-----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, Pfy+gfpgPRMGrS+U7NJpsnR3pHFOS4iTo9IyuERCu5Uv49j2qGrCL0FGr3/2XM99 kW5BnWuq/A1b+14kK3idWQ== 0000950172-97-001050.txt : 19971117 0000950172-97-001050.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950172-97-001050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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 SEC ACT: SEC FILE NUMBER: 001-07272 FILM NUMBER: 97720082 BUSINESS ADDRESS: STREET 1: 500 NEW HOLLAND AVE CITY: LANCASTER STATE: PA ZIP: 17602 BUSINESS PHONE: 7172996511 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 1 QUARTERLY STATEMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1997 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 1 - 7272 ------------------------- KERR GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 95-0898810 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 New Holland Avenue, Lancaster, PA 17602 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (717) 299-6511 -------------------- Former name, former address and former fiscal year, if changed since last year. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ The number of shares of Registrant's Common Stock, $.50 par value, outstanding as of September 30, 1997 was 3,933,095. KERR GROUP, INC. Index Page No. Part I. Financial Information Item 1. Financial Statements Condensed Balance Sheets - September 30, 1997 and December 31, 1996 3 - 4 Condensed Statements of Earnings (Loss) - One Month Period Ended September 30, 1997, Two Month Period Ended August 26, 1997 and 5 Three Months Ended September 30, 1996 Condensed Statements of Earnings (Loss) 6 One Month Period Ended September 30, 1997, Eight Month Period Ended August 26, 1997 and Nine Months Ended September 30, 1996 Condensed Statements of Cash Flows - 7 One Month Period Ended September 30, 1997, Eight Month Period Ended August 26, 1997 and Nine Months Ended September 30, 1996 Notes to Condensed Financial Statements 8 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 14 Part II. Other Information 15 KERR GROUP, INC. Condensed Balance Sheets As of September 30, 1997 and December 31, 1996 (in thousands except per share data) AS OF AUGUST 27, 1997, THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD THE ACQUISITION OF THE COMPANY. SUCH ACCOUNTING GENERALLY RESULTS IN INCREASED AMORTIZATION AND DEPRECIATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS OF THE COMPANY BEFORE AND AFTER APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING.
(Note 1) ---------------------------------- (Unaudited) (Audited) September 30, December 31, Assets 1997 1996 - ------ ------------ -------- Current Assets Cash and cash equivalents 438 $ 9,107 Restricted cash 3,741 0 Receivables-primarily trade accounts, less allowance for doubtful accounts of $314 at September 30, 1997 13,881 9,710 and $287 at December 31, 1996 Inventories Raw materials and work in process 5,037 6,702 Finished goods 6,386 8,034 ------ ------ Total inventories 11,423 14,736 Prepaid expenses and other current assets 464 31 ------ ------ Total current assets 29,947 33,584 ------- ------ Net property, plant and equipment 38,828 38,890 Deferred income tax asset 27,630 0 Goodwill and other intangibles, net of amortization of $120 at September 30, 1997 and $2,749 at December 31, 1996 47,522 5,682 Other assets 2,830 7,370 Assets held for sale 1,500 0 ------ ------ $148,257 $85,526 ========= =======
See accompanying notes to condensed financial statements. KERR GROUP, INC. Condensed Balance Sheets As of September 30, 1997 and December 31, 1996 (in thousands except per share data) AS OF AUGUST 27, 1997, THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD THE ACQUISITION OF THE COMPANY. SUCH ACCOUNTING GENERALLY RESULTS IN INCREASED AMORTIZATION AND DEPRECIATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS OF THE COMPANY BEFORE AND AFTER APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING.
(Note 1) ----------------------------------- (Unaudited) (Audited) September 30, December 31, Liabilities and Stockholders' Equity 1997 1996 - ------------------------------------ ------------ -------- Current liabilities Current portion of long-term debt $4,000 $50,900 Short-term debt 6,822 0 Accounts payable 8,998 7,373 Accrued expenses 8,053 5,622 ---------- --------- Total current liabilities 27,873 63,895 --------- -------- Accrued pension liability 21,799 13,935 Other long-term liabilities 16,891 4,394 Long-term debt 27,667 0 Obligation to acquire 275,962 shares of common stock 3,741 0 @ $5.40/share and 180,006 shares of preferred stock @ $12.50/share Stockholders' equity Preferred Stock, 487 shares authorized and issued, liquidation value of $22.55 per share at September 30, 1997 and $21.28 per share at December 31, 1996 -- 9,748 Predecessor Common Stock, $.50 par value per share, 20,000 shares authorized, 4,226 shares issued -- 2,113 Company Common Stock, $.01 par value per share, 50,000 shares authorized, 5,000 shares issued and outstanding 50 -- Additional paid-in capital 49,950 27,239 Retained earnings (accumulated deficit) 286 (20,640) Treasury Stock, 293 shares at cost -- (6,913) Excess of additional pension liability over unrecognized prior service cost, net of tax benefits -- (8,245) ------------ --------- Total stockholders' equity 50,286 3,302 ---------- -------- $148,257 $85,526 ========= =======
See accompanying notes to condensed financial statements. KERR GROUP, INC. Condensed Statements of Earnings (Loss) for the One Month Period Ended September 30, 1997, the Two Month Period Ended August 26, 1997, and the Three Months Ended September 30, 1996 (Unaudited) (in thousands except per share data) AS OF AUGUST 27, 1997, THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD THE ACQUISITION OF THE COMPANY. SUCH ACCOUNTING GENERALLY RESULTS IN INCREASED AMORTIZATION AND DEPRECIATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS OF THE COMPANY BEFORE AND AFTER APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING.
(Note 1) Predecessor (Note 1) ------------- -------------------------------- One Month Two Month Three Months Period Ended Period Ended Ended September 30, August 26, September 30, 1997 1997 1996 -------------- ------------- --------------- Net sales $ 9,819 $ 18,908 $ 28,024 Cost of sales 7,390 14,820 20,191 --------- --------- --------- Gross profit 2,429 4,088 7,833 Research and development expenses 117 287 460 Plant administrative expenses 302 1,117 1,274 Selling and warehouse expenses 669 1,304 1,946 General corporate expenses 633 1,431 2,540 Restructuring costs 0 175 1,280 Financing costs 0 777 0 Interest expense, net 239 1,115 1,163 --------- --------- --------- Income (loss) before income taxes 469 (2,118) (830) Provision for income taxes 183 0 3,668 --------- --------- --------- Net income (loss) before extraordinary items 286 (2,118) (4,498) Extraordinary loss on financing 0 (4,419) 0 --------- --------- --------- Net income (loss) 286 (6,537) (4,498) Preferred stock dividends -- 138 207 --------- --------- --------- Net income (loss) applicable to common stockholders $ 286 $ (6,675) $ (4,705) ========= ========= ========= Net income (loss) per common share, primary and fully diluted: From continuing operations $ .06 $ (.55) $ (1.20) From extraordinary loss on financing 0 (1.11) 0 --------- --------- --------- Net income (loss) $ .06 $ (1.66) $ (1.20) ========= ========= ========= Weighted average shares outstanding 5,000 4,028 3,933 ========= ========= =========
See accompanying notes to condensed financial statements. KERR GROUP, INC. Condensed Statements of Earnings (Loss) for the One Month Period Ended September 30, 1997, the Eight Month Period Ended August 26, 1997, and the Nine Months Ended September 30, 1996 (Unaudited) (in thousands except per share data) AS OF AUGUST 27, 1997, THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD THE ACQUISITION OF THE COMPANY. SUCH ACCOUNTING GENERALLY RESULTS IN INCREASED AMORTIZATION AND DEPRECIATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS OF THE COMPANY BEFORE AND AFTER APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING.
(Note 1) Predecessor (Note 1) ------------- -------------------------------- One Month Eight Month Nine Months Period Ended Period Ended Ended September 30, August 26, September 30, 1997 1997 1996 -------------- ------------- --------------- Net sale $ 9,819 $ 76,488 $ 80,488 Cost of sales 7,390 58,336 63,057 --------- --------- --------- Gross profit 2,429 18,152 17,431 Research and development expenses 117 1,214 1,429 Plant administrative expenses 302 3,999 4,114 Selling and warehouse expenses 669 5,629 5,983 General corporate expenses 633 6,124 8,153 Restructuring costs 0 175 9,436 Financing costs 0 2,396 245 Interest expense, net 239 3,910 3,544 --------- --------- --------- Income (loss) from continuing operations before income taxes 469 (5,295) (15,473) Provision (benefit) for income taxes 183 0 (2,189) --------- --------- --------- Income (loss) from continuing operations 286 (5,295) (13,284) Discontinued operations: Gain on sale of discontinued operations 0 0 1,564 Loss from discontinued operations 0 0 (133) --------- --------- --------- Net earnings related to discontinued operations 0 0 1,431 --------- --------- --------- Net income (loss) before extraordinary item 286 (5,295) (11,853) Extraordinary loss on financing 0 (4,419) 0 --------- --------- --------- Net income (loss) 286 (9,714) (11,853) Preferred stock dividends -- 552 621 --------- --------- --------- Net income (loss) applicable to common stockholders $ 286 $(10,266) $(12,474) ========= ========= ========= Net income (loss) per common share, primary and fully diluted: From continuing operations $ .06 $ (1.47) $ (3.54) From discontinued operations 0 0 0.37 From extraordinary loss on financing 0 (1.11) 0 --------- --------- --------- Net income (loss) $ .06 $ (2.58) $ (3.17) ========= ========= ========= Weighted average shares outstanding 5,000 3,985 3,933 ========= ========= =========
See accompanying notes to condensed financial statements. KERR GROUP, INC. Condensed Statements of Cash Flows for the One Month Period Ended September 30, 1997, the Eight Month Period Ended August 26, 1997, and the Nine Months Ended September 30, 1996 (unaudited) (in thousands) AS OF AUGUST 27, 1997, THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD THE ACQUISITION OF THE COMPANY. SUCH ACCOUNTING GENERALLY RESULTS IN INCREASED AMORTIZATION AND DEPRECIATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS OF THE COMPANY BEFORE AND AFTER APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING.
(Note 1) Predecessor (Note 1) ------------- -------------------------------- One Month Eight Month Nine Months Period Ended Period Ended Ended September 30, August 26, September 30, 1997 1997 1996 -------------- ------------- --------------- Cash flows provided (used) by operations - ---------------------------------------- Continuing operations: Income (loss) from continuing operations $ 286 $ (9,714) $(13,284) Add (deduct) noncash items included in loss from continuing operations Expenses associated with restructuring 0 175 5,662 Payments associated with restructuring (406) (1,129) (4,064) Expenses associated with financing 0 3,983 147 Depreciation and amortization 835 6,106 7,197 Change in deferred income taxes 183 0 1,666 Change in total pension liability, net 0 512 (5,546) Other, net (307) 351 (836) Changes in operating working capital Receivables 71 (4,242) (4,041) Inventories 504 1,843 1,620 Other current assets (98) (637) 110 Accounts payable 201 3,002 (2,240) Accrued expenses (289) (1,020) (1,074) Cash flow provided (used) by discontinued operations -- 360 8,026 --------- --------- --------- Cash flow provided (used) by operations 980 (410) (6,657) --------- --------- --------- Cash flows provided (used) by investing activities - --------------------------------------- Continuing operations: Capital expenditures (251) (7,710) (1,488) Proceeds from sale of land 0 3,669 0 Other, net 174 96 (271) Discontinued operations: Proceeds from sale of assets of Consumer Products Business 0 0 14,417 Other, net 0 0 (289) --------- --------- --------- Cash flow provided (used) by investing activities (77) (3,945) 12,369 --------- --------- --------- Cash flows provided (used) by financing activities - --------------------------------------- Repayment of debt (5,233) 0 (5,600) Borrowings under Secured Revolving Credit Facility 0 3,758 0 Payments associated with financing 0 (3,742) (245) Dividends paid 0 0 (207) --------- --------- --------- Cash flow provided (used) by financing activities (5,233) 16 (6,052) Cash and cash equivalents - ------------------------- Decrease during the period (4,330) (4,339) (340) Balance at beginning of the period 8,509 9,107 3,904 --------- --------- --------- Balance at end of the period $ 4,179 $ 4,768 $ 3,564 ========= ========= =========
See accompanying notes to condensed financial statements KERR GROUP, INC. Notes to Condensed Financial Statements (Unaudited) 1) Organization and Basis of Presentation On August 26, 1997, Fremont Acquisition Company, LLC ("Fremont") and Kerr Acquisition Corporation ("KAC") completed their previously announced cash tender offer (the "Tender Offer") for all of the shares of Common Stock, par value $.50 per share (the "Common Stock") and $1.70 Class B Cumulative Convertible Preferred Stock, Series D, par value $.50 per share (the "Preferred Stock") of Kerr Group, Inc. (the "Company") pursuant to the Agreement and Plan of Merger, dated July 1, 1997, among the Company, Fremont and KAC (the "Merger Agreement"). Fremont acquired the Common Stock and Preferred Stock from shareholders who tendered their shares pursuant to the Tender Offer. Subject to the terms of the Merger Agreement, shares of Common Stock and Preferred Stock not tendered will be converted into the right to receive $5.40 net per share of Common Stock and $12.50 net per share of Preferred Stock pursuant to a second step merger between KAC and the Company (the "Merger"). As part of the Merger, all options outstanding were cancelled. No new options have been granted. The Merger was accounted for using push down purchase accounting, as if KAC and the Company had merged as of August 26, 1997, and hence the preceding condensed financial statements are presented for both the predecessor company (represents activities through August 26, 1997) and the post-merger company (represents activities starting August 27, 1997). The shares outstanding and earnings per share presentation represent shares outstanding of KAC. The one month period ended September 30, 1997 represents the period from August 27, 1997 through September 30, 1997. The two month period ended August 26, 1997 represents the period from July 1, 1997 through August 26, 1997. The eight month period ended August 26, 1997 represents the period from January 1, 1997 through August 26, 1997. 2) General The condensed financial statements represent the accounts of the Company. In the opinion of management, the accompanying condensed financial statements contain all adjustments (consisting of only normal recurring accruals and certain non-recurring accruals for restructuring charges as described below) necessary to present fairly the financial position of the Company as of September 30, 1997, and the results of operations for the one month period ended September 30, 1997, the two month and eight month periods ended August 26, 1997 and the three months and nine months ended September 30, 1996, and changes in cash flows for the one month period ended September 30, 1997, the eight month period ended August 26, and the nine months ended September 30, 1996. 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 one month period ended September 30, 1997, the two month and eight month periods ended August 26, 1997, and the three months and the nine months ended September 30, 1996 was not dilutive. The Company has not declared a dividend on its Class B, Series D Preferred Stock since the first quarter of 1996. The cumulative amount of undeclared dividends as of August 26, 1997 was $1,174,000. 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. 3) Acquisition The acquisition has been accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition. Management is presently obtaining appraisals and conducting various studies related to the acquisition. The estimated fair values of the assets acquired and liabilities assumed are expected to change as these appraisals are obtained and these studies are completed. The excess of the purchase price over the fair values of the net assets acquired was $47.6 million and has been recorded as goodwill, which is being amortized on a straight-line basis over 35 years. The amount of goodwill amortization for the one month period ended September 30, 1997 was $.1 million. The net purchase price was allocated as follows: (in thousands) ----------------------------------------------------- Working capital, other than cash $ 26,245 Property, plant and equipment $ 38,895 Other assets $ 41,318 Goodwill $ 47,642 Other liabilities $(104,100) ----------------------------------------------------- Purchase price, net of cash received $ 50,000 4) Financing In connection with the Merger and the consummation of the Tender Offer, the Company entered into a Loan and Security Agreement, dated as of August 26, 1997 (the "Loan and Security Agreement"), for an aggregate amount of $62 million. The credit facilities were used, among other things, (i) to refinance the outstanding principal balance of funded indebtedness (including premium, and accrued and unpaid interest) of the Company at the time of the consummation of the Tender Offer, (ii) to pay a portion of the fees and expenses incurred in connection with the Tender Offer and (iii) to provide for working capital and general corporate purposes of the Company after the consummation of the Tender Offer. The credit facilities are guaranteed by the tangible and intangible assets of the Company. Pursuant to the Loan and Security Agreement the credit facilities consisted of a $20 million revolving credit facility (which includes a sublimit for the issuance of standby and commercial letters of credit) (the "Revolving Credit Facility"), a $32 million term loan facility (the "Term Loan Facility") and a $10 million equipment acquisition facility (the "CAPEX Facility" and together with the Revolving Credit Facility and the Term Loan Facility, the "Senior Credit Facilities"). The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 225 basis points or the Base Rate (defined as the higher of (i) the bank's prime rate and (ii) the Federal Funds rate), at all times subject to applicable maximum legal interest rates. The Term Loan Facility and the CAPEX Facility bear interest at a rate equal to LIBOR plus 275 basis points or the Base Rate plus 50 basis points, in each case at all times subject to applicable maximum legal interest rates. The Company may select interest periods of 1, 2, 3 or 6 months for LIBOR loans, subject to availability. A default rate of interest applies on all loans in the event of default at a rate per annum of 2% above the applicable interest rate. The Revolving Credit Facility terminates and all amounts outstanding thereunder will be due and payable in full five years from the closing of the Tender Offer (the "Closing"). The Term Loan Facility is subject to repayment according to scheduled amortization, with the final payment of all amounts outstanding, plus accrued interest, due five years from the Closing or upon termination of the Revolving Credit Facility, whichever is earlier. The CAPEX Facility also is subject to amortization, with the final payment of all amounts outstanding, plus accrued interest, due five years from the Closing or upon termination of the Revolving Credit Facility, whichever is earlier. The Loan and Security Agreement provides for prepayment of the Senior Credit Facilities provided that the Company pays liquidated damages. On August 26, 1997, the Company refinanced all of its existing indebtedness, including its 9.45% Senior Series A and 8.99% Series B Notes and its credit facility with Madeleine L.L.C., through a secured credit facility with NationsBank. 5) Pension Benefit Guaranty Corporation On August 24, 1997, the Company and the Pension Benefit Guaranty Corporation (the "PBGC") entered into a definitive agreement pursuant to which the PBGC agreed to dismiss its lawsuit now pending before the United States District court for the Eastern District of Pennsylvania seeking to terminate the Company's pension plan, withdraw its Notice of Determination and forbear from instituting new proceedings with respect to the acquisition. Pursuant to the terms of the definitive agreement, the Company agreed to (i) future enhanced pension plan contributions, (ii) grant to the PBGC a second lien in the amount of $40.7 million secured by substantially all of the assets of the Company, (iii) various restrictions on future secured indebtedness and (iv) provisions regarding notice of certain events. The definitive agreement became effective upon the consummation of the Tender Offer. 6) Receivables Receivables as of December 31, 1996, as shown on the accompanying Condensed Balance Sheets, have been reduced by net proceeds of $3,861,000, from advances pursuant to the sale of receivables under the Company's 1996 Accounts Receivable Agreement. 7) Income Taxes During the two month and eight month periods ended August 26, 1997, the Company recorded charges of $826 and $2,065, respectively, to provide a valuation reserve against its deferred income tax asset. The increase in the valuation reserve eliminated the tax benefit the Company would have generated during the first eight months of 1997, and was required because of the continuing unwaived covenant defaults under loan agreements governing the Company's $50,900,000 principal amount of unsecured debt. Due to the acquisition and refinancing of the debt, the Company will no longer record a valuation allowance. During the third and fourth quarters of 1996, a valuation reserve was provided to eliminate the tax benefit recorded during the first and second quarters of 1996. 8) Restructuring During the first quarter of 1996, the Company recorded a pretax loss of $7,500,000 for certain costs associated with the restructuring of the Company, which included moving the corporate headquarters from Los Angeles, California to Lancaster, Pennsylvania and relocating the wide-mouth jar operations from Santa Fe Springs, California to Bowling Green, Kentucky. The pretax loss consisted of reserves for i) severance, workers' compensation and insurance continuation costs of $3,000,000, ii) costs associated with subleasing the two facilities of $2,300,000, iii) asset retirements of $1,600,000 and iv) other costs of $600,000. During the eight month period ended August 26, 1997 and the one month period ended September 30, 1997, the Company made cash payments related to such reserves for i) costs associated with terminating the leases of facilities of $618,000 and $0, respectively, ii) severance pay and related costs of $454,000 and $34,000, respectively, and iii) other costs of $58,000 and $0, respectively. During the nine months ended September 30, 1996, the Company made cash payments related to such reserves for i) severance pay and related costs of $1,431,000 and ii) other costs of $8,000. In addition, during the three months and nine months ended September 30, 1996, the Company incurred an unusual pre-tax loss of $1,280,000 and $1,936,000, respectively, for restructuring costs primarily related to relocation of personnel and equipment. The ultimate required amount of the reserves related to the restructuring is expected to approximate the original estimate. 9) Discontinued Operations During the first quarter of 1996, the Company sold the manufacturing assets of the Consumer Products Business for a purchase price of $14,417,000. The Company recorded a pretax gain of $2,607,000 ($1,564,000 after-tax) in connection with this sale. This pretax gain has been reduced by $5,800,000 of reserves for i) retiree health care and pension expenses of $3,800,000, ii) severance pay, workers' compensation claims and insurance continuation costs of $1,000,000, iii) professional fees of $500,000, iv) asset retirements of $300,000, and v) other costs of $200,000. The ultimate required amount of the reserves related to the disposal of the Consumer Products Business is expected to approximate the original estimate. The gain on the sale and the results of the Consumer Products Business have been reported separately as a component of discontinued operations in the Condensed Statements of Earnings (Loss). 10) Recently Issued Accounting Pronouncements In the first quarter of 1997, the Financial Accounting Standards Board adopted Statement No. 128, Earnings per Share (FASB No. 128) and Statement No. 129, Disclosure of Information about Capital Structure (FASB No. 129). FASB No. 128 simplifies the computation of earnings per common share by replacing primary and fully diluted presentations with the new basic and diluted disclosures. FASB No. 129 establishes standards for disclosing information about an entity's capital structure. These statements will be adopted by the Company effective December 31, 1997. KERR GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months and Nine Months Ended September 30, 1997 and 1996 Results of Operations As of August 27, 1997, the purchase method of accounting was used to record the acquisition of the Company. Such accounting generally results in increased amortization and depreciation reported in future periods. Accordingly, the accompanying financial statements of the predecessor and the Company are not comparable in all material respects since those financial statements report financial position, results of operations, and cash flows of the Company before and after application of the purchase method of accounting. Continuing Operations Net sales for the three months ended September 30, 1997 were $28,727,000 as compared to $28,024,000 for the three months ended September 30, 1996, an increase of $703,000 or 3%. The increase in net sales for the three months ended September 30, 1997 over the comparable period in 1996 was due primarily to higher unit sales of pharmaceutical packaging. Net sales for the nine months ended September 30, 1997 were $86,307,000 as compared to $80,488,000 for the nine months ended September 30, 1996, an increase of $5,819,000 or 7%. The increase in net sales for the nine months ended September 30, 1997 over the comparable period in 1996 was due primarily to higher unit sales and improved pricing of pharmaceutical packaging and prescription packaging. Cost of sales for the three months ended September 30, 1997 were $22,210,000 as compared to $20,191,000 for the three months ended September 30, 1996, an increase of $2,019,000 or 10%. Cost of sales for the nine months ended September 30, 1997 were $65,726,000 as compared to $63,057,000 for the nine months ended September 30, 1996, an increase of $2,669,000 or 4%. The increase in cost of sales for both periods was primarily the result of higher unit sales. Gross profit as a percent of net sales for the three months ended September 30, 1997 decreased to 23% as compared to 28% for the three months ended September 30, 1996 due to product mix. Gross profit as a percent of net sales for the nine months ended September 30, 1997 increased to 24% as compared to 22% for the nine months ended September 30, 1996 due, primarily, to lower manufacturing costs, particularly because of higher production levels, and, secondarily, improved pricing of prescription packaging and pharmaceutical packaging. Research and development, selling, warehouse, plant and general administrative expenses decreased $360,000 or 6% during the three months ended September 30, 1997, as compared to the same period in 1996. Research and development, selling, warehouse, general and administrative expenses decreased $992,000 or 5% during the nine months ended September 30, 1997. The decrease for both periods was, primarily, due to lower costs resulting from the restructuring of the Company. During the three month and nine month periods ended September 30, 1997, the Company incurred costs of $777,000 and $2,396,000, respectively, for professional fees in connection with its refinancing efforts consisting primarily of fees paid to the owners of the Company's unsecured debt and fees paid to the Company's financial and legal advisors. During the three month and nine month periods ended September 30, 1996, the Company incurred costs of $0 and $245,000, respectively, for professional fees related to its refinancing efforts. During the first quarter of 1996, the Company recorded a pretax loss of $7,500,000 for certain costs associated with the restructuring of the Company, which included moving the corporate headquarters from Los Angeles, California to Lancaster, Pennsylvania and relocating the wide-mouth jar operations from Santa Fe Springs, California to Bowling Green, Kentucky. The pretax loss consisted of reserves for i) severance, workers' compensation and insurance continuation costs of $3,000,000, ii) costs associated with subleasing the two facilities of $2,300,000, iii) asset retirements of $1,600,000 and iv) other costs of $600,000. In addition, during the three months and nine months ended September 30, 1996, the Company incurred an unusual pre-tax loss of $1,280,000 and $1,936,000, respectively, for restructuring costs primarily related to relocation of personnel and equipment. Net interest expense increased $191,000 and $605,000 during the three month and nine month periods ended September 30, 1997, respectively, as compared to the same periods in 1996, primarily as a result of the Company's unsecured debt accruing interest at the default rate beginning in the second quarter of 1997. The loss before income taxes increased $819,000 during the three months ended September 30, 1997 as compared to 1996 due primarily to increased financing costs and increased interest expense. The loss before income taxes decreased $10,647,000 during the nine months ended September 30, 1997 as compared to the same period in 1996, due primarily to i) the $9,436,000 pretax loss in 1996 related to the restructuring, ii) lower manufacturing costs in 1997 and iii) improved pricing of prescription packaging and pharmaceutical packaging. The provision for income taxes decreased $3,485,000 and the benefit for income taxes decreased $2,372,000 during the three months and nine months ended September 30, 1997, respectively, as compared to the same period in 1996, primarily as a result of the valuation reserve recorded against the Company's net deferred income tax asset during 1997. The increase in the valuation reserve eliminated the tax benefit the Company would have generated during the first nine months of 1997, and was required because of the continuing unwaived covenant defaults under loan agreements governing the Company's $50,900,000 principal amount of unsecured debt. During the third and fourth quarters of 1996, a valuation reserve was provided to eliminate the tax benefit recorded during the first nine months of 1996. Discontinued Operations During the first quarter of 1996, the Company sold the manufacturing assets of the Consumer Products Business for a purchase price of $14,417,000. The Company recorded a pretax gain of $2,607,000 ($1,564,000 after-tax) in connection with this sale. This pretax gain has been reduced by $5,800,000 of reserves for i) retiree health care and pension expenses of $3,800,000, ii) severance pay, workers' compensation claims and insurance continuation costs of $1,000,000, iii) professional fees of $500,000, iv) asset retirements of $300,000, and v) other costs of $200,000. Liquidity and Capital Resources During the nine months of 1997, the principal sources of cash were $3,669,000 received in April from the sale of real estate in Santa Ana, California and borrowings under the Company's Secured Revolving Credit Facility of $3,758,000. The principal uses of cash were to fund i) capital expenditures of $7,961,000, ii) a reduction in the level of advances under the Company's Accounts Receivable Facility of $3,861,000, iii) cash costs of the Company's financing efforts of $3,742,000 and iv) cash costs of the restructuring of $1,535,000. During the first nine months of 1996, the principal source of cash was $14,417,000 received from the sale of the manufacturing assets of the Consumer Products Business. The principal uses of cash were to fund i) pretax losses, ii) net debt retirements of $5,600,000 and iii) cash costs of the restructuring of $4,064,000. 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 August 26, 1997 was $1,174,000. 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. On August 26, 1997, Fremont Acquisition Company, LLC ("Fremont") and Kerr Acquisition Corporation ("KAC") completed their previously announced cash tender offer (the "Tender Offer") for all of the shares of Common Stock, par value $.50 per share (the "Common Stock") and $1.70 Class B Cumulative Convertible Preferred Stock, Series D, par value $.50 per share (the "Preferred Stock") of Kerr Group, Inc. (the "Company") pursuant to the Agreement and Plan of Merger, dated July 1, 1997, among the Company, Fremont and KAC (the "Merger Agreement"). Fremont acquired the Common Stock and Preferred Stock from shareholders who tendered their shares pursuant to the Tender Offer. Subject to the terms of the Merger Agreement, shares of Common Stock and Preferred Stock not tendered will be converted into the right to receive $5.40 net per share of Common Stock and $12.50 net per share of Preferred Stock pursuant to a second step merger between KAC and the Company (the "Merger"). On August 24, 1997, the Company and the Pension Benefit Guaranty Corporation (the "PBGC") entered into a definitive agreement pursuant to which the PBGC agreed to dismiss its lawsuit now pending before the United States District court for the Eastern District of Pennsylvania seeking to terminate the Company's pension plan, withdraw its Notice of Determination and forbear from instituting new proceedings with respect to the acquisition. Pursuant to the terms of the definitive agreement, the Company agreed to (i) future enhanced pension plan contributions, (ii) grant to the PBGC a second lien in the amount of $40.7 million secured by substantially all of the assets of the Company, (iii) various restrictions on future secured indebtedness and (iv) provisions regarding notice of certain events. The definitive agreement became effective upon the consummation of the Tender Offer. In connection with the Merger and the consummation of the Tender Offer, the Company entered into a Loan and Security Agreement, dated as of August 26, 1997 (the "Loan and Security Agreement"), for an aggregate amount of $62 million. The credit facilities were used, among other things, (i) to refinance the outstanding principal balance of funded indebtedness (including premium, and accrued and unpaid interest) of the Company at the time of the consummation of the Tender Offer, (ii) to pay a portion of the fees and expenses incurred in connection with the Tender Offer and (iii) to provide for working capital and general corporate purposes of the Company after the consummation of the Tender Offer. The credit facilities are guaranteed by the tangible and intangible assets of the Company. Pursuant to the Loan and Security Agreement the credit facilities consisted of a $20 million revolving credit facility (which includes a sublimit for the issuance of standby and commercial letters of credit) (the "Revolving Credit Facility"), a $32 million term loan facility (the "Term Loan Facility") and a $10 million equipment acquisition facility (the "CAPEX Facility" and together with the Revolving Credit Facility and the Term Loan Facility, the "Senior Credit Facilities"). The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 225 basis points or the Base Rate (defined as the higher of (i) the bank's prime rate and (ii) the Federal Funds rate), at all times subject to applicable maximum legal interest rates. The Term Loan Facility and the CAPEX Facility bear interest at a rate equal to LIBOR plus 275 basis points or the Base Rate plus 50 basis points, in each case at all times subject to applicable maximum legal interest rates. The Company may select interest periods of 1, 2, 3 or 6 months for LIBOR loans, subject to availability. A default rate of interest applies on all loans in the event of default at a rate per annum of 2% above the applicable interest rate. The Revolving Credit Facility terminates and all amounts outstanding thereunder will be due and payable in full five years from the closing of the Tender Offer (the "Closing"). The Term Loan Facility is subject to repayment according to scheduled amortization, with the final payment of all amounts outstanding, plus accrued interest, due five years from the Closing or upon termination of the Revolving Credit Facility, whichever is earlier. The CAPEX Facility also is subject to amortization, with the final payment of all amounts outstanding, plus accrued interest, due five years from the Closing or upon termination of the Revolving Credit Facility, whichever is earlier. The Loan and Security Agreement provides for prepayment of the Senior Credit Facilities provided that the Company pays liquidated damages. On August 26, 1997, the Company refinanced all of its existing indebtedness, including its 9.45% Senior Series A and 8.99% Series B Notes and its credit facility with Madeleine L.L.C., through a secured credit facility with NationsBank. 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. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits 11.1 Statement re: Computation of Per Common Share Earnings (Loss). 27.1 Financial Data Schedule. b. Reports on Form 8-K 1. The Company's Current Report on Form 8-K, with respect to Item 5, filed on July 1, 1997. 2. The Company's Current Report on Form 8-K, with respect to Item 5, filed on August 20, 1997. 3. The Company's Current Report on Form 8-K, with respect to Item 1, filed on September 10, 1997. 4. The Company's Current Report on Form 8-K, with respect to Item 4, filed on November 13, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KERR GROUP, INC. November 14, 1997 By /s/ Richard D. Hofmann ---------------------------------- Richard D. Hofmann President, Chief Executive Officer November 14, 1997 By /s/ Lawrence C. Caldwell --------------------------------- Lawrence C. Caldwell Vice President, Finance Chief Financial Officer EXHIBIT 11.1 KERR GROUP, INC. Statement Re: Computation of Per Share Earnings (Loss) (in thousands except per share data) AS OF AUGUST 27, 1997, THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD THE ACQUISITION OF THE COMPANY. SUCH ACCOUNTING GENERALLY RESULTS IN INCREASED AMORTIZATION AND DEPRECIATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS OF THE COMPANY BEFORE AND AFTER APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING.
(Note 1) Predecessor (Note 1) ------------- -------------------------------- One Month Eight Month Nine Months Period Ended Period Ended Ended September 30, August 26, September 30, 1997 1997 1996 -------------- ------------- --------------- Primary Net Earnings (Loss) Per Common Share - --------------------------- Net earnings (loss) $ 286 $ (9,714) $(11,853) Less Preferred Stock dividends -- (552) (621) --------- --------- --------- Net loss applicable to primary earnings per common share $ 286 $(10,266) $(12,474) ========= ========= ========= Weighted average number of common shares outstanding 5,000 3,933 3,933 Weighted average number of common share equivalents outstanding 0 52 3 --------- --------- --------- Weighted average number of common shares and common share equivalents outstanding 5,000 3,985 3,936 ========= ========= ========= Primary net earnings (loss) per common share $ 0.06 $ (2.58) $ (3.17) ========= ========= ========= Fully Diluted Net Earnings (Loss) Per Common Share - --------------------------------- Net earnings (loss) applicable to primary earnings per common share $ 286 $(10,266) $(12,474) Add Preferred Stock dividends -- 552 621 --------- --------- --------- Net earnings (loss) applicable to fully diluted earnings per common share $ 286 $ (9,714) $(11,853) ========= ========= ========= Weighted average number of common shares and common share equivalents outstanding 5,000 3,985 3,933 Common shares issuable upon assumed conversion of Preferred Stock -- 709 709 Incremental common shares issuable upon assumed exercise of outstanding stock options -- 0 3 --------- --------- --------- Adjusted weighted average number of common shares and common share equivalents outstanding 5,000 4,694 4,645 ========= ========= ========= Fully diluted net earnings (loss) per common share: As computed $ 0.06 $ (2.07) $ (2.55) ========= ========= ========= As reported (a) $ 0.06 $ (2.58) $ (3.17) ========= ========= =========
(a) The calculation of fully diluted net loss per common share for the three months and six months ended September 30, 1997 and 1996 was not dilutive. EXHIBIT 11.1 KERR GROUP, INC. Statement Re: Computation of Per Share Earnings (Loss) (in thousands except per share data) AS OF AUGUST 27, 1997, THE PURCHASE METHOD OF ACCOUNTING WAS USED TO RECORD THE ACQUISITION OF THE COMPANY. SUCH ACCOUNTING GENERALLY RESULTS IN INCREASED AMORTIZATION AND DEPRECIATION REPORTED IN FUTURE PERIODS. ACCORDINGLY, THE ACCOMPANYING FINANCIAL STATEMENTS OF THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS SINCE THOSE FINANCIAL STATEMENTS REPORT FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH FLOWS OF THE COMPANY BEFORE AND AFTER APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING.
(Note 1) Predecessor (Note 1) ------------- -------------------------------- One Month Two Month Three Months Period Ended Period Ended Ended September 30, August 26, September 30, 1997 1997 1996 -------------- ------------- --------------- Primary Net Earnings (Loss) Per Common Share - --------------------------- Net earnings (loss) $ 286 $(6,537) $(4,498) Less Preferred Stock dividends -- (138) (207) -------- -------- -------- Net loss applicable to primary earnings per common share $ 286 $(6,675) $(4,705) ======== ======== ======== Weighted average number of common shares outstanding 5,000 3,933 3,933 Weighted average number of common share equivalents outstanding 0 95 0 -------- -------- -------- Weighted average number of common shares and common share equivalents outstanding 5,000 4,028 3,933 ======== ======== ======== Primary net earnings (loss) per common share $ 0.06 $ (1.66) $ (1.20) ======== ======== ======== Fully Diluted Net Earnings (Loss) Per Common Share - --------------------------------- Net earnings (loss) applicable to primary earnings per common share $ 286 $(6,675) $(4,705) Add Preferred Stock dividends -- 138 207 -------- -------- -------- Net earnings (loss) applicable to fully diluted earnings per common share $ 286 $(6,537) $(4,498) ======== ======== ======== Weighted average number of common shares and common share equivalents outstanding 5,000 4,028 3,933 Common shares issuable upon assumed conversion of Preferred Stock 0 709 709 Incremental common shares issuable upon assumed exercise of outstanding stock options 0 0 0 -------- -------- -------- Adjusted weighted average number of common shares and common share equivalents outstanding 5,000 4,737 4,642 ======== ======== ======== Fully diluted net earnings (loss) per common share: As computed $ 0.06 $ (1.38) $ (0.97) ======== ======== ======== As reported (a) $ 0.06 $ (1.66) $ (1.20) ======== ======== ========
(a) The calculation of fully diluted net loss per common share for the three months and six months ended September 30, 1997 and 1996 was not dilutive. [TYPE] EX-27 [DESCRIPTION] EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE [ARTICLE] 5 [LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S STATEMENTS OF EARNINGS (LOSS) AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. [MULTIPLIER] 1,000 [PERIOD-TYPE] 9-MOS [FISCAL-YEAR-END] DEC-31-1997 [PERIOD-START] JAN-01-1997 [PERIOD-END] SEP-30-1997 [CASH] 4,179 [SECURITIES] 0 [RECEIVABLES] 14,195 [ALLOWANCES] 314 [INVENTORY] 11,423 [CURRENT-ASSETS] 29,947 [PP&E] 38,828 [DEPRECIATION] 0 [TOTAL-ASSETS] 148,257 [CURRENT-LIABILITIES] 27,873 [BONDS] 0 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 50,000 [OTHER-SE] 286 [TOTAL-LIABILITY-AND-EQUITY] 148,257 [SALES] 86,307 [TOTAL-REVENUES] 86,307 [CGS] 65,726 [TOTAL-COSTS] 65,726 [OTHER-EXPENSES] 21,258 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 4,149 [INCOME-PRETAX] (4,826) [INCOME-TAX] 183 [INCOME-CONTINUING] (5,009) [DISCONTINUED] 0 [EXTRAORDINARY] 4,419 [CHANGES] 0 [NET-INCOME] (9,428) [EPS-PRIMARY] (2.52) [EPS-DILUTED] (2.52)
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