-----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, GRBpwnzCuxpF71IRKOd3TJvhNovfrDzgMB7vJKVyVRQ6S+JU4xEhP9mWwoneKtO1 qYo9zEuW1g9IlLYEtE3qWw== 0000893750-00-000248.txt : 20000512 0000893750-00-000248.hdr.sgml : 20000512 ACCESSION NUMBER: 0000893750-00-000248 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 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: 033-60298 FILM NUMBER: 625720 BUSINESS ADDRESS: STREET 1: 240 CEDAR KNOLLS RD STREET 2: SUITE 401 CITY: CEDAR KNOLLS STATE: NJ ZIP: 07927 BUSINESS PHONE: 5042488000 MAIL ADDRESS: STREET 1: 240 CEDAR KNOLLS RD STREET 2: SUITE 401 CITY: CEDAR KNOLLS STATE: NJ ZIP: 07927 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, 2000 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) 240 Cedar Knolls Road, Suite 401, Cedar Knolls, New Jersey 07927 (973) 753-3000 --------------------------------- ------------------------------- (Address of principal executive (Registrant's telephone number) offices, including zip code) 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 May 5, 2000. Class Outstanding at May 5, 2000 ----- -------------------------- Common Stock, $.01 Par Value 12,110,349 AMERICAN SAFETY RAZOR COMPANY Index Page Number Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets March 31, 2000 (Unaudited) and December 31, 1999 (Company) 1 Condensed Consolidated Statements of Operations (Unaudited) Three months ended March 31, 2000 (Company) and March 31, 1999 (Predecessor) 3 Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three months ended March 31, 2000 (Company) and March 31, 1999 (Predecessor) 4 Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2000 (Company) and March 31, 1999 (Predecessor) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Part II. Other Information Item 1. Legal Proceedings 23 Item 6. Exhibits and Reports on Form 8-K 23 Signatures 24 AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
Company -------------------------- March 31, December 31, 2000 1999 ----------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,188 $12,500 Accounts receivable, net 44,625 46,252 Inventories 57,790 54,404 Deferred income taxes 7,250 6,814 Prepaid expenses 1,987 1,882 -------- -------- Total current assets 117,840 121,852 Property and equipment 101,469 98,398 Less accumulated depreciation (11,661) (8,407) -------- -------- 89,808 89,991 Intangible assets, net: Goodwill, trademarks and patents 158,584 159,675 Other 6,383 6,826 -------- -------- 164,967 166,501 Prepaid pension cost and other 25,153 24,527 -------- -------- Total assets $397,768 $402,871 ======== ========
See accompanying notes. 1 AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands; except share data)
Company -------------------------- March 31, December 31, 2000 1999 ----------- ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $15,162 $13,711 Accrued expenses and other 18,985 23,131 Current maturities of long-term obligations 10,099 10,508 -------- -------- Total current liabilities 44,246 47,350 Long-term obligations 173,057 175,108 Retiree benefits and other 27,638 27,333 Deferred income taxes 24,236 24,078 -------- -------- Total liabilities 269,177 273,869 -------- -------- Stockholders' equity: Common stock, $.01 par value, 25,000,000 shares authorized; 12,110,349 shares issued and outstanding at March 31, 2000 and December 31, 1999 121 121 Additional paid-in capital 172,843 172,843 Advances to RSA Holdings Corporation, net (42,714) (42,714) Accumulated deficit (1,361) (1,258) Accumulated other comprehensive (loss) income (298) 10 -------- -------- 128,591 129,002 -------- -------- Total liabilities and stockholders' equity $397,768 $402,871 ======== ========
See accompanying notes. 2 AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)
Company Predecessor --------- ----------- Three Three Months Months Ended Ended March 31, March 31, 2000 1999 -------- ----------- Net sales $77,209 $70,287 Cost of sales 51,801 46,829 -------- -------- Gross profit 25,408 23,458 Selling, general and administrative expenses 19,700 16,507 Amortization of intangible assets 1,188 647 -------- -------- Operating income 4,520 6,304 Interest expense 4,714 3,030 -------- -------- (Loss) income before income taxes (194) 3,274 Income taxes (benefit) (91) 1,300 -------- -------- Net (loss) income $(103) $1,974 ======== ======== Basic earnings per share: Net (loss) income $(0.01) $0.16 ======== ======== Weighted average number of shares outstanding 12,110 12,110 ======== ======== Diluted earnings per share: Net (loss) income $(0.01) $0.16 ======== ======== Weighted average number of shares outstanding 12,110 12,189 ======== ========
See accompanying notes. 3 AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In thousands)
Company Predecessor --------- ------------- Three Three Months Months Ended Ended March 31, March 31, 2000 1999 --------- ------------- Net (loss) income $(103) $1,974 Other comprehensive loss: Foreign currency translation adjustments (308) (433) ----- ------ Comprehensive (loss) income $(411) $1,541 ===== ======
See accompanying notes. 4 AMERICAN SAFETY RAZOR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Company Predecessor --------- ----------- Three Three Months Months Ended Ended March 31, March 31, 2000 1999 --------- ----------- Operating activities Net (loss) income $(103) $1,974 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 4,451 3,206 Interest and financing costs 361 138 Retiree benefits and other (629) (936) Deferred income taxes (278) 88 Changes in operating assets and liabilities: Accounts receivables 1,627 5,335 Inventories (3,386) (5,276) Prepaid expenses (105) (202) Accounts payable 1,451 1,884 Accrued and other expenses (4,146) (1,765) ------ ------ Net cash (used in) provided by operating activities (757) 4,446 Investing activities Capital expenditures (3,080) (2,650) Other, net -- (28) ------ ------ Net cash used in investing activities (3,080) (2,678) Financing activities Repayment of long-term obligations (2,475) (7,072) Proceeds from borrowings -- 3,437 Proceeds from exercise of stock options -- 2 ------ ------ Net cash used in financing activities (2,475) (3,633) ------ ------ Net decrease in cash and cash equivalents (6,312) (1,865) Cash and cash equivalents, beginning of period 12,500 3,453 ------ ------ Cash and cash equivalents, end of period $6,188 $1,588 ====== ======
See accompanying notes. 5 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 normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months period ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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, 1999. As a result of the acquisition of the Company, effective April 23, 1999, and new basis of accounting, the Company's financial statements for the period subsequent to the acquisition are not comparable to the Predecessor's financial statements for the period prior to the acquisition. NOTE B - INVENTORIES Inventories consisted of:
Company --------------------------- March 31, December 31, 2000 1999 ----------- ------------ (In thousands) Raw materials $27,548 $27,928 Work-in-process 5,551 4,521 Finished goods 20,841 18,098 Operating supplies 3,850 3,857 ------- ------- $57,790 $54,404 ======= =======
NOTE C - LONG TERM OBLIGATIONS At March 31, 2000, the Company had approximately $25.0 million available for future borrowings under its revolving credit facility. NOTE D - EARNINGS PER SHARE The difference between the weighted average number of shares outstanding for computing basic earnings per share and diluted earnings per share related to the Predecessor's employee stock options outstanding which were assumed to be converted for the diluted earnings per share calculation when the average market price of the Predecessor's common stock for the period exceeded the exercise price of the employee stock options which were outstanding. 6 NOTE E - SEGMENT INFORMATION
Company Predecessor -------------------- -------------------- Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 -------------------- -------------------- Operating Operating Income Income Net Sales (Loss) Net Sales (Loss) --------- --------- --------- --------- (In Thousands) Razors and Blades $50,468 $4,584 $44,282 $5,966 Cotton and Foot Care 20,226 55 20,553 427 Custom Bar Soap 6,515 (119) 5,452 (89) ------- ------ ------- ------ $77,209 4,520 $70,287 6,304 ======= ======= Interest expense 4,714 3,030 ----- ------ (Loss) income before income $(194) $3,274 taxes ====== ====== Total Assets ---------- March 31, 2000 ---------- Razors and Blades $310,503 Cotton and Foot Care 58,195 Custom Bar Soap 29,070 -------- $397,768 ========
NOTE F - CONTINGENCIES Cotton Matter: - ------------- During 1998, the Company purchased bleached cotton from an outside supplier for use in its pharmaceutical coil business. The Company converted this cotton from incoming bales into a coil, which was shipped to its pharmaceutical customers to be used as filler in bottles of oral dosage forms of pharmaceutical products to prevent breakage. During the period from March through November of 1998, the process by which the Company's supplier bleached this cotton was changed by introducing an expanded hydrogen peroxide treatment. Subsequent testing indicated varying levels of residual hydrogen peroxide in the cotton processed during this time period and the supplier in November 1998 reduced the levels of residual hydrogen peroxide in its bleaching process. The Company, to date, has received complaints from a number of customers alleging defects in the cotton supplied them during the period and asserting these defects may have led to changes in their products pharmaceutical appearance, and with respect to a limited number of products, potency. No lawsuits have been filed by any of these customers. The Company has received written notice of claims for damages in the aggregate amount of approximately $117.0 million. To date, no claim has been substantiated. In addition, $113.0 million of this amount is for alleged lost profits from two customers, which lost profits have not been substantiated. It is possible that additional damage claims might be forthcoming. On March 2, 1999, at the request of the Food and Drug Administration, the Company notified all (numbering approximately 85) of its pharmaceutical cotton coil customers that it was withdrawing from the market those lots of cotton coil which may contain elevated levels of hydrogen peroxide. 7 The Company has notified its supplier that, in the Company's view, the supplier is primarily responsible for damages, if any, that may arise out of this matter. At this time, the Company's supplier has agreed to be responsible for the cost of fiber, bleaching and freight of returned product, but has not agreed to be responsible for any other damages and has expressed an intention to assert defenses to the Company's claims. The Company's insurance carriers have been timely notified of the existence of the claim and have agreed to provide defense in a reservation of rights letter, but are continuing to evaluate whether coverage would apply to all aspects of the claims. The Company is advised by outside counsel that it has strong legal arguments that the aggregate amount of insurance available for these claims would be sufficient to cover the magnitude of the claims currently expressed. The Company also has been advised by its general counsel that it has a number of valid defenses to potential customer claims as well as a third party claim against its suppliers for damages, if any, incurred by the Company. However, management cannot at this time make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome relating to this overall issue, and accordingly, there can be no assurance that the Company's exposure from this matter might not potentially exceed the combination of its insurance coverages and recourse to its suppliers. It is therefore possible that the Company's results of operations or cash flows in a particular quarterly or annual period or its financial position could be significantly or adversely affected by an ultimate unfavorable outcome of this matter. Other Matters: - ------------- In June 1999, the Company received notice of the filing of a lawsuit by The Gillette Company ("Gillette") asserting claims for damages and injunctive relief for alleged patent infringement, misappropriation of trade dress, false advertising and breach of contract in connection with the marketing of the Company's two-bladed and three-bladed shaving cartridge systems (the MBC (Trademark) introduced in 1994 and the Tri- Flexxx (Trademark) introduced in 1999). In August 1999, the Company filed an answer and counterclaims in which it denied Gillette's allegations, sought a declaration that Gillette's patents are not infringed, are invalid and unenforceable, and asserted counterclaims against Gillette for damages and injunctive relief for, among other things, alleged antitrust violations and false advertising. Gillette's time to respond to the Company's answer and counterclaims has been postponed pending ongoing settlement discussions. The Company believes that Gillette's claims are without merit and intends to defend against them vigorously, as well as to vigorously pursue the Company's counterclaims against Gillette. The Company does not believe it has any material liability with respect to Gillette's claims described above. However, management and counsel at this time are unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome relating to this matter. The Company will reassess this matter as new facts become available. NOTE G - SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION The Company's $69.3 million of 9 7/8% 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. 8 The following condensed consolidating financial information presents condensed consolidating financial statements as of March 31, 2000 and December 31, 1999 (the Company), and for the three months ended March 31, 2000 (the Company) and 1999 (Predecessor), of American Safety Razor Company - the parent company, the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis), and elimination entries necessary to combine such entities on a consolidated basis. 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 9 7/8% Series B Senior Notes. 9 Condensed Consolidating Balance Sheets (Unaudited) March 31, 2000
Company ---------------------------------------------------- Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consoli- ASR aries aries tions dated --- --------- --------- ------- -------- (In thousands) Assets Current assets: Cash and cash equivalents $ 2,432 $ 1,408 $ 2,348 $ -- $ 6,188 Accounts receivable, net 20,836 10,664 13,457 (332) 44,625 Advances receivable-- subsidiaries 60,741 -- -- (60,741) -- Inventories 29,928 15,730 12,757 (625) 57,790 Income taxes and prepared expenses 6,380 2,339 518 -- 9,237 -------- ------- -------- ------- ------- Total current assets 120,317 30,141 29,080 (61,698) 117,840 Property and equipment, net 58,394 24,403 7,011 -- 89,808 Intangible assets, net 137,160 22,744 5,063 -- 164,967 Prepaid pension cost and other 16,677 8,456 20 -- 25,153 Investment in subsidiaries 32,798 -- 8,067 (40,865) -- ------- ------- ------ ------- ------- Total assets $365,346 $85,744 $49,241 $(102,563) $397,768 ======== ======= ======= ========= ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable, Accrued expenses and other $ 18,929 $ 10,728 $ 4,495 $ (5) $ 34,147 Advances payable-- subsidiaries -- 45,419 16,274 (61,693) -- Current maturities of long-term obligations 8,419 1,383 297 -- 10,099 -------- ------- ------- ------- -------- Total current liabilities 27,348 57,530 21,066 (61,698) 44,246 Long-term obligations 172,913 144 -- -- 173,057 Retiree benefits and other 16,965 10,673 -- -- 27,638 Deferred income taxes 19,529 4,379 328 -- 24,236 ------- ------ ------ ----- ------- Total liabilities 236,755 72,726 21,394 (61,698) 269,177 ------- ------ ------ ------ ------- 10 Company ---------------------------------------------------- Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consoli- ASR aries aries tions dated --- --------- --------- ------- -------- (In thousands) Stockholders' equity Common stock 121 -- -- -- 121 Additional paid-in capital 172,843 12,948 23,676 (36,624) 172,843 Advances to RSA Holdings Corporation, net (42,714) -- -- -- (42,714) (Accumulated deficit) retained earnings (1,361) 70 4,469 (4,539) (1,361) Accumulated other comprehensive loss (298) -- (298) 298 (298) ------- -------- ------- -------- ------- 128,591 13,018 27,847 (40,865) 128,591 ------- -------- ------- -------- ------- Total liabilities and stockholders' equity $365,346 $ 85,744 $49,241 $(102,563) $397,768 ======== ======== ======= ========= ========
11 Condensed Consolidating Balance Sheets December 31, 1999 Predecessor ------------------------------------------------- Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consolida- ASR aries aries tions ted ------- --------- --------- -------- ---------- (In Thousands) Assets Current assets: Cash and cash equivalents $ 6,221 $ 1,180 $ 5,081 $ 18 $ 12,500 Accounts receivable, net 19,927 12,906 13,751 (332) 46,252 Advances receivable-- subsidiaries 59,790 -- -- (59,790) -- Inventories 29,825 13,322 11,947 (690) 54,404 Income taxes and prepaid expenses 6,511 1,912 273 -- 8,696 -------- -------- ------- --------- ------- Total current assets 122,274 29,320 31,052 (60,794) 121,852 Property and equipment, net 58,005 24,731 7,255 -- 89,991 Intangible assets, net 138,404 22,994 5,103 -- 166,501 Prepaid pension cost and other 16,133 8,373 21 -- 24,527 Investment in subsidiaries 32,506 -- 8,587 (41,093) -- -------- ------- ------- --------- ------- Total assets $367,322 $85,418 $52,018 $(101,887) 402,871 ======== ======= ======= ========= ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable, accrued expenses and other $ 19,299 $10,830 $ 6,714 $ (1) $36,842 Advances payable-- subsidiaries -- 44,289 16,504 (60,793) -- Current maturities of long-term obligations 7,964 1,417 1,127 -- 10,508 ------- ------ ------ ------- ------- Total current liabilities 27,263 56,536 24,345 (60,794) 47,350 Long-term obligations 174,954 154 -- -- 175,108 Retiree benefits and other 16,750 10,583 -- -- 27,333 Deferred income taxes 19,353 4,392 333 -- 24,078 ------- ------ ----- ------ ------- Total liabilities 238,320 71,665 24,678 (60,794) 273,869 ------- ------ ------ ------- ------- 12 Predecessor ------------------------------------------------- Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consolida- ASR aries aries tions ted ------- --------- --------- -------- ---------- (In Thousands) Stockholders' equity Common stock 121 485 87 (572) 121 Additional paid-in capital 172,843 12,463 23,391 (35,854) 172,843 Advances to RSA Holdings Corporation, net (42,714) -- -- -- (42,714) (Accumulated deficit) retained earnings (1,258) 805 3,852 (4,657) (1,258) Accumulated other comprehensive income 10 -- 10 (10) 10 ------- -------- -------- --------- -------- 129,002 13,753 27,340 (41,093) 129,002 ------- -------- -------- --------- -------- Total liabilities and stockholders' equity $367,322 $ 85,418 $ 52,018 $(101,887) $402,871 ======== ======== ======== ========= ========
13 Condensed Consolidating Statements of Operations (Unaudited) Three Months Ended March 31, 2000
Company -------------------------------------------------- Non- Guarantor Guarantor Subsidi- Subsidi- Elimina ASR aries aries tions Consolidated --- --------- -------- ------- ------------ (In thousands) Net sales $40,590 $26,992 $15,957 $(6,330) $77,209 Cost of sales 23,343 22,994 11,794 (6,330) 51,801 ------- ------- ------- ------- ------- Gross profit 17,247 3,998 4,163 -- 25,408 Selling, general and administrative expenses 13,049 3,812 2,839 -- 19,700 Amortization of intangible assets 898 250 40 -- 1,188 ------ ------ ------- ------- ------- Operating income (loss) 3,300 (64) 1,284 -- 4,520 Other income (expense); Equity in earnings (losses)of affiliates 402 -- (520) 118 -- Interest expense (4,150) (1,090) 526 -- (4,714) ------ ------ ------- ------- ------- Income (loss) before income taxes (448) (1,154) 1,290 118 (194) Income taxes (benefit) (345) (419) 673 -- (91) ------ ------ ------- ------- ------- Net (loss) income $ (103) $ (735) $ 617 $ 118 $ (103) ====== ====== ======= ======= =======
14 Condensed Consolidating Statements of Income (Unaudited) Three Months Ended March 31, 1999
Predecessor ------------------------------------------------ Non- Guarantor guarantor Subsidi- Subsidi- Elimina- ASR aries aries tions Consolidated --- --------- -------- -------- ------------ (In thousands) Net sales $37,918 $26,228 $14,005 $(7,864) $70,287 Cost of sales 21,581 22,633 10,479 (7,864) 46,829 ------- ------- ------- ------- ------- Gross profit 16,337 3,595 3,526 -- 23,458 Selling, general and administrative expenses 10,836 3,013 2,658 -- 16,507 Amortization of intangible assets 365 246 36 -- 647 ------- ------ ------ ----- ------ Operating income 5,136 336 832 -- 6,304 Other income (expense): Equity in earnings (losses)of affiliates 581 -- (130) (451) -- Interest expense (2,483) (1,002) 455 -- (3,030) ------- ------ ------ ------ ------ Income (loss) before income taxes 3,234 (666) 1,157 (451) 3,274 Income taxes (benefit) 1,260 (356) 396 -- 1,300 ------- ------ ------ ------ ------ Net income (loss) $ 1,974 $ (310) $ 761 $ (451) $ 1,974 ======= ====== ====== ======= =======
15 Condensed Consolidating Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, 2000
Company ----------------------------------------------- Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consoli- ASR aries aries tions dated --- --------- --------- -------- -------- (In thousands) Net (loss) income $(103) $(735) $617 $118 $(103) Other comprehensive loss: Foreign currency translation adjustments (308) -- (308) 308 (308) ----- ---- ---- ---- ---- Comprehensive (loss) income $(411) $(735) $309 $426 $(411) ===== ===== ==== ==== =====
Condensed Consolidating Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, 1999
Predecessor ----------------------------------------------- Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consoli- ASR aries aries tions dated --- --------- -------- -------- -------- (In thousands) Net income (loss) $1,974 $(310) $761 $(451) $1,974 Other comprehensive loss: Foreign currency translation adjustments (2) -- (433) 2 (433) ------ ----- ---- ---- ------ Comprehensive income (loss) $1,972 $(310) $ 328 $(449) $1,541 ====== ===== ===== ==== ======
16 Condensed Consolidating Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2000
Company ------------------------------------------------ Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consoli- ASR aries aries tions dated --- --------- --------- -------- -------- (In thousands) Operating activities Net cash provided by (used in) operating activities $1,274 $ (436) $(1,526) $ (69) $ (757) Investing activities Capital expenditures (2,526) (407) (147) -- (3,080) Advances from (to) subsidiaries (951) -- -- 951 -- ------ ----- ----- ----- ------ Net cash used in investing (3,477) (407) (147) 951 (3,080) activities Financing activities Repayment of long-term obligations (1,586) (59) (830) -- (2,475) Advances from (to) subsidiaries -- 1,130 (230) (900) -- ------ ----- ----- ---- ----- Net cash (used in) provided by financing activities (1,586) 1,071 (1,060) (900) (2,475) Net (decrease) increase in cash and cash equivalent (3,789) 228 (2,733) (18) (6,312) Cash and cash equivalents, beginning of period 6,221 1,180 5,081 18 12,500 ------ ----- ----- ---- ------ Cash and cash equivalents, end of period $2,432 $1,408 $2,348 $ -- $ 6,188 ====== ====== ====== ==== ======
17 Condensed Consolidating Statements of Cash Flows (Unaudited) Three Months Ended March 31, 1999
Predecessor ---------------------------------------------- Non- Guarantor guarantor Subsidi- Subsidi- Elimina- Consoli- ASR aries aries tions dated --- --------- ------- ------- -------- (In thousands) Operating activities Net cash provided by (used in) operating activities $ 2,752 $ 1,258 $ (79) $ 515 $ 4,446 Investing activities Capital expenditures (1,865) (652) (133) -- (2,650) Other (79) -- 51 -- (28) Advances from (to) subsidiaries 2,477 -- (1,418) (1,059) -- ------ ------ ------ ------ ------ Net cash provided by (used in) investing activities 533 (652) (1,500) (1,059) (2,678) Financing activities Repayment of long-term obligations (6,564) (47) (461) -- (7,072) Proceeds from borrowings 3,300 -- 137 -- 3,437 Proceeds from exercise of stock options 2 -- -- -- 2 Advances from (to) subsidiaries -- (544) -- 544 -- ------ ------ ------ ------ ------ Net cash used in financing (3,262) (591) (324) 544 (3,633) activities Net increase (decrease) in cash and cash equivalents 23 15 (1,903) -- (1,865) Cash and cash equivalents, beginning of period (17) 106 3,364 -- 3,453 ------ ------ ------ ------ ------ Cash and cash equivalents, end of period $ 6 $ 121 $1,461 $ -- $1,588 ======= ======= ====== ====== ======
18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the consolidated financial statements of the Company and notes thereto included in this Report and the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. Forward-Looking Statements Management's discussion and analysis of financial condition and results of operations and other sections of this Report contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend for the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding the Company's expected financial position, business and financing plans are forward-looking statements. Such forward-looking statements are identified by use of forward-looking words such as "anticipates," "believes," "plans," "estimates," "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. Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Net Sales. Net sales for the three months ended March 31, 2000 and 1999, - --------- were $77.2 million and $70.3 million, respectively, an increase of $6.9 million, or 9.8%. Razors and Blades. Net sales of our razors and blades segment for the three months ended March 31, 2000 and 1999, were $50.5 million and $44.3 million, respectively, an increase of $6.2 million or 14.0%. Net sales of shaving razors and blades for the three months ended March 31, 2000 and 1999, were $34.5 million and $29.1 million, respectively, an increase of $5.4 million, or 18.4%. Net sales of domestic value branded shaving products increased 5.6%, primarily reflecting sales gains relating to the Tri-Flexxx shaving product. Net sales of domestic private label shaving products increased 20.1% primarily reflecting sales gains relating to the Tri-Flexxx and Premier Comfort shaving products. Net sales of shaving products in international markets increased 28.4% (net of a 5% negative impact of unfavorable exchange rates) reflecting stronger sales in most of the Company's markets. Net sales of blades and bladed hand tools for the three months ended March 31, 2000 and 1999, were $12.1 million and $11.6 million, respectively, an increase of $0.5 million, or 5.0%. The increase primarily reflects increased sales of the Company's Personna (Registered Trademark) brand of products as a result of distribution gains. Net sales of specialty industrial and medical blades for the three months ended March 31, 2000 and 1999, were $3.9 million and $3.6 million, respectively, an increase of $0.3 million, or 7.4%. Sales of specialty industrial products increased 21.4%, rebounding from weak sales in the first quarter of 1999, reflecting distribution gains. Sales of medical products were substantially unchanged. 19 Cotton and Foot Care. Net sales of cotton and foot care products for the three months ended March 31, 2000 and 1999, were $20.2 million and $20.6 million, respectively, a decrease of $0.4 million or 1.6%. The decrease results primarily from issues related to the cotton coil matter. (See Note F to the condensed consolidated financial statements). Custom Bar Soap. Net sales of the Company's custom bar soap products for the three months ended March 31, 2000 and 1999, were $6.5 million and $5.5 million, respectively, an increase of $1.0 million or 19.5%. The increase results primarily from increased sales volume to the Company's skin care customers. Gross Profit. Gross profit increased $1.9 million to $25.4 million during - ------------ the three months ended March 31, 2000, from $23.5 million for the three months ended March 31, 1999 due primarily to higher sales volume. As a percentage of net sales, gross profit was 32.9% for the three months ended March 31, 2000, and 33.4% for the three months ended March 31, 1999. Blade margins declined due primarily to product mix, higher depreciation expense related to capacity expansion projects and the acquisition and from the negative impact of unfavorable exchange rates, primarily the Euro. The decline in blade margins was partially offset by improved margins in the Company's cotton operations due primarily to lower shipping and material costs. Operating and Other Expenses. Selling, general and administrative - ---------------------------- expenses were 25.5% of net sales for the three months ended March 31, 2000, compared to 23.5% for the three months ended March 31, 1999. The increase primarily reflects an increase in legal fees arising from the Gillette lawsuit and an increase in marketing and administrative overhead associated with the new management team and the new corporate headquarters. Amortization of intangible assets increased $0.6 million to $1.2 million for the three months ended March 31, 2000, from $0.6 million for the three months ended March 31, 1999, reflecting increased amortization of intangible assets related to the acquisition. Interest expense increased $1.7 million to $4.7 million for the three months ended March 31, 2000, from $3.0 million for the three months ended March 31, 1999, due primarily to additional debt and amortization of deferred loan fees incurred in connection with the acquisition and an increase in interest rates. The increase was partially offset by lower interest expense relating to the Company's $30.7 million purchase of a portion of its 9 7/8% Series Senior B Notes in June 1999. The Company's effective income tax rate was 46.9% for the three months ended March 31, 2000, versus 39.7% for the three months ended March 31, 1999, 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 primary sources of liquidity are cash flow from operations and borrowings under its revolving credit facility. Net cash used in operating activities amounted to $0.8 million for the three months ended March 31, 2000 and net cash provided by operating activities amounted to $4.4 million for the three months ended March 31, 1999. Net cash used in operating activities for the three months ended March 31, 2000 primarily reflects a decrease in net income and changes in working capital accounts. Net cash used in investing activities related to capital expenditures of $3.1 million for the three months ended March 31, 2000. Net cash used in financing activities resulted from repayment of long- term obligations of $2.5 million for the three months ended March 31, 2000. At March 31, 2000, the Company had approximately $25 million available for future borrowings under its revolving credit facility. 20 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 and debt service requirements as well as support the Company's growth-oriented strategy for its existing business for at least the next 12 months. The Company's ability to fund operations, make capital expenditures and make scheduled principal and interest payments or to refinance the Company's indebtedness will depend upon future financial and operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond the Company's control. Market Risk The Company is exposed to various market risk factors such as fluctuating interest rates and changes in foreign currency rates. These risk factors can impact results of operations, cash flows and financial position. The Company manages these risks through regular operating and financing activities and periodically uses derivative financial instruments such as foreign exchange option and forward contracts and interest rate cap and swap agreements. These derivative instruments are placed with major financial institutions and are not for speculative or trading purposes. The following analysis presents the effect on the Company's earnings, cash flows and financial position as if the hypothetical changes in market risk factors occurred on March 31, 2000 and March 31, 1999. Only the potential impacts of hypothetical assumptions are analyzed. The analysis does not consider other possible effects that could impact the business. Interest Rate Risk At March 31, 2000, the Company carried $183.2 million of outstanding debt on its balance sheet, with $111.7 million of that total held at variable interest rates. The Company has entered into an interest rate cap agreement and an interest rate swap agreement with a bank covering $56.3 million of its variable rate debt outstanding to manage its interest rate risk. Holding all other variables constant, if interest rates hypothetically increased or decreased by 10%, for the three months ended March 31, 2000 and 1999, the impact on earnings, cash flow and financial position would not be material. In addition, if interest rates hypothetically increased or decreased by 10% on March 31, 2000, with all other variables held constant, the fair market value of our $69.3 million 9 7/8% Series B Senior Notes would increase or decrease by approximately $3.6 million. Foreign Currency Risk The Company sells to customers in foreign markets through foreign operations and through export sales from plants in the U.S. These transactions are often denominated in currencies other than the U.S. dollar. The primary currency exposures are the Euro, British Pound Sterling, Canadian Dollar and Mexican Peso. The Company limits its foreign currency risk by operational means, mostly by locating its manufacturing operations in those locations where it has significant exposures to major currencies. The Company periodically enters into currency option contracts to partially offset the risk of foreign currency fluctuations. There were no currency contracts outstanding at March 31, 2000. 21 Contingencies Refer to Note F - Contingencies to the Notes to Condensed Consolidated Financial Statements for a discussion of legal contingencies. New Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes standards for accounting and disclosure of derivative instruments. This new standard, as amended by FAS 137, is effective for fiscal quarters of fiscal years beginning after June 15, 2000. The implementation of this new standard is not expected to have a material effect on consolidated results of operations or financial position. Inflation Inflation has not been material to the Company's operations within the periods presented. 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk The information called for by this item is provided under the captions "Market Risk", "Interest Rate Risk" and "Foreign Currency Risk" under Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations of this Report. PART II, OTHER INFORMATION Item 1. Legal Proceedings The information called for by this item is provided in Note F - Contingencies to Notes to Condensed Consolidated Financial Statements under Part I, Item 1. - Financial Statements of this Report. 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, 2000. 23 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 9, 2000 By /s/ James D. Murphy - ------------------ -------------------------------- Date James D. Murphy President and Chief Executive Officer May 9, 2000 By /s/ Alan R. Koss - ------------------ ---------------------------------- Date Alan R. Koss Senior Vice President Chief Financial Officer 24 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 three months ended March 31, 2000, and is qualified in its entirety by reference to such financial statements. 0000750339 AMERICAN SAFETY RAZOR COMPANY 1000 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 6188 0 44625 0 57790 117840 101469 11661 397768 44246 173057 0 0 121 128470 397768 77209 77209 51801 51801 0 0 4714 (194) (91) (103) 0 0 0 (103) (0.01) (0.01)
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