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, 1996
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)
Razor Blade Lane, Verona, Virginia 24482 (540) 248-8000
---------------------------------------- -----------------------------
(Address of principal executive offices, Registrant's Telephone Number
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 July 19, 1996.
Class Outstanding at July 19, 1996
----- ----------------------------
Common Stock, $.01 Par Value 12,092,849
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income
Three and six months ended
June 30, 1996 and June 30, 1995 3
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and June 30, 1995 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 435 $ 2,147
Trade receivables, net 38,756 33,100
Inventories 46,036 38,577
Deferred income taxes 3,622 3,498
Prepaid expenses 1,526 1,363
-------- --------
Total current assets 90,375 78,685
Property and equipment, net 59,661 49,578
Intangible assets, net:
Goodwill 71,307 70,475
Other 5,487 5,921
-------- --------
76,794 76,396
Prepaid pension cost and other 3,615 3,604
-------- --------
Total assets $230,445 $208,263
-------- --------
-------- --------
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,694 $ 10,956
Accrued expenses and other 19,648 17,926
Income taxes payable 541 713
Current maturities of long-term obligations 3,105 4,614
-------- --------
Total current liabilities 37,988 34,209
Long-term obligations 118,073 105,175
Retiree benefits and other 25,302 24,896
Deferred income taxes 13,087 13,085
Stockholders' equity:
Common Stock, $.01 par value, 25,000,000
shares authorized; 12,092,849 shares
issued and outstanding at June 30, 1996
(11,502,477 at December 31, 1995) 121 115
Class B Common Stock, $.01 par value,
590,372 shares issued and outstanding
at December 31, 1995 - 6
Additional capital 65,756 65,756
Deficit (28,770) (33,887)
-------- --------
Foreign currency translation (1,112) (1,092)
--------- --------
35,995 30,898
-------- --------
Total liabilities and stockholders' equity $230,445 $208,263
-------- --------
-------- --------
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $64,862 $58,102 $122,322 $109,388
Cost of sales 42,485 38,375 80,028 71,843
------- ------- -------- --------
Gross profit 22,377 19,727 42,294 37,545
Selling, general and
administrative expenses 13,964 12,550 26,695 24,149
Amortization of intangibles 604 603 1,206 1,151
Litigation settlement
expenses - 947 - 947
------- ------- -------- --------
Operating income 7,809 5,627 14,393 11,298
Interest expense 3,061 2,492 5,864 4,835
------- ------- -------- --------
Income before income taxes 4,748 3,135 8,529 6,463
Income taxes 1,898 1,237 3,412 2,650
------- ------- -------- --------
Net income $2,850 $1,898 $5,117 $3,813
------- ------- -------- --------
------- ------- -------- --------
Weighted average shares
outstanding 12,093,000 12,093,000 12,093,000 12,093,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share:
Net income $.24 $.16 $.42 $.32
---- ---- ---- ----
---- ---- ---- ----
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Six Months Ended
June 30,
------------------
1996 1995
------- --------
<S> <C> <C>
Operating activities
Net income $5,117 $3,813
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,100 4,301
Amortization of financing costs 401 502
Retiree benefits and other 375 509
Deferred income taxes (122) 1,374
Changes in operating assets and liabilities,
net of effects of Bond and ACCO acquisitions:
Trade receivables (2,065) (3,752)
Inventories (1,677) (3,952)
Prepaid expenses 172 (164)
Accounts payable 1,123 1,061
Accrued and other expenses 1,119 (563)
Income taxes payable (172) (174)
------ ------
Net cash provided by operating activities 9,371 2,955
Investing activities
Capital expenditures (5,616) (4,950)
Purchase of Bond and ACCO, respectively,
net of cash acquired (16,628) (7,348)
Other (101) (120)
------- -------
Net cash used in investing activities (22,345) (12,418)
Financing activities
Proceeds from borrowings 17,851 14,593
Repayment of debt (6,589) (5,147)
------- -------
Net cash provided from financing activities 11,262 9,446
------- -------
Net decrease in cash and cash equivalents (1,712) (17)
Cash and cash equivalents, beginning of period 2,147 678
------- -------
Cash and cash equivalents, end of period $435 $661
---- ----
---- ----
See accompanying notes.
</TABLE>
<PAGE>
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 and six month periods ended June 30, 1996, are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. 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, 1995.
NOTE B - INVENTORIES
<TABLE>
Classifications of inventories are as follows:
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(In thousands)
<S> <C> <C>
Raw materials $17,873 $16,070
Work-in-process 6,104 5,053
Finished goods 21,125 17,274
Operating supplies 2,920 2,166
------- -------
48,022 40,563
Excess of current cost over LIFO inventory value 1,986 1,986
------- -------
$46,036 $38,577
------- -------
------- -------
</TABLE>
NOTE C - OTHER INFORMATION
The Company's federal income tax returns for 1989, 1990 and 1991 have been
examined by the IRS. In addition, the Company's federal income tax returns
for 1992, 1993 and 1994 are presently 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 connection with such acquisitions, the Company also incurred
approximately $10 million of loan costs and certain other costs, and has
expensed certain of those costs and claimed amortization deductions with
respect to other such costs. During March 1995, the Company received a
revenue agent's report proposing adjustments to the value of the intangible
assets which value is substantially below the value assigned to such assets
by the Company, resulting in the disallowance of substantially all of the
Company's amortization deductions with respect to those assets. In
addition, the IRS has proposed adjustments disallowing substantially all of
the Company's deductions with respect to the loan costs and certain other
costs described above. The Company disagrees with such proposed
disallowances, and on May 15, 1995, the Company filed a protest with the IRS
with respect to such proposed disallowances. The Company is vigorously
contesting such proposed disallowances. The outcome cannot be predicted at
this time, and the Company believes that the resolution of these issues
could take several years. The Company will continue to evaluate the
potential impact on its tax reserves for these issues. However, the Company
believes that the ultimate outcome of the above matters will not have a
materially adverse impact on the consolidated financial position or results
of operations of the Company.
On March 13, 1996, the Company's shares of Class B Common Stock outstanding
of 590,372 were converted into an equal number of shares of Common Stock.
Upon such conversion the Class B Common Stock ceased to be authorized.
Stock options outstanding during the three months and six months ended June
30, 1996 and 1995 did not have a material dilutive effect on weighted
average shares outstanding or earnings per share.
NOTE D - ACQUISITION OF BOND - AMERICA ISRAEL BLADES, LTD. AND A.I. BLADES,
INC.
On March 29, 1996, the Company purchased certain assets of Bond - America
Israel Blades, Ltd., and its wholly-owned U.S. subsidiary, A. I. Blades,
Inc. (collectively "Bond") for net consideration of approximately $16.6
million including estimated acquisition related expenses. The agreement
also provides for additional consideration of up to $4.0 million with
payments over a four year period based on achieving a specified level of
earnings during 1996, as defined. The acquisition was accounted for under
the purchase method of accounting and was financed by additional borrowings
of approximately $8.7 million under the Company's revolving credit facility,
a short-term sellers' note of $4.0 million and internally generated funds.
Bond is engaged in the manufacture and distribution of private-brand and
value-brand shaving razors and blades. Its principal operations are located
in Nazareth Illit, Israel where it leases approximately 79,000 square feet
of manufacturing and warehouse facilities. Shortly after the acquisition,
the Company began to consolidate the Carlstadt, New Jersey operations of
Bond into its blade operations in Knoxville, Tennessee.
Pro forma combined results of operations of the Company as if the Bond
acquisition occurred on January 1, 1995 are not presented as the effects are
not material.
NOTE E - LONG TERM OBLIGATIONS
On March 29, 1996, in connection with its acquisition of Bond, the Company
borrowed $8.7 million under its revolving credit facility and $4.0 million
in the form of a short-term sellers' note. On April 1, 1996, the Company
borrowed an additional $4.0 million under its revolving credit facility and
paid in full the short-term sellers' note. At June 30, 1996, the Company
had utilized $14.0 million of its revolving credit facility and had
approximately $36.0 million available for future borrowings under this
facility.
NOTE F - CONTINGENCIES
During May 1994, American Medical Manufacturing, Inc. ("AMMI") sued the
Company based on a group of claims involving the failure by the Company to
fulfill an alleged nationwide distribution agreement relating to AMMI's
products. The Company denied the existence of any such agreement. In
January 1995, the Company won a motion for summary judgment on certain of
the claims and filed an appeal to dismiss the remaining claims which was
denied. The case was settled in June 1995 for $947,000 ($568,000 after
taxes), including legal fees. These settlement expenses have been reflected
in the Company's statement of income for the quarter ended June 30, 1995.
<PAGE>
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, 1995. On March 29, 1996, the Company purchased certain assets of Bond -
America Israel Blades, Ltd. and its wholly-owned U.S. subsidiary, A. I.
Blades, Inc. (collectively "Bond"), a manufacturer of private-brand and
value-brand shaving razors and blades. Sales by Bond since its acquisition
of $3.5 million had an insignificant effect on net income.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30,
1995
Net Sales. Net sales for the three months ended June 30, 1996 and 1995 were
$64.9 million and $58.1 million, respectively, an increase of $6.8 million,
or 11.6%. Sales by Bond contributed $3.5 million or 6.1% to the increase.
Excluding Bond, net sales of the Company's shaving blades and razors for the
three months ended June 30, 1996 totaled $24.9 million, a $0.9 million or
3.6% increase over net sales for the three months ended June 30, 1995 of
$24.0 million. Net sales of international shaving products increased 18.1%
reflecting stronger sales primarily in Europe, Asia and the Far East and net
sales of domestic private-brand shaving products increased 9.5% primarily
reflecting continued growth in sales of the Company's MBC trademark product
and increased promotional support of products by customers. Net sales of
domestic branded shaving products decreased 15.2% primarily resulting from
timing differences in product promotions.
Net sales of bladed hand tools and blades for the three months ended June
30, 1996 and 1995 were $10.5 million and $9.4 million, respectively, an
increase of $1.1 million, or 11.3%. This increase primarily reflects an
expanding customer base and increased product promotions.
Net sales of industrial and specialty and medical blades for the three
months ended June 30, 1996 and 1995 were $4.4 million and $4.1 million,
respectively, an increase of $0.3 million, or 5.9%. Sales of industrial and
specialty products increased 5.1% due primarily to new product
introductions. Sales of medical products increased 7.2% due to new product
introductions and an expanding customer base.
Net sales of fiber and foot care products for the three months ended June
30, 1996 and 1995 were $13.4 million and $12.4 million, respectively, an
increase of $1.0 million or 8.3%. The Company experienced sales growth
across its product lines, particularly in cotton pads, swabs and tissues.
Net sales of the Company's custom bar soap products for the three months
ended June 30, 1996 and 1995 were unchanged at $8.2 million.
Gross Profit. Gross profit increased $2.7 million to $22.4 million during
the three months ended June 30, 1996 from $19.7 million for the three months
ended June 30, 1995. As a percentage of net sales, gross profit was 34.5%
for the three months ended June 30, 1996 and 34.0% for the three months
ended June 30, 1995. Gross profit for the Company's razors and blades
segment for the three months ended June 30, 1996 and 1995 was 41.2% and
41.9% of net sales, respectively. This decrease was primarily due to lower
initial margins in the Bond operations and higher depreciation expense on
capacity expansion projects somewhat offset by lower production costs
resulting from increased output from the Company's Mexico operations. Fiber
and foot care gross profit increased to 20.6% from 17.2% of net sales during
the same period primarily reflecting lower material and shipping costs and
reduced manufacturing costs resulting from the ongoing consolidation of
manufacturing operations. Custom bar soap's gross profit decreased to 22.0%
from 22.6% of net sales during the same period primarily reflecting costs
associated with the discontinuance of a line of seasonal gift products and
increased depreciation expense.
Operating and Other Expenses. Selling, general and administrative expenses
were substantially unchanged at 21.5% of net sales for the three months
ended June 30, 1996 compared to 21.6% for the three months ended June 30,
1995. The litigation settlement expenses of $0.9 million, including legal
fees for the three months ended June 30, 1995, relate to the AMMI case which
was settled in June, 1995. (see Note F to the condensed consolidated
financial statements.)
Amortization of goodwill and other intangible assets was substantially
unchanged at $0.6 million for the three months ended June 30, 1996 and 1995.
Interest expense increased for the three months ended June 30, 1996 to $3.1
million from $2.5 million for the three months ended June 30, 1995 primarily
reflecting the higher interest rate resulting from the Company's debt
offering in August 1995, and from increased borrowings to finance the Bond
acquisition.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net Sales. Net sales for the six months ended June 30, 1996 and 1995 were
$122.3 million and $109.4 million, respectively, an increase of $12.9
million, or 11.8%. Sales by Bond contributed $3.5 million or 3.2% to the
increase. Excluding Bond, net sales of the Company's shaving blades and
razors for the six months ended June 30, 1996 totaled $47.9 million, a 3.0%
increase over net sales for the six months ended June 30, 1995 of $46.5
million. Net sales of international shaving products increased 9.4%
reflecting stronger sales primarily in Europe, Asia and Mexico and net sales
of domestic private-brand shaving products increased 1.9% primarily
benefiting from sales of the Company's MBC trademark product. Net sales of
domestic branded shaving products decreased 3.6% primarily resulting from
timing differences in product promotions.
Net sales of bladed hand tools and blades for the six months ended June 30,
1996 and 1995 were $20.0 million and $19.2 million, respectively, an
increase of $0.8 million, or 4.3%. This increase primarily reflects an
expanding customer base and increased product promotions.
Net sales of industrial and specialty and medical blades for the six months
ended June 30, 1996 and 1995 were $8.3 million and $8.2 million,
respectively, an increase of $0.1 million, or 1.9%. Sales of industrial and
specialty products decreased 5.6% due primarily to inventory adjustments at
major original equipment manufacturers and other user customers during the
three months ended March 31, 1996, as compared to a strong shipment period
for the same period in the prior year. Sales of industrial and specialty
products rebounded for the three months ended June 30, 1996, increasing 5.1%
from the three months ended June 30, 1995. Sales of medical products
increased 13.8% due to new product introductions and an expanding customer
base.
Net sales of fiber and foot care products for the six months ended June 30,
1996 and 1995 were $27.1 million and $21.1 million, respectively, an
increase of $6.0 million or 28.0%. On a fully comparable basis (including
1995 net sales of ACCO prior to its acquisition date of $3.1 million), net
sales increased $2.9 million or 11.9%. The Company experienced sales growth
across its product lines, particularly in cotton pads, swabs, insoles and
tissues.
Net sales of the Company's custom bar soap products for the six months ended
June 30, 1996 and 1995 were $15.4 million and $14.4 million, respectively,
an increase of $1.0 million or 7.4%. This increase primarily reflects the
strong growth in sales of the Company's pharmaceutical/skin care products.
Gross Profit. Gross profit increased $4.8 million to $42.3 million during
the six months ended June 30, 1996 from $37.5 million for the six months
ended June 30, 1995. As a percentage of net sales, gross profit was 34.6%
for the six months ended June 30, 1996 and 34.3% for the six months ended
June 30, 1995. Gross profit for the Company's razors and blades segment for
the six months ended June 30, 1996 and 1995 was 42.4% and 41.6% of net
sales, respectively. This increase was primarily due to lower production
costs resulting from increased output from the Company's Mexico operations
and lower shipping costs somewhat offset by lower initial margins in the
Bond operations and higher depreciation expense on capacity expansion
projects. Fiber and foot care gross profit increased to 19.5% from 18.0% of
net sales during the same period primarily reflecting lower shipping costs
and reduced production costs resulting from the ongoing consolidation of
manufacturing operations. Custom bar soap's gross profit was unchanged at
20.7% of net sales during the same period.
Operating and Other Expenses. Selling, general and administrative expenses
were 21.8% of net sales for the six months ended June 30, 1996 compared to
22.1% for the six months ended June 30, 1995. This 0.3% of net sales
decrease primarily reflects the lower level of selling, general and
administrative costs needed to support the Company's fiber and foot care
operations.
Amortization of goodwill and other intangible assets was substantially
unchanged at $1.2 million for the six months ended June 30, 1996 and 1995.
Interest expense increased for the six months ended June 30, 1996 to $5.9
million from $4.8 million for the six months ended June 30, 1995 primarily
reflecting the higher interest rate resulting from the Company's debt
offering in August 1995, and from increased borrowings to finance the ACCO
and Bond acquisitions.
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 $9.4 million and $3.0 million
for the six months ended June 30, 1996 and 1995, respectively. The increase
of $6.4 million in net cash provided by operating activities for the six
month period ending June 30, 1996 as compared to the six month period ended
June 30, 1995 was due primarily to increased earnings and the net effects of
differences in the changes in the components of working capital primarily
trade receivables, inventories and accrued and other expenses.
On March 29, 1996, in connection with its acquisition of Bond, the Company
borrowed $8.7 million under its revolving credit facility and $4.0 million
in the form of a short-term sellers' note. On April 1, 1996, the Company
borrowed an additional $4.0 million under its revolving credit facility and
paid in full the short-term sellers' note. At June 30, 1996, the Company
had utilized $14.0 million of its revolving credit facility and had
approximately $36.0 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 no present plans in this regard.
Contingencies
During May 1994, American Medical Manufacturing, Inc. ("AMMI") sued the
Company based on a group of claims involving the failure by the Company to
fulfill an alleged nationwide distribution agreement relating to AMMI's
products. The Company denied the existence of any such agreement. In
January 1995, the Company won a motion for summary judgment on certain of
the claims and filed an appeal to dismiss the remaining claims which was
denied. The case was settled in June 1995 for $947,000 ($568,000 after
taxes), including legal fees. These settlement expenses have been reflected
in the Company's statement of income for the quarter ended June 30, 1995.
<PAGE>
PART II, OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note F - Contingencies to Notes to Condensed Consolidated
Financial Statements under Part I. Item 1. of this Report and to
Contingencies in Management's Discussion and Analysis of Financial
Condition and Results of Operations under Part I. Item 2. of this
Report.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None
b. Reports on Form 8-K: No reports on Form 8-K have been filed
during the quarter ended June 30, 1996.
<PAGE>
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
July 24, 1996 By /s/William C. Weathersby
------------- ---------------------------
Date William C. Weathersby
President
July 24, 1996 By /s/Thomas G. Kasvin
------------- ---------------------------
Date Thomas G. Kasvin
Vice President, Finance
Chief Financial Officer
