<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 June 30, 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.)
500 New Holland Avenue, Lancaster, PA 17602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 299-6511
1840 Century Park East, Los Angeles, CA 90067
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 the Registrant's Common Stock, $.50 par value,
outstanding as of July 31, 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 June 30, 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 June 30, 1996 and December 31, 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited)(As Restated)
June 30, December 31,
Assets 1996 1995
- ------ --------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 4,080 $ 3,904
Receivables-primarily trade accounts, less allowance
for doubtful accounts of $292 at June 30, 1996
and $212 at December 31, 1995 8,981 7,154
Inventories
Raw materials and work in process 6,334 7,815
Finished goods 9,474 9,933
--------- ---------
Total inventories 15,808 17,748
Prepaid expenses and other current assets 2,562 3,106
Current net assets related to discontinued operation 11,987 12,847
--------- ---------
Total current assets 43,418 44,759
--------- ---------
Property, plant and equipment, at cost 103,643 105,725
Accumulated depreciation and amortization (62,037) (58,907)
--------- ---------
Net property, plant and equipment 41,606 46,818
--------- ---------
Deferred income taxes 11,981 8,057
Goodwill and other intangibles, net of
amortization of $2,406 at June 30, 1996
and $2,247 at December 31, 1995 6,409 6,983
Other assets 7,436 8,026
Non-current net assets related to discontinued operations 0 4,854
--------- ---------
$110,850 $119,497
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
KERR GROUP, INC.
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (As Restated)
June 30, December 31,
Liabilities and Stockholders' Equity 1996 1995
- ------------------------------------ --------- ---------
<S> <C> <C>
Current liabilities
Short-term debt $ 5,982 $ 6,500
Senior debt due 1997 through 2003
classified as current 46,018 50,000
Accounts payable 7,716 9,739
Accrued expenses 8,726 8,858
Restructuring reserves 4,023 0
--------- ---------
Total current liabilities 72,465 75,097
--------- ---------
Accrued pension liability 16,046 18,318
Other long-term liabilities 4,477 2,175
Stockholders' equity
Preferred Stock, 487 shares authorized and issued,
liquidation value of $20.42 per share at
June 30, 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) (5,702) 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 17,862 23,907
--------- ---------
$ 110,850 $ 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 and Six Months Ended June 30, 1996 and 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 27,368 $ 26,189 $ 52,464 $ 53,551
Cost of sales 21,297 20,493 44,026 41,522
-------- -------- -------- --------
Gross profit 6,071 5,696 8,438 12,029
Selling, warehouse, general and
administrative expense 5,915 5,788 12,299 11,674
Loss on restructuring 0 0 7,500 0
Other costs associated with restructuring 656 0 656 0
Financing costs 245 0 245 0
Interest expense 1,212 1,192 2,571 2,321
Interest and other income (90) (39) (190) (85)
-------- -------- -------- --------
Loss from continuing operations
before income taxes (1,867) (1,245) (14,643) (1,881)
Benefit for income taxes (747) (509) (5,857) (770)
-------- -------- -------- --------
Loss from continuing operations $ (1,120) $ (736) $ (8,786) $ (1,111)
Discontinued operations:
Gain on sale of discontinued operations 0 0 1,564 0
Earnings (loss) from discontinued operations 0 451 (133) 439
-------- -------- -------- --------
Net earnings from discontinued
operations 0 451 1,431 439
-------- -------- -------- --------
Net loss (1,120) (285) (7,355) (672)
Preferred stock dividends 207 207 414 414
-------- -------- -------- --------
Net loss applicable to
common stockholders $ (1,327) $ (492) $ (7,769) $ (1,086)
======== ======== ======== ========
Net earnings (loss) per common share,
primary and fully diluted:
From continuing operations $ (0.34) $ (0.25) $ (2.34) $ (0.41)
From discontinued operations 0.00 0.12 0.36 0.12
-------- -------- -------- --------
Net loss $ (0.34) $ (0.13) $ (1.98) $ (0.29)
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
KERR GROUP, INC.
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows provided (used) by operations
Continuing operations:
Loss from continuing operations $ (8,786) $ (1,111)
Add (deduct) noncash items included in
loss from continuing operations
Expenses associated with restructuring, net of tax 4,894 0
Depreciation and amortization 4,945 4,163
Change in deferred income taxes (2,529) 87
Reduction in total pension liability, net (1,154) (162)
Payments associated with restructuring (2,223) 0
Other, net (365) (513)
Changes in operating assets and liabilities
Receivables (1,827) 4,391
Inventories 892 (1,022)
Other current assets 154 (209)
Accounts payable (2,022) (1,640)
Accrued expenses (1,168) (432)
-------- --------
Cash flow provided (used) by continuing operations (9,189) 3,552
Cash flow provided (used) by discontinued operations 749 1,657
-------- --------
Total cash flow provided (used) by operations (8,440) 5,209
-------- --------
Cash flows provided (used) by investing activities
Continuing operations:
Capital expenditures (802) (4,978)
Other, net 242 110
Discontinued operations:
Capital expenditures (234) (545)
Proceeds from sale of assets of Consumer Products Business 14,417 0
Other, net (55) (112)
-------- --------
Cash flow provided (used) by investing activities 13,568 (5,525)
-------- --------
Cash flows provided (used) by financing activities
Net borrowings (repayments) under lines of credit (518) (300)
Repayment of Senior Notes (3,982) 0
Dividends paid (207) (414)
Other, net (245) 32
-------- --------
Cash flow provided (used) by financing activities (4,952) (682)
-------- --------
Cash and cash equivalents
Increase (decrease) during the period 176 (998)
Balance at beginning of the period 3,904 2,261
-------- --------
Balance at end of the period $ 4,080 $ 1,263
======== ========
Significant Non-Cash Transactions
Contribution of 250,000 shares of Common Stock to pension plan $ 0 $ 1,891
======== ========
</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 June 30, 1996, and the results of
operations for the three months and six months ended June 30, 1996 and
1995, and changes in cash flows for the six months ended June 30, 1996 and
1995.
The results of operations for the first six 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 Class B, Series D
Preferred Stock and the elimination of the related dividends. The
calculation of fully diluted net earnings (loss) per common share for the
three months and the six months ended June 30, 1996 and 1995 was not
dilutive.
The Company did not declare a dividend on its Class B, Series D Preferred
Stock during the second quarter of 1996. The cumulative amount of
undeclared dividends as of June 30, 1996 is $207,000. Under accounting
rules, such dividends are not accrued until declared, however, for
financial reporting purposes the quarterly amount of such dividends are
shown on the face of the income statement. Under the terms of an agreement
with its lenders, the Company is not permitted to declare or pay any
dividends on its preferred stock on or before August 31, 1996.
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). From
March 16, 1996 through June 30, 1996, the Company received $4,681,000 from
the sale by the Company of the inventory of the Consumer Products Business
and from the collection of the related accounts receivable. As of June 30,
1996, the Company expects to receive approximately $12,000,000 during the
remainder of 1996 and 1997 from the sale of inventory and collection of
accounts receivable.
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.
7
<PAGE> 8
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.
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
expected 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 pre-tax loss
consisted of reserves for i) severance, workers' compensation and insurance
continuation costs of $3,000,000, ii) costs associated with subleasing the
two facilities of $2,300,000, iii) asset retirements of $1,600,000 and iv)
other costs of $600,000.
The relocation of the Corporate headquarters has been completed, and the
relocation of the wide-mouth jar manufacturing operations is progressing.
The restructuring is expected to result in annualized pre-tax cost savings
of approximately $6,500,000 primarily from reduced employment costs, lease
costs, office expenses, manufacturing overhead and freight. These cost
savings are expected to be substantially realized in 1997.
During the second quarter of 1996, the Company incurred an unusual pre-tax
loss of $656,000 ($394,000 after-tax or $0.10 per common share) for
restructuring costs primarily related to relocation of personnel and
equipment. The Company expects to incur an additional $1,800,000
($1,080,000 after-tax or $0.27 per common share) for restructuring costs
during the remainder of 1996 and early 1997. Accounting rules require these
costs to be expensed as incurred.
4) Receivables
Receivables as of June 30, 1996 and December 31, 1995, as shown on the
accompanying Consolidated Balance Sheets, have been reduced by net proceeds
of $4,458,000 and $7,357,000, respectively, from advances pursuant to the
sale of receivables under the Company's Accounts Receivable Agreement. In
addition, receivables as of June 30, 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 $271,000 and $343,000, respectively,
from advances pursuant to the sale of receivables under the Company's
Accounts Receivable Agreement.
5) Financing
The Company has obtained waivers of certain financial covenants through
August 31, 1996 from the lenders under its long-term unsecured Senior
Notes, the lender under a $5,982,000 unsecured Note and the purchaser under
the Accounts Receivable Agreement (collectively referred to as "Lenders")
and an extension of the maturity date of the unsecured Note to August 31,
1996. The Company prepaid to the Lenders $500,000 in aggregate amount of
principal of Senior Notes and unsecured Note during July 1996 and has
agreed to prepay to the Lenders $500,000 in aggregate amount of principal
of Senior Notes and unsecured Note during August 1996. There can be no
assurance that the Lenders will agree to further waivers or extensions of
the unsecured Note.
8
<PAGE> 9
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 Accounts Receivable Agreement. However, 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 Accounts Receivable Agreement. The accompanying
consolidated financial statements have been prepared on the basis of such
belief of the Company.
9
<PAGE> 10
KERR GROUP, INC.
Computation of Earnings (Loss) Per Common Share
(in thousands except per share data)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary Net Earnings (Loss) Per Common Share
Net loss $(1,120) $ (285) $(7,355) $ (672)
Less Preferred Stock dividends (207) (207) (414) (414)
------- ------- ------- -------
Net loss applicable to primary earnings
per common share $(1,327) $ (492) $(7,769) $(1,086)
======= ======= ======= =======
Weighted average number of common
shares outstanding 3,933 3,826 3,933 3,752
======= ======= ======= =======
Primary net loss per common share $ (0.34) $ (0.13) $ (1.98) $ (0.29)
======= ======= ======= =======
Fully Diluted Net Earnings (Loss) Per Common Share
Net loss applicable to primary earnings
per common share $(1,327) $ (492) $(7,769) $(1,086)
Add Preferred Stock dividends 207 207 414 414
------- ------- ------- -------
Net loss applicable to fully
diluted earnings per common share $(1,120) $ (285) $(7,355) $ (672)
======= ======= ======= =======
Weighted average number of common
shares outstanding 3,933 3,826 3,933 3,752
Common shares issuable upon assumed
conversion of Preferred Stock 709 709 709 709
Incremental common shares issuable upon
assumed exercise of outstanding stock options 0 17 9 17
------- ------- ------- -------
Adjusted weighted average number of common
shares outstanding 4,642 4,552 4,651 4,478
======= ======= ======= =======
Fully diluted net loss per common share:
As computed $ (0.24) $ (0.06) $ (1.58) $ (0.15)
======= ======= ======= =======
As reported (a) $ (0.34) $ (0.13) $ (1.98) $ (0.29)
======= ======= ======= =======
</TABLE>
(a) The calculation of fully diluted net loss per common share for the three
months and the six months ended June 30, 1996 and 1995 was not dilutive.
10
<PAGE> 11
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
11
<PAGE> 12
KERR GROUP, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Three Months and Six Months Ended June 30, 1996 and 1995
Results of Operations
Continuing Operations
Net sales for the three months ended June 30, 1996 were $27,368,000 as compared
to $26,189,000 for the three months ended June 30, 1995, an increase of
$1,179,000 or 5%. The increase in net sales for the three months ended June 30,
1996 over the comparable period in 1995 was due primarily to higher unit sales
of prescription packaging products and child-resistant closures. Net sales for
the six months ended June 30, 1996 were $52,464,000 as compared to $53,551,000
for the six months ended June 30, 1995, a decrease of $1,087,000 or 2%.
Cost of sales for the three months ended June 30, 1996 were $21,297,000 as
compared to $20,493,000 for the three months ended June 30, 1995, an increase of
$804,000 or 4%. The increase in cost of sales for the quarter was primarily due
to higher unit sales. Cost of sales for the six months ended June 30, 1996 were
$44,026,000 as compared to $41,522,000 for the six months ended June 30, 1995,
an increase of $2,504,000 or 6%. The increase for the six month period was due
primarily to higher manufacturing costs and inefficiencies due to reduced
production.
Gross profit as a percent of net sales for both the three months ended June 30,
1996 and 1995 was 22%. Gross profit as a percent of net sales for the six months
ended June 30, 1996 decreased to 16% as compared to 22% for the six months ended
June 30, 1995. The decrease in gross profit as a percent of net sales in 1996
over the comparable period in 1995 was attributed to cost increases during the
second half of 1995, increased reserves for customer rebates and inventory
obsolescence, and reduced production.
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.
Gross profit as a percent of net sales for the second quarter of 1996 increased
to 22%, as compared to 9% in the first quarter of 1996, due primarily to
improved efficiency as a result of increased production, a more profitable sales
mix and higher net sales.
Selling, warehouse, general and administrative expenses increased $127,000 or 2%
during the three months ended June 30, 1996, as compared to the same period in
1995. Selling, warehouse, general and administrative expenses increased $625,000
or 5% during the six months ended June 30, 1996, as compared to the same period
in 1995. The increase in the six month period is due primarily to the start up
of operations at the Company's new Bowling Green, Kentucky facility.
12
<PAGE> 13
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 expected
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 pre-tax loss consisted of reserves
for i) severance, workers' compensation and insurance continuation costs of
$3,000,000, ii) costs associated with subleasing the two facilities of
$2,300,000, iii) asset retirements of $1,600,000 and iv) other costs of
$600,000.
The relocation of the Corporate headquarters has been completed, and the
relocation of the wide-mouth jar manufacturing operations is progressing. The
restructuring is expected to result in annualized pre-tax cost savings of
approximately $6,500,000 primarily from reduced employment costs, lease costs,
office expenses, manufacturing overhead and freight. These cost savings are
expected to be substantially realized in 1997.
During the second quarter of 1996, the Company incurred an unusual pre-tax loss
of $656,000 ($394,000 after-tax or $0.10 per common share) for restructuring
costs primarily related to relocation of personnel and equipment. The Company
expects to incur an additional $1,800,000 ($1,080,000 after-tax or $0.27 per
common share) for restructuring costs during the remainder of 1996 and early
1997. Accounting rules require these costs to be expensed as incurred.
During the second quarter of 1996, the Company also incurred unusual expenses of
$245,000 ($147,000 after-tax or $0.04 per common share) to reimburse its
unsecured lenders for professional fees incurred in connection with the Company
obtaining waivers of certain covenants and extension of the maturity date of a
$5,982,000 unsecured Note.
Net interest expense decreased $31,000 during the three month period ended June
30, 1996 as compared to the same period in 1995. Net interest expense increased
$145,000 during the six month period ended June 30, 1996, as compared to the
same period in 1995, primarily as a result of higher levels of short-term
financing during the first quarter of 1996.
Earnings before income taxes decreased $622,000 and $12,762,000 during the three
month and six month periods ended June 30, 1996 as compared to the same periods
in 1995, respectively, due primarily to the impact of restructuring charges.
The benefit for income taxes increased $238,000 and $5,087,000 during the three
month and six month periods ended June 30, 1996 as compared to the same periods
in 1995, respectively, due to higher pretax losses.
Discontinued Operations
The Company had no net earnings from discontinued operations for the second
quarter of 1996 as compared to $451,000, or $0.12 per common share, of net
earnings from discontinued operations for the first quarter of 1995.
The Company reported net earnings from discontinued operations of $1,431,000 or
$0.36 per common share for the first six months of 1996 as compared to net
earnings from discontinued operations of $439,000 or $0.12 per common share for
the first six months of 1995. The net earnings 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, for 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.
13
<PAGE> 14
Financial Condition
During the first six months of 1996, the principal source of cash was
$14,417,000 received from the sale of the manufacturing assets of the Consumer
Products Business. The principal uses of cash were to fund pre-tax losses, net
debt retirements of $4,500,000, a reduction of $2,899,000 in the net proceeds
from the sale of receivables under the Company's Accounts Receivable Agreement
and cash payments associated with the restructuring of $2,223,000.
During the first six months of 1995, the principal source of cash was from
operations, which includes $2,856,000 related to net proceeds from the sale of
receivables under the Company's Accounts Receivable Agreement. The principal use
of cash was to fund capital expenditures of $4,978,000.
As of June 30, 1996, the Company expects to receive approximately $12,000,000,
primarily during the remainder of 1996, from the sale to its customers of
Consumer Products Business inventory and the collection of related accounts
receivable. Such assets are presented as discontinued operations in the
accompanying consolidated financial statements.
On May 10, 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 Kerr's pension liability by $1,891,000.
Since the third quarter of 1990, the Company has not declared any dividends on
its Common Stock. The Company's Senior Notes, Accounts Receivable Agreement and
unsecured Note limit the payment of dividends on Common Stock. Under the most
restrictive covenant of such agreements, the payment of dividends on Common
Stock is not permitted as of June 30, 1996.
The Company did not declare a dividend on its Class B, Series D Preferred Stock
during the second quarter of 1996. The cumulative amount of undeclared dividends
as of June 30, 1996 is $207,000. Under accounting rules, such dividends are not
accrued until declared. Under the terms of an agreement with its lenders, the
Company is not permitted to declare or pay any dividends on its preferred stock
on or before August 31, 1996.
The ratio of current assets to current liabilities at both June 30, 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
August 31, 1996. The ratio of total debt to total capitalization increased to
74% at June 30, 1996 from 70% at December 31, 1995 due to lower stockholders'
equity.
The Company has obtained waivers of certain financial covenants through August
31, 1996 from the lenders under its long-term unsecured Senior Notes, the lender
under a $5,982,000 unsecured Note and the purchaser under the Accounts
Receivable Agreement (collectively referred to as "Lenders") and an extension of
the maturity date of the unsecured Note to August 31, 1996. The Company prepaid
to the Lenders $500,000 in aggregate amount of principal of Senior Notes and
unsecured Note during July 1996 and has agreed to prepay to the Lenders $500,000
in aggregate amount of principal of Senior Notes and unsecured Note during
August 1996. There can be no assurance that the Lenders will agree to further
waivers or extensions of the unsecured Note.
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
Accounts Receivable Agreement. However, the Company believes that the Lenders
will extend the due date of unsecured Note, will not accelerate the due date for
payment of the Senior Notes and will not terminate the Accounts Receivable
Agreement. The accompanying consolidated financial statements have been prepared
on the basis of such belief of the Company.
14
<PAGE> 15
At June 30, 1996, the Company had unused sources of liquidity consisting of cash
and cash equivalents of $4,080,000, additional advances available under the
Accounts Receivable Agreement of approximately $1,000,000, 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 the Quarterly Report on Form 10-Q include forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved.
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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
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