
Receivable Facility.
5) Financing
The Company has obtained waivers of certain financial covenants through May
15, 1996 from the lenders under the Senior Notes, the lender under a
$6,040,000 unsecured note and the purchaser under the Receivable Agreement
(collectively referred to as "Lenders") and an extension of the maturity date
of the unsecured note to May 15, 1996. The Company is in discussions with the
Lenders regarding extension of these waivers and the extension of the due
date of the unsecured note. All of the Company's outstanding indebtedness is
unsecured. Although the Company has obtained waivers or amendments from the
Lenders on previous occasions, there can be no assurance that the Lenders
will agree to further waivers.
If additional waivers of financial covenants or the extension of the maturity
date of the unsecured note are not obtained, the Lenders would be entitled to
exercise certain remedies, including the acceleration of the due date for
payment of the Senior Notes and the unsecured note, and the termination of
the Receivable Agreement.
Based upon the past experience of the Company in obtaining waivers or
amendments from its Lenders and because the Company expects to use a portion
of the proceeds from the sale of inventory and collection of accounts
receivables of the Consumer Products Business to further reduce debt, the
Company believes that the Lenders will extend the due date of the unsecured
note, will not accelerate the due date for payment of the Senior Notes and
will not terminate the Receivable Agreement. The accompanying consolidated
financial statements have been prepared on the basis of such belief of the
Company.
8
<PAGE> 9
KERR GROUP, INC.
Computation of Net Earnings (Loss) Per Common Share
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Primary Net Earnings (Loss) Per Common Share
Net loss $(6,235) $ (387)
Less Preferred Stock dividends (207) (207)
------- -------
Net loss applicable to primary earnings per
common share $(6,442) $ (594)
======= =======
Weighted average number of common
shares outstanding 3,933 3,678
======= =======
Primary net loss per common share $ (1.64) $ (.16)
======= =======
Fully Diluted Net Earnings (Loss) Per Common Share
Net loss applicable to primary earnings
per common share $(6,442) $ (594)
Add Preferred Stock dividends 207 207
------- -------
Net loss applicable to fully
diluted earnings per common share $(6,235) $ (387)
======= =======
Weighted average number of common
shares outstanding 3,933 3,678
Common shares issuable from assumed
conversion of Preferred Stock 709 709
Incremental common shares issuable upon
assumed exercise of outstanding stock options 19 17
------- -------
Adjusted weighted average number of common
shares outstanding 4,661 4,404
======= =======
Fully diluted net loss per common share:
As computed $ (1.34) $ (.09)
======= =======
As reported (a) $ (1.64) $ (.16)
======= =======
</TABLE>
(a)The calculation of fully diluted net loss per common share for the three
months ended March 31, 1996 and 1995 was not dilutive.
9
<PAGE> 10
Item 2 of Part I of the Form 10-Q is hereby amended and restated in its entirety
as stated below:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
10
<PAGE> 11
KERR GROUP, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Three Months Ended March 31, 1996 and 1995
Results of Operations
Continuing Operations
Net sales for the three months ended March 31, 1996 were $25,096,000 as compared
to $27,362,000 for the three months ended March 31, 1995, a decrease of
$2,266,000 or 8%. The decrease in net sales for the three months ended March 31,
1996 over the comparable period in 1995 was due primarily to lower sales of
prescription packaging products.
Cost of sales for the three months ended March 31, 1996 were $22,729,000 as
compared to $21,029,000 for the three months ended March 31, 1995, an increase
of $1,700,000 or 8%. The increase in cost of sales for the three months ended
March 31, 1996 over the comparable period in 1995 was due primarily to higher
manufacturing costs and inefficiencies due to reduced production.
Gross profit as a percent of net sales for the three months ended March 31, 1996
decreased to 9% as compared to 23% for the three months ended March 31, 1995.
The decrease in gross profit as a percent of net sales for the three months
ended March 31, 1996 over the comparable period in 1995 was primarily due to
1995 cost increases which have not been offset by price increases, increased
reserves for customer rebates and inventory obsolescence, and inefficiencies due
to reduced production. Management will endeavor to implement price increases
during the remainder of 1996 to offset a portion of the cost increases
experienced during 1995. In addition, management does not expect to further
increase the level of reserves for customer rebates and inventory obsolescence
during 1996.
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 indicated an increase in the
required 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 felt that it represented a
more accurate measure of such contingency.
Selling, warehouse, general and administrative expenses increased $498,000 or 8%
during the three months ended March 31, 1996, as compared to the same period in
1995, due primarily to the start up of operations at the Company's new Bowling
Green, Kentucky facility and higher warehousing costs.
Net interest expense increased $176,000 during the three months ended March 31,
1996, as compared to the same period in 1995, primarily as a result of higher
levels of short-term debt.
Loss from continuing operations before income taxes and unusual items increased
$4,640,000 during the three months ended March 31, 1996 as compared to the same
period in 1995 due primarily to 1995 cost increases which have not been offset
by price increases, increased reserves for customer rebates and inventory
obsolescence, inefficiencies due to reduced production and lower sales.
During the first quarter of 1996, the Company recorded an unusual loss of
$7,500,000 ($4,500,000 after-tax or $1.14 per common share) for the costs
associated with the restructuring of the Company, which include 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 pre-tax loss consists primarily of reserves of
$3,000,000 for severance and related costs, $2,200,000 for losses on the
sublease of two facilities, and $1,900,000 for asset retirements.
11
<PAGE> 12
The restructuring is expected to result in annualized pre-tax cost savings of
approximately $6,500,000. These cost savings are expected to be substantially
realized in 1997.
In addition to the presently recorded restructuring loss, the Company will also
incur non-recurring pre-tax losses during 1996 and early 1997 associated with
the restructuring of approximately $2,400,000 ($1,440,000 after-tax or $0.37 per
common share) primarily related to equipment and personnel relocation costs, and
inefficiencies related to the relocation of operations. Accounting rules require
these costs to be expensed as incurred.
The benefit for income taxes increased $4,849,000 during the three months ended
March 31, 1996 as compared to the same period in 1995 due to higher pretax
losses.
Discontinued Operations
The Company reported a net gain from discontinued operations of $1,431,000 or
$0.36 per share for the first quarter of 1996 as compared to a net loss from
discontinued operations of $12,000 for the first quarter of 1995. The net gain
in 1996 includes a pre-tax gain of $2,607,000 ($1,564,000 after-tax or $0.40 per
common share) in connection with the sale of the manufacturing assets of the
Consumer Products Business. This pre-tax gain has been reduced by $5,800,000 of
reserves, primarily consisting of $3,800,000 for retiree health care and pension
expense, $1,000,000 for severance and related costs, $500,000 for professional
fees and $300,000 for asset retirements.
Financial Condition
During the first quarter of 1996, the principal source of cash flow was
$14,417,000 received from the sale of the manufacturing assets of the Consumer
Products Business. The principal use of cash flow was to fund pretax losses, net
debt retirements of $4,000,000 and increased operating working capital
requirements of $3,821,000 related to the seasonal increase in inventories and
receivables of the Consumer Products Business, which is presented as
discontinued operations in the accompanying consolidated financial statements.
During the first quarter of 1995, the principal use of cash flow was to fund
increased operating working capital requirements for continuing operations of
$3,484,000, primarily as a result of the lower levels of payables, and for
discontinued operations of $3,488,000, primarily due to the seasonal increase in
inventories and receivables. Cash flow was provided from financing activities
consisting of an increase in short-term debt of $3,800,000. Cash flow was also
provided through the reduction of the Company's cash balances of $2,090,000.
Since the third quarter of 1990, the Company has not declared any dividends on
its Common Stock. The Company's Senior Note Agreement limits the payment of
dividends on Common Stock. Under the most restrictive covenant, the payment of
Common Stock dividends is not permitted at March 31, 1996.
The ratio of current assets to current liabilities at both March 31, 1996 and
December 31, 1995 was 0.6. 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 the Company had received waivers only through May
15, 1996. The ratio of total debt to total capitalization increased to 73% at
March 31, 1996 from 70% at December 31, 1995 due to lower stockholders' equity.
The Company has obtained waivers of certain financial covenants through May 15,
1996 from the lenders under the Senior Notes, the lender under a $6,040,000
unsecured note and the purchaser under the Receivable Agreement (collectively
referred to as "Lenders") and an extension of the maturity date of the unsecured
note to May 15, 1996. The Company is in discussions with the Lenders regarding
extension of
12
<PAGE> 13
these waivers and the extension of the due date of the unsecured note. All of
the Company's outstanding indebtedness is unsecured. Although the Company has
obtained waivers or amendments from the Lenders on previous occasions, there can
be no assurance that the Lenders will agree to further waivers.
If additional waivers of financial covenants or the extension of the maturity
date of the unsecured note are not obtained, the Lenders would be entitled to
exercise certain remedies, including the acceleration of the due date for
payment of the Senior Notes and the unsecured note, and the termination of the
Receivable Agreement.
Based upon the past experience of the Company in obtaining waivers or amendments
from its Lenders and because the Company expects to use a portion of the
proceeds from the sale of inventory and collection of accounts receivables of
the Consumer Products Business to further reduce debt, the Company believes that
the Lenders will extend the due date of the unsecured note, will not accelerate
the due date for payment of the Senior Notes and will not terminate the
Receivable Agreement. The accompanying consolidated financial statements have
been prepared on the basis of such belief of the Company.
At March 31, 1996 the Company had unused sources of liquidity consisting of cash
and cash equivalents of $5,044,000, additional advances available under the
Receivable Agreement of approximately $1,300,000, a tax net operating loss
carryforward of $17,209,000, a minimum tax credit carryforward of $1,083,000 and
other tax credit carryforwards of $75,000. The Company believes that its
financial resources, including proceeds from the sale of certain assets of the
Consumer Products Business and other internally generated funds, are adequate to
meet its foreseeable needs, subject to the satisfactory resolution of current
discussions with the Lenders.
Disclosure Regarding Forward Looking Statements
Portions of this Quarterly Report on Form 10-Q include forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Although the Company believes that the expectations reflected in such forward
looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved.
13
<PAGE> 14
------------------------------------------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
KERR GROUP, INC.
Date: January 10, 1997
By: /s/ Geoffrey A. Whynot
--------------------------------
Name: Geoffrey A. Whynot
Title: Vice President, Chief Financial Officer
14
