-----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, OF37BO7eLp4CZCBPqskar/NfRv+fRO9+Wg6nVPbodNM4ORcGvraxB02aGVLa0q0W PHbK5hj9enjl1CV1lkLifQ== 0000750339-98-000002.txt : 19980507 0000750339-98-000002.hdr.sgml : 19980507 ACCESSION NUMBER: 0000750339-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980506 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: 98611181 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 March 31, 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 April 24, 1998. Class Outstanding at April 24, 1998 ----- ----------------------------- Common Stock, $.01 Par Value 12,106,449
AMERICAN SAFETY RAZOR COMPANY Index ----- Page Number ----------- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets March 31, 1998 (Unaudited) and December 31, 1997 1 Condensed Consolidated Statements of Income (Unaudited) Three months ended March 31, 1998 and March 31, 1997 3 Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 1998 and March 31, 1997 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Part II. Other Information Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31, 1998 1997 ---------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,800 $ 1,434 Trade receivables, net 38,100 45,277 Inventories 56,222 51,488 Income taxes receivable 1,463 896 Deferred income taxes 3,113 2,803 Prepaid expenses 2,376 1,410 -------- -------- Total current assets 103,074 103,308 Property and equipment 116,599 114,649 Less accumulated depreciation (43,046) (41,706) -------- -------- 73,553 72,943 Intangible assets, net: Goodwill 68,444 68,978 Other 4,036 4,258 -------- -------- 72,480 73,236 Prepaid pension cost and other 4,658 4,594 -------- -------- Total assets $253,765 $254,081 ======== ========
See accompanying notes. -1- AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
March 31, December 31, 1998 1997 ---------- ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,783 $ 15,704 Accrued expenses and other 16,581 20,761 Current maturities of long-term obligations 2,220 2,107 -------- -------- Total current liabilities 34,584 38,572 Long-term obligations 123,710 121,505 Retiree benefits and other 24,791 24,983 Deferred income taxes 10,291 9,582 -------- -------- Total liabilities 193,376 194,642 -------- -------- Stockholders' equity: Common Stock, $.01 par value, 25,000,000 shares authorized; 12,106,449 shares issued and outstanding at March 31, 1998 (12,098,049 at December 31, 1997) 121 121 Additional capital 65,874 65,801 Deficit (4,856) (5,645) Foreign currency translation (750) (838) -------- -------- 60,389 59,439 -------- -------- Total liabilities and stockholders' equity $253,765 $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 March 31, ---------------------- 1998 1997 ---- ---- Net sales $66,511 $63,103 Cost of sales 47,003 41,425 ------- ------- Gross profit 19,508 21,678 Selling, general and administrative expenses 13,521 13,944 Amortization of intangibles 631 620 Restructuring charge 1,003 - ------ ------- Operating income 4,353 7,114 Interest expense 3,045 2,906 ------ ------- Income before income taxes 1,308 4,208 Income taxes 519 1,654 ------ ------- Net income $789 $2,554 ==== ====== Basic earnings per share: Net income $.07 $.21 ==== ==== Weighted average number of shares outstanding 12,103 12,093 ====== ====== Diluted earnings per share: Net income $.06 $.21 ==== ==== Weighted average number of shares outstanding 12,338 12,217 ====== ======
See accompanying notes. -3- AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Three Months Ended March 31, ------------------ 1998 1997 ---- ---- Operating activities Net income $ 789 $2,554 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,977 2,638 Interest and financing costs 136 137 Retiree benefits and other (167) (756) Deferred income taxes 881 385 Changes in operating assets and liabilities: Trade receivables 7,177 811 Inventories (4,734) (4,177) Income taxes receivable (567) - Prepaid expenses (966) (78) Accounts payable 79 (305) Accrued and other expenses (4,180) (4,074) Income taxes payable (483) (2,737) ------- ------ Net cash provided by (used in) operating activities 942 (5,602) Investing activities Capital expenditures (2,956) (1,727) Deferred loan fees and other - (28) ------ ------ Net cash used in investing activities (2,956) (1,755) Financing activities Repayment of long-term obligations (3,102) (222) Proceeds from borrowings 5,409 6,944 Proceeds from exercise of stock options 73 - ------ ------ Net cash provided from financing activities 2,380 6,722 Net increase (decrease) in cash and cash equivalents 366 (635) Cash and cash equivalents, beginning of period 1,434 1,979 ------ ------ Cash and cash equivalents, end of period $1,800 $1,344 ====== ======
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 (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 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:
March 31, December 31, 1998 1997 --------- ------------ (In thousands) Raw materials $21,786 $20,352 Work-in-process 6,514 5,596 Finished goods 25,256 23,128 Operating supplies 3,361 3,107 ------- ------- 56,917 52,183 Excess of current cost over LIFO inventory value 695 695 ------- ------- $56,222 $51,488 ======= =======
NOTE C - OTHER INFORMATION The Company's federal income tax returns for 1989 through 1994 have been examined 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. -5- NOTE D - LONG TERM OBLIGATIONS At March 31, 1998, the Company had utilized $20.6 million of its revolving credit facility and had approximately $29.4 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 Company's comprehensive income amounted to $0.9 million and $2.1 million for the three months ended March 31, 1998 and 1997, respectively. Comprehensive income includes net income of $0.8 million and $2.6 million for the three months ended March 31, 1998 and 1997, respectively, and other comprehensive income which includes foreign currency translation adjustments of $0.09 million of income and $0.5 million of expense, for the three months ended March 31, 1998 and 1997, respectively. NOTE G - 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 March 31, 1998 and December 31, 1997, and for the three months ended March 31, 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. -6- Condensed Consolidating Balance Sheets March 31, 1998 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ (Unaudited) Assets Current assets: Cash and cash equivalents $ 118 $ 91 $ 1,591 $ - $ 1,800 Trade receivables, net 16,411 10,480 11,209 - 38,100 Advances receivable--subsidiaries 34,325 - 3,409 (37,734) - Inventories 31,202 13,928 12,019 (927) 56,222 Income taxes and prepaid expenses 6,347 (424) 1,029 - 6,952 -------- ------- ------- -------- -------- Total current assets 88,403 24,075 29,257 (38,661) 103,074 Property and equipment, net 40,179 23,458 9,916 - 73,553 Intangible assets, net 50,709 21,340 431 - 72,480 Prepaid pension cost and other 296 4,340 22 - 4,658 Investment in subsidiaries 39,026 - 900 (39,926) - -------- ------- ------- -------- -------- Total assets $218,613 $73,213 $40,526 $(78,587) $253,765 ======== ======= ======= ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable, accrued expenses and other $ 15,724 $12,271 $ 4,367 $ 2 $ 32,364 Advances payable--subsidiaries - 37,612 - (37,612) - Current maturities of long-term obligations 1,025 125 1,070 - 2,220 -------- ------- ------- -------- -------- Total current liabilities 16,749 50,008 5,437 (37,610) 34,584 Long-term obligations 120,984 2,726 - - 123,710 Retiree health and insurance benefits and other 14,891 9,900 - - 24,791 Deferred income taxes 7,392 2,844 55 - 10,291 -------- ------- ------- -------- -------- Total liabilities 160,016 65,478 5,492 (37,610) 193,376 -------- ------- ------- -------- -------- Stockholders' equity Common Stock 121 485 85 (570) 121 Additional capital 65,874 15,662 23,694 (39,356) 65,874 Deficit (9,888) (8,412) 14,492 (1,048) (4,856) Dividends 2,452 - (2,452) - - Foreign currency translation 38 - (785) (3) (750) -------- ------- ------- -------- -------- 58,597 7,735 35,034 (40,977) 60,389 -------- ------- ------- -------- -------- Total liabilities and stockholders' equity $218,613 $73,213 $40,526 $(78,587) $253,765 ======== ======= ======= ======== ========
-7- 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 (570) 121 Additional capital 65,801 15,662 23,694 (39,356) 65,801 Deficit (10,407) (8,392) 14,147 (993) (5,645) Dividends 2,452 - (2,452) - - Foreign currency translation 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 ======== ======= ======= ======== ========
-8- Condensed Consolidating Statements of Income (Unaudited) Three Months Ended March 31, 1998 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ------------ Net sales $32,177 $28,019 $11,317 $(5,002) $66,511 Cost of sales 19,610 23,665 8,675 (4,947) 47,003 ------- ------- ------- ------- ------- Gross profit 12,567 4,354 2,642 (55) 19,508 Selling, general and administrative expenses 8,183 2,977 2,361 - 13,521 Amortization of intangible assets 372 245 14 - 631 Restructuring charge 731 184 88 - 1,003 -------- ------- ------- ------- ------- Operating income 3,281 948 179 (55) 4,353 Interest expense 2,405 1,008 (368) - 3,045 -------- ------- ------- ------- ------- Income (loss) before income taxes 876 (60) 547 (55) 1,308 Income taxes 357 (40) 202 - 519 -------- ------- ------- ------- ------- Net income (loss) $ 519 $ (20) $ 345 $ (55) $ 789 ======== ======= ======= ======= =======
Condensed Consolidating Statements of Income (Unaudited) Three Months Ended March 31, 1997 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated ------- ------------ ------------ ------------ ------------ Net sales $34,759 $22,009 $11,567 $(5,232) $63,103 Cost of sales 20,646 17,296 8,640 (5,157) 41,425 ------- ------- ------- ------- ------- Gross profit 14,113 4,713 2,927 (75) 21,678 Selling, general and administrative expenses 8,819 2,821 2,304 - 13,944 Amortization of intangible assets 369 237 14 - 620 ------- ------- ------- ------- ------- Operating income 4,925 1,655 609 (75) 7,114 Interest expense 2,165 819 (78) - 2,906 ------- ------- ------- ------- ------- Income (loss) before income taxes 2,760 836 687 (75) 4,208 Income taxes 1,039 367 248 - 1,654 ------- ------- ------- ------- ------- Net income (loss) $ 1,721 $ 469 $ 439 $ (75) $ 2,554 ======= ======= ======= ======= =======
-9- Condensed Consolidating Statements of Cash Flows (Unaudited) Three Months Ended March 31, 1998 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ Operating activities Net cash (used in) provided by operating activities $ (219) $1,057 $ 178 $(74) $ 942 Investing activities Capital expenditures (1,616) (1,105) (235) - (2,956) Advances from (to) subsidiaries (717) - - 717 - ------ ------ ------ ---- ------- Net cash (used in) provided from investing activities (2,333) (1,105) (235) 717 (2,956) Financing activities Repayment of long-term obligations (3,047) (55) - - (3,102) Proceeds from borrowings 5,288 - 121 - 5,409 Proceeds for exercise of stock options 73 - - - 73 Advances from (to) subsidiaries - (239) 890 (651) - ------ ------ ------ ---- ------ Net cash provided from (used in) financing activities 2,314 (294) 1,011 (651) 2,380 Net increase (decrease) in cash and cash equivalents (238) (342) 954 (8) 366 Cash and cash equivalents, beginning of period 356 433 637 8 1,434 ------ ------ ------ ---- ------ Cash and cash equivalents, end of period $ 118 $ 91 $1,591 $ - $1,800 ====== ====== ====== ==== ======
-10- Condensed Consolidating Statements of Cash Flows (Unaudited) Three Months Ended March 31, 1997 (In thousands)
Non- Guarantor guarantor ASR Subsidiaries Subsidiaries Eliminations Consolidated -------- ------------ ------------ ------------ ------------ Operating activities Net cash (used in) provided by operating activities $(8,631) $2,289 $ 745 $ (5) $(5,602) Investing activities Capital expenditures (1,053) (317) (357) - (1,727) Other (25) (3) - - (28) Investment in subsidiaries 500 - (500) - - Advances from (to) subsidiaries 4,377 - - (4,377) - ------- ------ ------ ------ ------- Net cash (used in) provided from investing activities 3,799 (320) (857) (4,377) (1,755) Financing activities Repayment of long-term obligations (154) (68) - - (222) Proceeds from borrowings 6,300 - 644 - 6,944 Advances from (to) subsidiaries - (1,783) (2,662) 4,445 - ------- ------ ------ ------ ------- Net cash provided from (used in) financing activities 6,146 (1,851) (2,018) 4,445 6,722 Net increase (decrease) in cash and cash equivalents 1,314 118 (2,130) 63 (635) Cash and cash equivalents, beginning of period 201 12 1,766 - 1,979 ------- ------ ----- ------ ------- Cash and cash equivalents, end of period $ 1,515 $ 130 $ (364) $ 63 $ 1,344 ======= ====== ====== ====== =======
-11- 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 March 31, 1998 Compared to Three Months Ended March 31, 1997 Net Sales. Net sales for the three months ended March 31, 1998 and 1997, were $66.5 million and $63.1 million, respectively, an increase of $3.4 million, or 5%. Net sales of the Company's shaving razors and blades for the three months ended March 31, 1998, totaled $23.5 million, a 14% decrease compared to net sales for the three months ended March 31, 1997, of $27.4 million. Net sales of domestic branded and private brand shaving products decreased 37% and 7%, respectively, due primarily to the timing of orders with several of the Company's major customers, delays in retailers' modifications in Plan- o-grams due to the launch of a new product by a competitor, heavy promotional activity by certain competitors and the timing of the Company's own promotional activities. Net sales of international shaving products decreased 3% due primarily to the impact of unfavorable exchange rates. Net sales of bladed hand tools and blades for the three months ended March 31, 1998 and 1997, were $11.0 million and $9.9 million, respectively, an increase of $1.1 million, or 11%. This strong 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 three months ended March 31, 1998 and 1997, were $4.2 million and $3.9 million, respectively, an increase of $0.3 million, or 7%. Sales of industrial and specialty products increased 5% due primarily to penetration of new markets. Sales of medical products increased 10% 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 March 31, 1998 and 1997, were $22.6 million and $14.4 million, respectively, an increase of $8.2 million or 57%. 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 three months ended March 31, 1998 and 1997, were $5.2 million and $7.5 million, respectively, a decrease of $2.3 million or 31%. 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 the Asian markets and from the timing of their promotional activities. Gross Profit. Gross profit decreased $2.2 million to $19.5 million during the three months ended March 31, 1998, from $21.7 million for the three months ended March 31, 1997. As a percentage of net sales, gross profit was 29.3% for the three months ended March 31, 1998, and 34.4% for the three months ended March 31, 1997. This decrease was due primarily to i) increased sales of handles and systems which generally carry lower margins and other mix issues, higher depreciation expense related to capacity expansion projects and the negative impact of unfavorable exchange rates in the blade operations, ii) lower margins in the newly acquired AWC cotton operations due to increased shipping costs relating to product mix issues, increased manufacturing costs relating to the start-up of two new cotton manufacturing facilities and the generally lower margins associated with the acquired AWC business, and iii) from the effect of absorbing manufacturing overheads and depreciation over a lower sales base in the Company's soap operations. -12- Operating and Other Expenses. Selling, general and administrative expenses were 20.3% of net sales for the three months ended March 31, 1998, compared to 22.1% for the three months ended March 31, 1997. This decrease primarily reflects spreading these costs over an increased sales base due to the AWC acquisition. Amortization of goodwill and other intangible assets was substantially unchanged at $0.6 million for the three months ended March 31, 1998 and 1997. Interest expense was substantially unchanged at $3.0 million for the three months ended March 31, 1998, and $2.9 million for the three months ended March 31, 1997. 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. 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 $0.9 million for the three months ended March 31, 1998, and net cash used in operating activities amounted to $5.6 million for the three months ended March 31, 1997. The increase of $6.5 million in net cash provided by operating activities for the three month period ended March 31, 1998, as compared to the three month period ended March 31, 1997, was due primarily to the collection of trade accounts receivable and a deposit of taxes paid in 1997 relating to the Company's audit of its tax returns for the periods 1989-1994 offset somewhat by an increase in inventories and prepaid expenses. At March 31, 1998, the Company had utilized $20.6 million of its revolving credit facility and had approximately $29.4 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, 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. The Company has engaged Paine Webber, Inc. to explore strategic alternatives which could involve a recapitalization, merger or sale of the Company. Currently, the Company has not entered into any agreement or commitments concerning any such alternative. -13- PART II, OTHER INFORMATION Item 1. Legal Proceedings None. 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 March 31, 1998. -14- 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 May 6, 1998 By /s/William C. Weathersby - ----------- ------------------------ Date William C. Weathersby President May 6, 1998 By /s/Thomas G. Kasvin - ----------- ----------------------- Date Thomas G. Kasvin Senior Vice President Chief Financial Officer -15- 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 March 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000750339 AMERICAN SAFETY RAZOR 1000 US DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 1800 0 38100 0 56222 103074 116599 43046 253765 34584 123710 0 0 121 60268 253765 66511 66511 47003 47003 0 0 3045 1308 519 789 0 0 0 789 .07 .06
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