-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S1OS1UIMd9bMfSulDammQ3Ym1fczTTJ4sAyKctJHQPEzW5ZswM0NlkMmoaOXOXvp HdqIIuozLAqAML/NW80kNA== 0000893220-97-000038.txt : 19970114 0000893220-97-000038.hdr.sgml : 19970114 ACCESSION NUMBER: 0000893220-97-000038 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19970113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KERR GROUP INC CENTRAL INDEX KEY: 0000055454 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 950898810 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07272 FILM NUMBER: 97504970 BUSINESS ADDRESS: STREET 1: 500 NEW HOLLAND AVENUE CITY: LANCASTER STATE: PA ZIP: 17602 BUSINESS PHONE: 3105562200 MAIL ADDRESS: STREET 1: 1840 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: KERR GLASS MANUFACTURING CORP DATE OF NAME CHANGE: 19920518 10-Q/A 1 KERR GROUP QUARTERLY REPORT DATED 6/30/96 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. 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 3 KERR GROUP, INC. Consolidated Balance Sheets As of June 30, 1996 and December 31, 1995 (in thousands except per share data)
(Unaudited)(As Restated) June 30, December 31, Assets 1996 1995 - ------ --------- --------- 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 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 4 KERR GROUP, INC. Consolidated Balance Sheets As of June 30, 1996 and December 31, 1995 (in thousands except per share data)
(Unaudited) (As Restated) June 30, December 31, Liabilities and Stockholders' Equity 1996 1995 - ------------------------------------ --------- --------- 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 ========= =========
See accompanying notes to condensed consolidated financial statements. 4 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)
(Unaudited) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, ----------------------- ----------------------- 1996 1995 1996 1995 -------- -------- -------- -------- 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) ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 KERR GROUP, INC. Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 (in thousands)
(Unaudited) Six Months Ended June 30, --------------------------- 1996 1995 -------- -------- 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 ======== ========
See accompanying notes to condensed consolidated financial statements 6 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 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 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 10 KERR GROUP, INC. Computation of Earnings (Loss) Per Common Share (in thousands except per share data)
(Unaudited) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1996 1995 1996 1995 ------- ------- ------- ------- 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) ======= ======= ======= =======
(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 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 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 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 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 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. 15 16 ------------------------------------------ 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 16 -----END PRIVACY-ENHANCED MESSAGE-----