-----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, ST/RCirha5Y1/jt9uG6FGPnmU6U6CFzhV634khYN4jLM4T66AuRlymZOcX+jLxXa kkbs59LMS+g9N4fbUWv5fQ== 0000750339-98-000004.txt : 19980805 0000750339-98-000004.hdr.sgml : 19980805 ACCESSION NUMBER: 0000750339-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SAFETY RAZOR CO CENTRAL INDEX KEY: 0000750339 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 541050207 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21952 FILM NUMBER: 98676453 BUSINESS ADDRESS: STREET 1: PO BOX 500 CITY: STAUNTON STATE: VA ZIP: 24402-0500 BUSINESS PHONE: 5042488000 MAIL ADDRESS: STREET 1: PO BOX 500 CITY: STAUNTON STATE: VA ZIP: 24402-0500 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1998 OR [ ] 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 0-21952 AMERICAN SAFETY RAZOR COMPANY (Exact name of registrant as specified in its charter) Delaware 54-1050207 ----------------------- -------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) One Razor Blade Lane, P.O. Box 979, Verona, Virginia 24482-0979 - --------------------------------------------------------------- (Address of principal executive offices, including zip code) (540) 248-8000 - ----------------------------- Registrant's telephone number 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 24, 1998. Class Outstanding at July 24, 1998 - ---------------------------- ---------------------------- Common Stock, $.01 Par Value 12,110,049 AMERICAN SAFETY RAZOR COMPANY Index Page Number Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 1998 (Unaudited) and December 31, 1997 1 Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 1998 and June 30, 1997 3 Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 1998 and June 30, 1997 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II. Other Information Item 1. Legal Proceedings 17 Item 4. Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, December 31, 1998 1997 ---------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,452 $ 1,434 Trade receivables, net 42,640 45,277 Inventories 55,736 51,488 Income taxes receivable 2,393 896 Deferred income taxes 2,913 2,803 Prepaid expenses 2,391 1,410 -------- -------- Total current assets 107,525 103,308 Property and equipment 119,117 114,649 Less accumulated depreciation (45,341) (41,706) -------- -------- 73,776 72,943 Intangible assets, net: Goodwill 67,910 68,978 Other 3,812 4,258 -------- -------- 71,722 73,236 Prepaid pension cost and other 5,028 4,594 -------- -------- Total assets $258,051 $254,081 ======== ========
See accompanying notes. -1- AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
June 30, December 31, 1998 1997 -------- ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 18,888 $ 15,704 Accrued expenses and other 19,436 20,761 Current maturities of long-term obligations 2,126 2,107 -------- --------- Total current liabilities 40,450 38,572 Long-term obligations 123,481 121,505 Retiree benefits and other 25,019 24,983 Deferred income taxes 6,726 9,582 -------- --------- Total liabilities 195,676 194,642 -------- -------- Stockholders' equity: Common Stock, $.01 par value, 25,000,000 shares authorized; 12,110,049 shares issued and outstanding at June 30, 1998 (12,098,049 at December 31, 1997) 121 121 Additional capital 65,905 65,801 Accumulated deficit (2,762) (5,645) Accumulated other comprehensive loss (889) (838) --------- --------- 62,375 59,439 --------- --------- Total liabilities and stockholders' equity $258,051 $254,081 ======== ========
See accompanying notes. -2- AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 1998 1997 1998 1997 -------- -------- --------- -------- Net sales $73,751 $75,683 $140,262 $138,786 Cost of sales 49,951 51,411 96,954 92,836 -------- -------- --------- -------- Gross profit 23,800 24,272 43,308 45,950 Selling, general and administrative expenses 16,590 14,915 30,111 28,859 Amortization of intangibles 633 618 1,264 1,238 Restructuring charge - - 1,003 - -------- ------- ------- ------- Operating income 6,577 8,739 10,930 15,853 Interest expense 3,104 3,130 6,149 6,036 ------- ------- -------- -------- Income before income taxes 3,473 5,609 4,781 9,817 Income taxes 1,379 2,224 1,898 3,878 ------- ------- ------- ------- Net income $2,094 $3,385 $2,883 $5,939 ====== ====== ====== ====== Basic earnings per share: Net income $0.17 $0.28 $0.24 $0.49 ===== ===== ===== ===== Weighted average number of shares outstanding 12,107 12,093 12,105 12,093 ====== ====== ====== ====== Diluted earnings per share: Net income $0.17 $0.28 $0.23 $0.49 ===== ===== ===== ===== Weighted average number of shares outstanding 12,234 12,229 12,285 12,223 ====== ====== ====== ======
See accompanying notes. -3- AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Six Months Ended June 30, ---------------- 1998 1997 ------- ------- Operating activities Net income $2,883 $5,939 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,929 5,412 Amortization of financing costs 270 271 Retiree benefits and other (448) (629) Deferred income taxes 1,058 289 Changes in operating assets and liabilities, net of effects of the AWC acquisition: Trade receivables 2,637 (8,595) Inventories (4,248) (5,330) Income taxes receivable (1,497) - Prepaid expenses (981) (510) Accounts payable 3,184 4,111 Accrued and other expenses (1,325) 763 Income taxes payable (4,024) (4,243) ------ ------ Net cash provided by (used in) operating activities 3,438 (2,522) Investing activities Capital expenditures (5,498) (5,509) Acquisition of AWC, net of cash acquired - (10,352) Other - (1) ------ -------- Net cash used in investing activities (5,498) (15,862) Financing activities Repayment of long-term obligations (4,655) (281) Proceeds from borrowings 6,629 17,926 Proceeds from exercise of stock options 104 - -------- --------- Net cash provided from financing activities 2,078 17,645 ------- ------- Net increase (decrease) in cash and cash equivalents 18 (739) Cash and cash equivalents, beginning of period 1,434 1,979 ------- ------- Cash and cash equivalents, end of period $1,452 $1,240 ====== ======
See accompanying notes. -4- AMERICAN SAFETY RAZOR COMPANY Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1998, are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE B - INVENTORIES Classifications of inventories are as follows:
June 30, December 31, 1998 1997 -------- ------------ (In thousands) Raw materials $21,244 $20,352 Work-in-process 6,664 5,596 Finished goods 24,938 23,128 Operating supplies 3,585 3,107 ------- ------- 56,431 52,183 Excess of current cost over LIFO inventory value (695) (695) ------- ------- $55,736 $51,488 ======= =======
NOTE C - OTHER INFORMATION The Company's federal income tax returns for 1989 through 1994 have been examined by the IRS and the federal income tax return for 1996 is currently under examination by the IRS. The Company acquired certain intangible assets at the time of acquisition of the Company and of Ardell for $29 million, and to date the Company has claimed federal income tax deductions of $29 million for the amortization of those assets. In June 1997, the IRS issued a statutory notice of deficiency disallowing substantially all of the Company's amortization deductions relating to the intangible assets. The Company disagrees with the IRS's disallowances and in September 1997, petitioned the U.S. Tax Court to review and redetermine such disallowances. The outcome of these proceedings cannot be predicted at this time and the Company will continue to evaluate the potential impact on its tax reserves relating to this case. However, the Company believes that the ultimate outcome of these issues will not have a materially adverse impact on the consolidated financial position or results of operations of the Company. In March 1998, the Company recorded a restructuring charge of approximately $1.0 million which includes estimated costs of approximately $0.2 million to close the Sparks, Nevada cotton operations and approximately $0.8 million in severance and employee benefit costs relating to consolidation of the Company's domestic shaving razor and blade and cotton products sales forces and other personnel changes. At June 30, 1998, the unexpended costs, related to the restructuring, amounted to $0.6 million and are included in accrued expenses and other in the accompanying condensed consolidated balance sheets. -5- NOTE D - LONG TERM OBLIGATIONS At June 30 1998, the Company had utilized $20.3 million of its revolving credit facility and had approximately $29.7 million available for future borrowings under this facility. NOTE E - EARNINGS PER SHARE The difference between the weighted average number of shares outstanding for computing basic earnings per share and diluted earnings per share relates to the Company's employee stock options outstanding which are assumed to be converted for the diluted earnings per share calculation when the average market price of the Company's common stock for the period exceeds the exercise price of the employee stock options which are outstanding. NOTE F - COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The components of comprehensive income are as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- --------- In thousands) Net income $2,094 $3,385 $2,883 $5,939 Other comprehensive income Change in translation adjustment account (139) 198 (51) (240) ------ ------ ------ ------ Total comprehensive income $1,955 $3,583 $2,832 $5,699 ====== ====== ====== ======
NOTE G - NEW ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 133 establishes a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. FAS 133 requires all derivatives to be recorded on the balance sheet at fair value and also requires the recognition of offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. This new standard is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The implementation of this new standard is not expected to have a material effect on the Company's consolidated results of operations or financial position. NOTE H - SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION The Company's $100.0 million of Series B Senior Notes due 2005 have been guaranteed, on a joint and several basis by certain domestic subsidiaries of the Company, which guarantees are senior unsecured obligations of each guarantor and will rank pari passu in right of payment with all other indebtedness of each guarantor. However, the guarantee of one of the guarantor subsidiaries ranks junior to its outstanding subordinated note. The following condensed consolidating financial information presents: (1) Condensed consolidating financial statements as of June 30, 1998 and December 31, 1997, and for the -6- six months ended June 30, 1998 and 1997, of American Safety Razor Company - the parent company, the guarantor subsidiaries, the non-guarantor subsidiaries, and elimination entries necessary to combine such entities on a consolidated basis, and (2) The investment in subsidiaries is carried on the cost basis for purposes of the supplemental financial information. Earnings (losses) of subsidiaries are therefore not reflected in the related investment accounts. During 1997, Ardell Industries, Inc., a non-guarantor subsidiary, was merged into American Safety Razor Company - the parent company. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that such information would not be material to the holders of the Series B Senior Notes. -7- Condensed Consolidating Balance Sheets June 30, 1998 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ (Unaudited) Assets Current assets: Cash and cash equivalents $ (136) $ 69 $ 1,519 $ - $ 1,452 Trade receivables, net 19,088 11,803 11,749 - 42,640 Advances receivable--subsidiaries 36,079 - 4,346 (40,425) - Inventories 30,470 14,413 11,743 (890) 55,736 Income taxes and prepaid expenses 7,037 (331) 991 - 7,697 ------- -------- -------- --------- --------- Total current assets 92,538 25,954 30,348 (41,315) 107,525 Property and equipment, net 40,386 23,842 9,548 - 73,776 Intangible assets, net 50,212 21,092 418 - 71,722 Prepaid pension cost and other 511 4,496 21 - 5,028 Investment in subsidiaries 39,706 - 900 (40,606) - ------- ------- -------- --------- --------- Total assets $223,353 $75,384 $41,235 $(81,921) $258,051 ======== ======= ======= ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable, accrued expenses and other $ 22,917 $11,287 $ 4,119 $ 1 $ 38,324 Advances payable--subsidiaries - 40,332 - (40,332) - Current maturities of long-term obligations 1,025 128 973 - 2,126 --------- -------- ------- -------- -------- Total current liabilities 23,942 51,747 5,092 (40,331) 40,450 Long-term obligations 120,784 2,697 - - 123,481 Retiree health and insurance benefits and other 15,069 9,950 - - 25,019 Deferred income taxes 3,683 2,956 87 - 6,726 -------- -------- ------- -------- -------- Total liabilities 163,478 67,350 5,179 (40,331) 195,676 -------- -------- ------- -------- -------- Stockholders' equity Common Stock 121 485 87 (572) 121 Additional capital 65,905 15,662 24,372 (40,034) 65,905 Accumulated deficit (8,641) (8,113) 14,973 (981) (2,762) Dividends 2,452 - (2,452) - - Accumulated other comprehensive loss 38 - (924) (3) (889) -------- ------- ------- -------- -------- 59,875 8,034 36,056 (41,590) 62,375 -------- ------- ------- -------- -------- Total liabilities and stockholders' equity $223,353 $75,384 $41,235 $(81,921) $258,051 ======== ======= ======= ======== ========
-8- Condensed Consolidating Balance Sheets December 31, 1997 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ------------ Assets Current assets: Cash and cash equivalents $ 356 $ 433 $ 637 $ 8 $ 1,434 Trade receivables, net 20,172 13,283 11,822 - 45,277 Advances receivable--subsidiaries 33,608 - 4,299 (37,907) - Inventories 29,106 12,603 10,724 (945) 51,488 Income taxes and prepaid expenses 5,730 (982) 361 - 5,109 -------- ------- ------- -------- ------- Total current assets 88,972 25,337 27,843 (38,844) 103,308 Property and equipment, net 39,836 23,135 9,972 - 72,943 Intangible assets, net 51,205 21,585 446 - 73,236 Prepaid pension cost and other 297 4,277 20 - 4,594 Investment in subsidiaries 39,026 - 900 (39,926) - -------- ------- ------ -------- -------- Total assets $219,336 $74,334 $39,181 $(78,770) $254,081 ======== ======= ======= ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable, accrued expenses and other $ 19,540 $ 13,346 $ 3,576 $ 3 $ 36,465 Advances payable--subsidiaries - 37,851 - (37,851) - Current maturities of long-term obligations 1,020 138 949 - 2,107 -------- -------- -------- --------- -------- Total current liabilities 20,560 51,335 4,525 (37,848) 38,572 Long-term obligations 118,748 2,757 - - 121,505 Retiree health and insurance benefits and other 14,988 9,995 - - 24,983 Deferred income taxes 7,035 2,492 55 - 9,582 -------- -------- -------- -------- -------- Total liabilities 161,331 66,579 4,580 (37,848) 194,642 -------- -------- -------- -------- -------- Stockholders' equity Common Stock 121 485 85 (572) 121 Additional capital 65,801 15,662 23,694 (39,356) 65,801 Accumulated deficit (10,407) (8,392) 14,147 (993) (5,645) Dividends 2,452 - (2,452) - - Accumulated other comprehensive loss 38 - (873) (3) (838) -------- -------- -------- -------- -------- 58,005 7,755 34,601 (40,922) 59,439 -------- -------- -------- -------- -------- Total liabilities and stockholders' equity $219,336 $74,334 $39,181 $(78,770) $254,081 ======== ======= ======= ======== ========
-9- Condensed Consolidating Statements of Income (Unaudited) Six Months Ended June 30, 1998 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------ ------------ ------------ Net sales $69,474 $56,231 $24,527 $(9,970) $140,262 Cost of sales 40,934 47,212 18,790 (9,982) 96,954 ------- ------- ------- ------- ------- Gross profit 28,540 9,019 5,737 12 43,308 Selling, general and administrative expenses 19,188 5,859 5,064 - 30,111 Amortization of intangible assets 743 493 28 - 1,264 Restructuring charge 731 184 88 - 1,003 ------- ------ ------ ------- ------- Operating income 7,878 2,483 557 12 10,930 Interest expense 4,824 2,059 (734) - 6,149 ------- ------- ------ ------- ------- Income before income taxes 3,054 424 1,291 12 4,781 Income taxes 1,288 145 465 - 1,898 ------- ------- ------ ------- ------- Net income $ 1,766 $ 279 $ 826 $ 12 $ 2,883 ======= ======= ====== ======= =======
Condensed Consolidating Statements of Income (Unaudited) Six Months Ended June 30, 1997 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ------------ Net sales $72,547 $52,440 $23,690 $(9,891) $138,786 Cost of sales 43,015 41,512 18,150 (9,841) 92,836 ------- ------- ------- ------- -------- Gross profit 29,532 10,928 5,540 (50) 45,950 Selling, general and administrative expenses 17,777 6,107 4,975 - 28,859 Amortization of intangible assets 736 474 28 - 1,238 ------- ------ ------- ------- -------- Operating income 11,019 4,347 537 (50) 15,853 Interest expense 4,541 1,829 (334) - 6,036 ------- ------- ------ ------- -------- Income (loss) before income taxes 6,478 2,518 871 (50) 9,817 Income taxes 2,487 1,058 333 - 3,878 ------- ------- ------- ------- -------- Net income (loss) $ 3,991 $ 1,460 $ 538 $ (50) $ 5,939 ======= ======= ======= ======= ========
-10- Condensed Consolidating Statements of Cash Flows (Unaudited) Six Months Ended June 30, 1998 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------ ------------ ------------ Operating activities Net cash provided by (used in) operating activities $3,619 $ (538) $ 402 $ (45) $3,438 Investing activities Capital expenditures (3,106) (2,216) (176) - (5,498) Investment in subsidiaries (680) - 680 - - Advances from (to) subsidiaries (2,470) - (48) 2,518 - ------ ------ ----- ------- ------ Net cash (used in) provided from investing activities (6,256) (2,216) 456 2,518 (5,498) Financing activities Repayment of long-term obligations (4,564) (91) - - (4,655) Proceeds from borrowings 6,605 - 24 - 6,629 Proceeds for exercise of stock options 104 - - - 104 Advances from (to) subsidiaries - 2,481 - (2,481) - ------ ------ ----- ------ ------ Net cash provided from (used in) financing activities 2,145 2,390 24 (2,481) 2,078 ------ ------ ----- ------ ------ Net (decrease) increase in cash and cash equivalents (492) (364) 882 (8) 18 Cash and cash equivalents, beginning of period 356 433 637 8 1,434 ------ ------ ------ ------ ------ Cash and cash equivalents, end of period $(136) $ 69 $1,519 $ - $1,452 ===== ====== ====== ====== ======
-11- Condensed Consolidating Statements of Cash Flows (Unaudited) Six Months Ended June 30, 1997 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------ ------------ ------------ Operating activities Net cash (used in) provided by operating activities $ (5,264) $ 2,382 $ 473 $ (113) $ (2,522) Investing activities Capital expenditures (4,438) (536) (535) - (5,509) Purchase of AWC - (10,352) - - (10,352) Other (399) 398 - - (1) Investment in subsidiaries (9,300) - 9,300 - - Advances from (to) subsidiaries 2,228 - - (2,228) - -------- ------- ------- ------ ------- Net cash (used in) provided from investing activities (11,909) (10,490) 8,765 (2,228) (15,862) Financing activities Repayment of long-term obligations (154) (127) - - (281) Proceeds from borrowings 17,200 - 726 - 17,926 Advances from (to) subsidiaries - 8,540 (10,888) 2,348 - ------- ------- ------- ------ ------- Net cash provided from (used in) financing activities 17,046 8,413 (10,162) 2,348 17,645 ------- ------- ------- ------ ------- Net (decrease) increase in cash and cash equivalents (127) 305 (924) 7 (739) Cash and cash equivalents, beginning of period 201 12 1,766 - 1,979 ------- ------- ------- ------- ------- Cash and cash equivalents, end of period $ 74 $ 317 $ 842 $ 7 $ 1,240 ======= ======= ======= ======= =======
-12- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in this report and the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997 Net Sales. Net sales for the three months ended June 30, 1998 and 1997, were $73.8 million and $75.7 million, respectively, a decrease of $1.9 million, or 3%. Net sales of the Company's shaving razors and blades for the three months ended June 30, 1998, totaled $30.3 million, substantially unchanged compared to net sales for the three months ended June 30, 1997, of $30.2 million. Net sales of domestic branded shaving products were flat as sales gains relating to an increase in promotional activity offset the second quarter 1997 sales relating to a new product launch, sales of which significantly exceeded 1998 sales. Net sales of private brand shaving products decreased 10% due primarily to heavy promotional activity by certain competitors. Net sales of international shaving products increased 11% (excluding the 3% decrease due to the impact of unfavorable exchange rates) reflecting stronger sales, primarily in Latin America, Mexico, Europe and Africa. Net sales of bladed hand tools and blades for the three months ended June 30, 1998 and 1997, were $11.6 million and $11.0 million, respectively, an increase of $0.6 million, or 5%. This growth primarily reflects increased sales of the Company's Ardell(TM) and American Line(TM) brands of products as a result of new distribution gains. Net sales of industrial and specialty and medical blades for the three months ended June 30, 1998 and 1997, were $3.9 million and $4.1 million, respectively, a decrease of $0.2 million, or 5%. Sales of industrial and specialty products decreased 14% due primarily to inventory adjustments by certain customers. Sales of medical products increased 4% due primarily to increased distribution of products and from new product offerings. Net sales of cotton and foot care products for the three months ended June 30, 1998 and 1997, were substantially unchanged at $20.8 million and $20.7 million, respectively. Net sales of the Company's custom bar soap products for the three months ended June 30, 1998 and 1997, were $7.2 million and $9.7 million, respectively, a decrease of $2.5 million or 26%. This decrease results primarily from lower sales to certain of the Company's pharmaceutical/skin care customers whose sales have been impacted by weakness in Asian markets, the redesign of certain products by customers and customer inventory adjustments. Gross Profit. Gross profit decreased $0.5 million to $23.8 million during the three months ended June 30, 1998, from $24.3 million for the three months ended June 30, 1997. As a percentage of net sales, gross profit was 32.3% for the three months ended June 30, 1998, and 32.1% for the three months ended June 30, 1997. This increase was due primarily to improved blade margins due to favorable product mix and lower manufacturing costs reflecting the Company's continuing efforts to manufacture products in a lower cost environment. This improvement in blade margins offset the negative impact on the Company's international operations of exchange rate fluctuations, the increased shipping costs and higher manufacturing overheads related primarily to the start-up of two new manufacturing facilities in the Company's cotton operations, and the effect of absorbing manufacturing overheads and depreciation over a lower sales base in the Company's soap operations. Operating and Other Expenses. Selling, general and administrative expenses were 22.5% of net sales for the three months ended June 30, 1998, compared to 19.7% for the three months ended June 30, 1997. This increase primarily reflects an increase in promotional support for the Company's shaving blade products. Amortization of goodwill and other intangible assets was substantially unchanged at $0.6 million for the three months ended -13- June 30, 1998 and 1997. Interest expense was substantially unchanged at $3.1 million for the three months ended June 30, 1998 and 1997. The Company's effective income tax rate was 39.7% for the three months ended June 30, 1998 and 1997, and varies from the United States statutory rate due primarily to nondeductible goodwill amortization and state income taxes, net of the federal tax benefit. Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997 Net Sales. Net sales for the six months ended June 30, 1998 and 1997, were $140.3 million and $138.8 million, respectively, an increase of $1.5 million, or 1%. Net sales of the Company's shaving razors and blades for the six months ended June 30, 1998, totaled $53.7 million, a 7% decrease compared to net sales for the six months ended June 30, 1997, of $57.6 million. Net sales of domestic branded and private brand shaving products decreased 17% and 9%, respectively. During the 1997 first half branded shaving products sales were favorably affected by the launch of a new product, sales of which significantly exceeded 1998 sales. Excluding sales of this product, branded sales were essentially flat. Net sales of private brand shaving products were down due primarily to heavy promotional activity by certain competitors. Net sales of international shaving products increased 6% (excluding the 3% decrease due to the impact of unfavorable exchange rates) reflecting stronger sales, primarily in Latin America, Mexico, the United Kingdom and Africa. Net sales of bladed hand tools and blades for the six months ended June 30, 1998 and 1997, were $22.6 million and $20.9 million, respectively, an increase of $1.7 million, or 8%. This growth primarily reflects increased sales of the Company's Personna(R), Ardell(TM) and American Line(TM) brands of products as a result of new distribution gains and new product introductions in the Personna(R) line of products. Net sales of industrial and specialty and medical blades for the six months ended June 30, 1998 and 1997, were $8.1 million and $8.0 million, respectively, an increase of $0.1 million, or 1%. Sales of industrial and specialty products decreased 5% due primarily to inventory adjustments by certain customers. Sales of medical products increased 7% due primarily to increased distribution of products and from new product offerings. Net sales of cotton and foot care products for the six months ended June 30, 1998 and 1997, were $43.5 million and $35.0 million, respectively, an increase of $8.5 million or 24%. This increase primarily reflects sales resulting from the April 1997, acquisition of the Cotton Division of American White Cross, Inc. ("AWC") and sales growth across most product lines due primarily to increased distribution of products. Net sales of the Company's custom bar soap products for the six months ended June 30, 1998 and 1997, were $12.4 million and $17.3 million, respectively, a decrease of $4.9 million or 28%. This decrease results primarily from lower sales to certain of the Company's pharmaceutical/skin care customers whose sales have been impacted by weakness in Asian markets, the redesign of certain products by customers and customer inventory adjustments. Gross Profit. Gross profit decreased $2.7 million to $43.3 million for the six months ended June 30, 1998, from $46.0 million for the six months ended June 30, 1997. As a percentage of net sales, gross profit was 30.9% for the six months ended June 30, 1998, and 33.1% for the six months ended June 30, 1997. This decrease was due primarily to (i) lower margins in the Company's cotton operations due to increased shipping costs and higher manufacturing overheads related primarily to the start-up of two new manufacturing facilities and the generally lower margins associated with the acquired AWC business, and (ii) from the effect of absorbing manufacturing overheads and depreciation over a lower sales base in the Company's soap operations. Operating and Other Expenses. Selling, general and administrative expenses were 21.5% of net sales for the six months ended June 30, 1998, compared to 20.8% for the six months ended June 30, 1997. This increase primarily reflects an increase in promotional support for the Company's shaving blade products. Amortization of goodwill and other intangible assets was substantially unchanged at $1.3 million for the six months ended June 30, 1998, and $1.2 million for the six months ended June 30, 1997. Interest expense was substantially unchanged at $6.1 million for the six months ended June 30, 1998, and $6.0 million for the six months ended June 30, 1997. -14- The restructuring charge of $1.0 million includes estimated costs of approximately $0.2 million to close the Sparks, Nevada cotton operations and approximately $0.8 million in severance and employee benefit costs relating to consolidation of the Company's domestic shaving razor and blade and cotton products sales forces and other personnel changes. The Company's effective income tax rate was 39.7% for the six months ended June 30, 1998, and 39.5% for the six months ended June 30, 1997, and varies from the United States statutory rate due primarily to nondeductible goodwill amortization and state income taxes, net of the federal tax benefit. Liquidity and Capital Resources The Company's principal sources of funds are cash generated from operating activities and borrowings under its revolving credit facility. Net cash provided by operating activities amounted to $3.4 million for the six months ended June 30, 1998. Net cash used in investing activities related to capital expenditures of $5.5 million for the six months ended June 30, 1998. Net cash provided by financing activities resulted from net borrowings of $2.0 million for the six months ended June 30, 1998. At June 30, 1998, the Company had utilized $20.3 million of its revolving credit facility and had approximately $29.7 million available for future borrowings under this facility. Management believes that the Company's cash on hand, anticipated funds from operations, and the amounts available to the Company under its revolving credit facility will be sufficient to cover its working capital needs, capital expenditures, debt service requirements and tax obligations as well as support the Company's growth- oriented strategy for its existing business for at least the next 12 months. The Company anticipates that funding of any additional acquisitions will require additional borrowings under its revolving credit facility. The Company intends to maintain and further strengthen its financial condition and, in connection therewith, may from time to time consider other possible transactions, including other capital market transactions or disposition of businesses that no longer meet its strategic objectives. Currently, the Company has not entered into any agreement or commitments concerning any such transactions. New Accounting Standard In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 133 establishes a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. FAS 133 requires all derivatives to be recorded on the balance sheet at fair value and also requires the recognition of offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. This new standard is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The implementation of this new standard is not expected to have a material effect on the Company's consolidated results of operations or financial position. Year 2000 Computer Issues The Company has conducted a review of its computer systems to identify the hardware and software applications that will be affected by Year 2000 issues and has developed an implementation plan to resolve such issues. Substantially all Year 2000 issues will be resolved through the upgrade of existing hardware and software applications to current versions and releases. The Company is presently upgrading its hardware and software applications and expects its computer systems will be Year 2000 compliant by June 1999. Estimated Year 2000 compliance costs to be incurred are not expected to have a material effect on the Company's consolidated results of operations or financial position. Forward-Looking Statements This report contains forward-looking statements relating to future results of the Company. Such forward-looking statements are identified by use of forward-looking words such as "anticipates," "believes," "plans," "estimates," -15- "expects," and "intends" or words or phrases of similar expression. These forward-looking statements are subject to various assumptions, risks and uncertainties, including but not limited to, changes in political and economic conditions, demand for the Company's products, acceptance of new products, technology developments affecting the Company's products and to those discussed in the Company's filings with the Securities and Exchange Commission. Accordingly, actual results could differ materially from those contemplated by the forward-looking statements. -16- PART II, OTHER INFORMATION Item 1. Legal Proceedings None. Item 4. Vote of Security Holders At its Annual Meeting on May 19, 1998, the stockholders of American Safety Razor Company took the following actions: 1. Elected the following three directors for terms to expire at the 2001 Annual Meeting of Stockholders, with votes as indicated opposite each director's name: Voted For Withheld Authority David W. Zalaznick 6,284,956 shares 761,362 shares John R. Lowden 6,287,156 shares 759,162 shares Paul D. Rhines 7,006,493 shares 39,825 shares 2. Approved the appointment of Coopers & Lybrand, L.L.P., as independent auditors for the Company for the year ending December 31, 1998. The vote was 7,043,518 shares for approval, 2,300 shares against approval, and 500 shares abstaining. Item 6. Exhibits and Reports on Form 8-K a. Exhibits - Exhibit 27 - Financial Data Schedule b. Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter ended June 30, 1998. -17- 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. AMERICAN SAFETY RAZOR COMPANY August 4, 1998 By /s/William C. Weathersby - -------------- --------------------------- Date William C. Weathersby President August 4, 1998 By /s/Thomas G. Kasvin - -------------- --------------------------- Date Thomas G. Kasvin Senior Vice President Chief Financial Officer -18- EX-27 2
5 This schedule contains summary financial information extracted from the financial statements included in the Form 10-Q of American Safety Razor Company for the quarter ended June 30, 1998, and is qualified in its entirety by reference to such financial statements. 0000750339 AMERICAN SAFETY RAZOR COMPANY 1000 US DOLLARS 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 1452 0 42640 0 55736 107525 119117 45341 258051 40450 123481 0 0 121 62254 258051 140262 140262 96954 96954 0 0 6149 4781 1898 2883 0 0 0 2883 0.24 0.23
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