ITEM 1. BUSINESS
1. General
Kerr Group, Inc. (the "Registrant"), a Delaware corporation which was founded in 1903, currently operates in two business segments: the Plastic Products segment and the Consumer Products segment.
Operations in the Plastic Products segment include the manufacture and sale of a variety of plastic products, including child- resistant closures, tamper-evident closures, prescription packaging products, jars, other closures and containers and the sale of glass prescription products (the "Plastic Products Business"). Operations in the Consumer Products segment include the manufacture and sale of caps and lids and the sale of glass jars and a line of pickling spice and pectin products for home canning (the "Home Canning Supplies Business"), which together with the sale of other related products, including iced tea tumblers and beverage mugs, constitutes the "Consumer Products Business." The Plastic Products Business and the Consumer Products Business are referred to herein as "Continuing Businesses".
a. Principal Products and Markets; Sales and Customers
The Plastic Products segment accounted for approximately 77% of the Registrant's total net sales in 1993. Plastic closures of the Plastic Products Segment are sold to customers in the pharmaceutical, food, distilled spirits, toiletries and cosmetics and household chemical industries. Plastic and glass prescription products are sold to drug wholesalers, drug chains and independent pharmacists. Plastic bottles and jars are sold to customers in the pharmaceutical and toiletries and cosmetics industries. Plastic products are sold nationally, principally by the Registrant's sales force.
The Consumer Products Business accounted for approximately 23% of the Registrant's total net sales in 1993. The Home Canning Supplies Business represents substantially all of the Consumer Products Business. The Consumer Products Business sells its products primarily through food brokers to grocery retailers, food wholesalers and mass merchandisers.
No customer accounted for more than 10% of the Registrant's net sales in 1993.
b. Competition
Competition in the markets in which the Plastic Products Business operates is highly fragmented and the Registrant has a number of large competitors with respect to its Plastic Products Business who compete for sales on the basis of price, service and quality of product. The Registrant believes that it is one of the three largest manufacturers of child-resistant plastic closures. The Registrant has one major competitor in the prescription products business, who has substantially larger market share than the Registrant. The Registrant also believes it is the largest manufacturer of plastic closures incorporating a tamper-evident feature for the liquor market and that it is one of the leading suppliers of single and double walled jars to the personal care and cosmetic markets.
The Registrant's one major competitor in the Home Canning Supplies Business is Alltrista Corporation. The Registrant believes it has a significant share of the market for home canning caps, lids and jars.
c. Backlog
The Registrant does not believe that recorded sales backlog is a significant factor in its business.
d. Raw Materials and Supplies; Fuel and Energy Matters
The primary raw materials used by the Registrant's Plastic Products Business are resins. The Registrant has historically been able to obtain adequate supplies of these items from a number of sources. However, since resins are derived from petroleum or fossil fuel, shortages of petroleum or fossil fuel could affect the supply of resins. From time to time, the Registrant has experienced increases in the cost of resins. To the extent that the Registrant is unable to reflect such price increases in the price for products manufactured by it, increases in the cost of resins could have a significant impact on the
results of the Registrant's operations. Currently, a majority of the sales of Plastic Products are made pursuant to agreements that provide for increases in the cost of resin to be passed on to the customer.
The Registrant purchases glass jars for its Home Canning Business from a single supplier under a multi-year contract. The Registrant believes that it could obtain adequate supplies of glass jars from alternate sources at reasonable prices if its current supply was interrupted. In addition to glass jars, the primary raw material used by the Registrant's Home Canning Supplies Business in the manufacture of its caps and lids is tin-plate. During 1993, the Registrant was able to obtain adequate supplies of these items from a number of sources.
e. Product Development, Engineering, Patents and Licensing
The Registrant carries on a product development and engineering program with respect to its Plastic Products Business. Expenditures for such programs during the years ended December 31, 1993, 1992 and 1991 were approximately $2,000,000, $1,400,000 and $1,300,000, respectively.
Although the Registrant owns a number of United States patents, including patents for its tamper-evident closures and certain of its child-resistant closures, it is of the opinion that no one or combination of these patents is of material importance to its business. The Registrant has granted licenses on some of its patents, although the income from these sources is not material.
f. Environmental Matters; Legislation
Several states have enacted recycling laws which require consumers to recycle certain items including containers. These mandatory recycling laws are not expected to have an adverse effect on the Registrant's business.
The Registrant is subject to laws and regulations governing the protection of the environment, disposal of waste, discharges into water and emissions into the atmosphere. The Registrant's expenditures for environmental control equipment in each of the last three years have not been material and the standards required by such regulations have not significantly affected the Registrant's operations.
g. Employees
As of December 31, 1993, the Registrant had approximately 1,100 employees, of which approximately 280 were office, supervisory and sales personnel.
h. Seasonality
The Registrant's sales and earnings are usually higher in the second and third calendar quarters and lower in the first and fourth calendar quarters. Most of the sales by the Home Canning Supplies Business occur in the second and third calendar quarters. In addition, substantially all returns of home canning supplies occur in the fourth calendar quarter of each year. Because of the foregoing factors, the Registrant generally records a low level of profitability in the first and fourth calendar quarters. Demand for home canning supplies is adversely affected by poor crop growing conditions, such as occurred in 1993.
The Registrant's Home Canning Supplies Business normally manufactures its inventory of caps and lids in anticipation of expected orders, and, consistent with practice followed in the industry, grants extended payment terms to home canning customers and accepts the return of unsold home canning merchandise in the fourth calendar quarter of each year.
i. Working Capital
In general, the working capital practices followed by the Registrant are typical of the businesses in which it operates. The seasonal nature of the Registrant's Home Canning Supplies Business requires periodic short-term borrowing by the Registrant.
As of December 31, 1993, the Registrant had two unsecured $6,000,000 lines of credit with two banks to provide for the seasonal working capital needs of the Company. One of the lines of credit is committed through October 28, 1994 with borrowings to bear interest at either the prime rate of the lender or, alternatively, Eurodollar rate plus 2%. In addition, a facility fee of 0.5% per annum is charged on the unused amount of the commitment. The other line of credit is committed through September 30, 1994 with borrowings to bear interest at the prime rate of the lender. A facility fee of 0.75% per annum is charged on the total amount of this commitment. The lines of credit provide the Registrant with a source of working capital which the
Registrant believes will be sufficient to meet its anticipated needs.
2. The Discontinued Businesses
a. The Metal Crown Business
On December 11, 1992, the Registrant sold substantially all of its assets (the "Sale of the Metal Crown Assets") relating to the manufacture and sale of metal crowns for beer and beverage bottles (the "Metal Crown Business") to Crown Cork & Seal Company, Inc. ("Crown Cork") pursuant to the terms of an asset purchase agreement for approximately $7,200,000 in cash. Included among the assets of the Metal Crown Business sold to Crown Cork were essentially all of the assets of the Registrant's Arlington, Texas plant. The Sale of the Metal Crown Assets was more fully described in the Registrant's Current Report on Form 8-K dated December 11, 1992 filed with the Securities and Exchange Commission.
As a result of the Sale of the Metal Crown Assets, the Registrant no longer operates its Metal Crown Business.
b. The Commercial Glass Container Business
On February 28, 1992, the Registrant consummated the sale of substantially all of its assets (the "Sale of the Glass Container Assets") relating to the manufacture and sale of glass containers (the "Commercial Glass Container Business") to Ball Corporation pursuant to the terms of an asset purchase agreement for approximately $68,000,000 in cash. The Sale of the Glass Container Assets was more fully described in the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (the "1991 10-K").
As a result of the Sale of the Glass Container Assets, the Registrant no longer operates its Commercial Glass Container Business.
3. Segment Information
The Registrant's 1993 Annual Report to Stockholders contains on pages 29 and 30 additional financial information regarding each of the Registrant's two industry segments for each of the last three fiscal years required by Item 1 and such information is incorporated herein by reference. The Registrant's 1993 Annual Report to Stockholders contains on
pages 34 through 36 Management's Discussion and Analysis of Financial Condition and Results of Operations and such information is incorporated herein by reference.
ITEM 2.
ITEM 2. PROPERTIES
The Registrant's manufacturing activities with respect to its Continuing Businesses are conducted at the five facilities described in the following table.
The Lancaster, Pennsylvania and Ahoskie, North Carolina facilities are owned by the Registrant. The Chicago, Illinois; Jackson, Tennessee and the Santa Fe Springs, California facilities are leased by the Registrant.
The Registrant's principal executive offices are located at 1840 Century Park East, Los Angeles, California 90067, in approximately 26,000 square feet of leased space. In addition, the Registrant rents three area sales offices and one warehouse.
During 1994, the Registrant will relocate its home canning cap and lid manufacturing operations from Chicago, Illinois to a new, leased 168,000 square foot manufacturing
facility in Jackson, Tennessee and permanently cease operations in its leased facility in Chicago.
In the opinion of the Registrant's management, its manufacturing facilities are suitable and adequate for the purposes for which they are being used.
The Registrant owns land and buildings used in connection with a former glass container manufacturing plant that are being held for sale. In addition, pursuant to a sublease dated January 6, 1992, Fluidmaster, Inc., a California corporation, subleases a 28,000 square foot manufacturing facility located in Santa Fe Springs, California from a wholly-owned subsidiary of the Registrant. Prior to 1992, the Registrant manufactured custom molded plastic parts at this facility.
In 1993, the Registrant's plastic products manufacturing facilities operated at approximately 83% of capacity, and the home canning cap and lid manufacturing facility operated at approximately 76% of capacity.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
As the Registrant reported in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, in February 1986, the Registrant was advised by the United States Environmental Protection Agency ("EPA") that Phoenix Closures, Inc. ("Phoenix") was one of several companies which disposed of wastes at the American Chemical Services ("ACS") site located near Griffith, Indiana. The EPA indicated that the wastes were disposed of by Phoenix's Chicago plant between 1955 and 1975. The Registrant has advised the EPA that it did not lease the Chicago plant during the period from 1955 to 1975. The Registrant has also advised Phoenix of its responsibilities with respect to environmental matters, including the environmental matters at the ACS site, under the lease relating to the Chicago plant.
As the Registrant reported in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, in March 1986, the Registrant and other parties were designated by the EPA as potentially responsible parties ("PRPs") responsible for the cleanup of certain hazardous wastes that have been disposed of at the Wayne Waste Oil ("WWO") site located near Columbia City, Indiana. In October 1986, the Registrant and other PRPs entered into a Consent Order with the EPA which allowed the PRPs to
complete a Remedial Investigation and Feasibility Study ("RI/FS") for the WWO site. In March 1990, the EPA issued a Record of Decision ("ROD") for the site. The ROD documents the EPA's cleanup plan for the site, which includes capping the former municipal landfill, groundwater extraction and treatment, and soil vapor extraction. On July 20, 1992, a Consent Decree between the EPA and the PRPs at the site was entered in the United States District Court for the Northern District of Indiana, captioned United States v. Active Products Corp., No.-00247. Based upon the Registrant's percentage share of the total amount of wastes disposed of at the WWO site, the Registrant estimates its share of the costs under the Consent Decree will be approximately $109,000. A reserve has been established for such costs.
As the Registrant reported in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, on April 12, 1990, the State of New Jersey, Department of Environmental Protection and Energy ("NJDEPE"), filed a lawsuit in the United States District Court for the District of New Jersey against the Registrant, among others, entitled State of New Jersey, Department of Environmental Protection v. Gloucester Environmental Management Services, Inc., et al., No. 84-0152 (D.N.J.). The suit alleges that the Registrant was a "generator" of hazardous wastes and other hazardous substances which were disposed of at the Gloucester Environmental Management Services, Inc. ("GEMS") facility in the Township of Gloucester. The suit seeks cleanup costs, compensatory and treble damages, and a declaration that the Registrant and others are responsible for NJDEPE's past and future response costs at the GEMS site. On March 27, 1990, NJDEPE issued a Directive to the Registrant and other parties pursuant to the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. Pursuant to the Directive, the Registrant and other parties have been ordered to undertake the second phase of remedial action at the site, including the construction and operation of a groundwater treatment system and operation of the remedial action performed in the first phase, and to reimburse NJDEPE's alleged past and future response costs. The estimated cost of second phase remedial action related to the GEMS site is approximately $20 million. The amount that the NJDEPE is seeking as reimbursement for past costs and damages is approximately $10 million. Notwithstanding the issuance of the Directive by the NJDEPE, the Registrant believes that it has no material liability with respect to the GEMS site because the only reason it has been named as a defendant (there are over 550 named defendants) is that a transporter that was used by the Registrant
is known to have disposed of waste at the site. However, there is no evidence that any waste disposed of at the site by such transporter was waste of the Registrant and the Registrant has a motion for summary judgment pending in which it seeks dismissal from the case on these grounds. If such motion is granted, the Registrant would have a good faith basis to not comply with the Directive. The Registrant does not believe that any of its waste was disposed of at the site. One of the Registrant's insurance carriers has agreed to defend the current lawsuit and has funded the Registrant's participation in settlement efforts, which may result in the Registrant's dismissal from the lawsuit for a payment of approximately $100,000. Participation in the settlement will not be considered an admission of liability for the disposal of waste at the site. A reserve has been established for such costs.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and offices held, and a brief account of the business experience during the past five years of each executive officer of the Registrant.
Business Experience
Roger W. Norian has served in an executive capacity with the Registrant for more than the past five years.
Norman N. Broadhurst joined the Registrant in 1988 as Senior Vice President, General Manager, Consumer Products. Prior to that time he was President and Chief Operating Officer of the Famous Amos Chocolate Chip Cookie Corporation and Vice President, Marketing, Beatrice Companies, Inc.
Robert S. Reeves has served in an executive capacity with the Registrant for more than the past five years.
D. Gordon Strickland has served in an executive capacity with the Registrant for more than the past five years.
J. Stephen Grassbaugh has served in an executive capacity with the Registrant for more than the past five years.
John F. Thelen joined the Registrant in 1993 as Vice President, Employee Relations. Prior to that time he was Vice President, Compensation, Benefits and Human Resource Information Systems of Mattel, Inc.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's Annual Report to Stockholders for the year ended December 31, 1993, contains on page 12 the information required by Item 5 of Form 10-K and such information is incorporated herein by this reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993, contains on pages 32 and 33 the information required by Item 6 of Form 10-K and such information is incorporated herein by this reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993, contains on pages 34 through 36 the information required by Item 7 of Form 10-K and such information is incorporated herein by this reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1993, contains on pages 12 through 31 the information required by Item 8 of Form 10-K and such information is incorporated herein by this reference.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by Item 10 of Form 10-K is included in a separate item captioned "Executive Officers of the Registrant" in Part I of this Form 10-K. With respect to reports required to be filed pursuant to Section 16(a) of the Securities Exchange Act of 1934 regarding the Registrant's common stock, par value $.50 per share, the Registrant believes that, based solely on a review by the Registrant of copies of such reports received by it, during its fiscal year 1993, all filing requirements of Section 16(a) with respect to its common stock were complied with.
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on April 26, 1994 contains on pages 2 through 6 the remaining information required by Item 10 of Form 10-K and such information is incorporated herein by this reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on April 26, 1994 contains on pages 7 through 10 the information required by Item 11 of Form 10-K, and such information is incorporated herein by this reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on April 26, 1994 contains on pages 2 through 4 the information required by Item 12 of Form 10-K, and such information is incorporated herein by this reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant's Proxy Statement to be used in connection with the Annual Meeting of Stockholders to be held on April 26, 1994 contains on page 12 the information required by Item 13 of Form 10-K, and such information is incorporated herein by this reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. (i) Financial Statements
The Financial Statements and related financial data contained in the Registrant's Annual Report to Stockholders for the year ended December 31, 1993, on pages 13 through 33 thereof and the Independent Auditors' Report on page 12 of the Registrant's Annual Report to Stockholders for the year ended December 31, 1993, are incorporated herein by reference. With the exception of information specifically incorporated by reference, however, the Registrant's Annual Report to Stockholders for the year ended December 31, 1993 is not to be deemed filed as a part of this report.
Consolidated Financial Statements:
Consolidated Statements of Earnings (Loss) for the years ended December 31, 1993, 1992 and 1991.
Consolidated Balance Sheets as of December 31, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991.
Consolidated Statements of Common Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
In addition to such Consolidated Financial Statements and Independent Auditors' Report, the following are included herein:
Independent Auditors' Report on Supporting Schedules, page 21.
Schedules for the three years ended December 31, 1993:
All other Schedules have been omitted as inapplicable, or not required, or because the required information is included in the Consolidated Financial Statements or the notes thereto.
(ii) Exhibits
The Registrant has no additional long-term debt instruments in which the total amount of securities authorized
under any instrument exceeds 10% of total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such long-term debt instrument upon the request of the Securities and Exchange Commission.
b. Reports on Form 8-K
On October 19, 1993, the Registrant filed a Form 8-K Current Report announcing its intention to call for redemption on December 15, 1993 all of the Registrant's outstanding 13% Subordinated Notes Due December 15, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Roger W. Norian ------------------------------- Roger W. Norian, Chairman President and Chief Executive Officer
Dated: March 29, 1994 Los Angeles, California
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of Kerr Group, Inc.:
Under date of February 23, 1994, we reported on the consolidated balance sheets of Kerr Group, Inc. as of December 31, 1993 and 1992, and the related consolidated statements of earnings (loss), common stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1993, as contained in the 1993 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1993. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related supplementary financial statement schedules as listed in Item 14a(i). These supplementary financial statement schedules are the responsibility of the company's management. Our responsibility is to express an opinion on these supplementary financial statement schedules based on our audits.
In our opinion, such supplementary financial statement schedules, when considered in relation to the basic consolidated financial statement taken as a whole, present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick
Los Angeles, California February 23, 1994
SCHEDULE II
KERR GROUP, INC.
Amounts Receivable From Related Parties and Underwriters, Promoters and Employees Other Than Related Parties
Three years ended December 31, 1993 (in thousands)
(a) Includes both note receivable and related accrued interest. The loan accrued interest at an annual rate of 9.23%. On February 28, 1992, $400,000 of remaining principal and $128,319 of related accrued interest was forgiven by the Registrant.
(b) Consists of two loans dated January 16, 1990 and June 11, 1991 in the original amount of $30,000 and $100,000, respectively, and related accrued interest. The principal of the loan dated January 16, 1990 is to be paid in six equal annual installments in 1991 through 1996, however, on January 1, 1992, $15,000 of principal was forgiven by the Registrant. This loan bears interest at 6% annually and accrued interest is paid annually. The principal and related accrued interest of the loan dated June 11, 1990 is to be paid in 1996. This loan bears interest at 7.76% per annum.
SCHEDULE V
KERR GROUP, INC.
Property, Plant and Equipment
Three years ended December 31, 1993 (in thousands)
1.) Amounts for property, plant and equipment presented in the table above are related to continuing operations only. Property, plant and equipment associated with the Commercial Glass Container Business and Metal Crown Business of the Registrant in 1991 and 1992 has been reported as a component of net non-current assets related to discontinued operations in the Registrant's Consolidated Balance Sheets.
2.) As to Column E, which is omitted, the answers are "None".
SCHEDULE VI
KERR GROUP, INC.
Accumulated Depreciation and Amortization of Property, Plant and Equipment
Three years ended December 31, 1993 (in thousands)
1.) Amounts for accumulated depreciation and amortization of property, plant and equipment presented in the table above are related to continuing operations only. Accumulated depreciation and amortization of property, plant and equipment associated with the Commercial Glass Container Business and Metal Crown Business of the Registrant in 1991 and 1992 has been reported as a component of net non- current assets related to discontinued operations in the Registrant's Consolidated Balance Sheets.
2.) See note 1 of notes to Consolidated Financial Statements for description of the Registrant's depreciation policy.
3.) As to Column E, which is omitted, the answers are "None".
SCHEDULE VIII
KERR GROUP, INC.
Valuation and Qualifying Accounts
Three years ended December 31, 1993 (in thousands)
Note: Allowance for doubtful accounts presented in the table above is related to continuing operations only. Allowance for doubtful accounts associated with the Commercial Glass Container Business and Metal Crown Business of the Registrant in 1991 and 1992 has been reported as a component of net current assets related to discontinued operations in the Registrant's Consolidated Balance Sheets.
(a) These deductions represent uncollectible amounts charged against the reserve.
SCHEDULE X
KERR GROUP, INC.
Supplementary Income Statement Information
Three years ended December 31, 1993 (in thousands)
Note: Income statement information presented in the table above are for the Registrant's continuing operations.
* Less than 1% of annual net sales from continuing operations.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
KERR GROUP, INC.
FORM 10-K for year ended December 31, 1993
INDEX TO EXHIBITS FILED SEPARATELY WITH FORM 10-K