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 September 30, 1997
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 October 17, 1997.
Class Outstanding at October 17, 1997
----- -------------------------------
Common Stock, $.01 Par Value 12,098,049
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
Index
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Page Number
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1997 (Unaudited) and December 31, 1996 1
Condensed Consolidated Statements of Income (Unaudited)
Three and nine months ended
September 30, 1997 and September 30, 1996 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1997 and September 30, 1996 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>
<CAPTION>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,432 $ 1,979
Trade receivables, net 46,039 37,904
Inventories 53,377 43,866
Deferred income taxes 3,592 3,760
Prepaid expenses 1,756 1,833
--------- ---------
Total current assets 106,196 89,342
Property and equipment 111,222 95,034
Less accumulated depreciation (39,594) (34,012)
--------- ---------
71,628 61,022
Intangible assets, net:
Goodwill 69,503 70,678
Other 4,504 5,055
---------- ----------
74,007 75,733
Prepaid pension cost and other 4,476 3,900
---------- ----------
Total assets $256,307 $229,997
======== ========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 17,446 $ 14,212
Accrued expenses and other 19,778 19,649
Income taxes payable 35 370
Current maturities of long-term obligations 2,393 1,419
---------- ---------
Total current liabilities 39,652 35,650
Long-term obligations 127,646 110,762
Retiree benefits and other 25,424 25,675
Deferred income taxes 9,172 13,387
Stockholders' equity:
Common Stock, $.01 par value, 25,000,000
shares authorized; 12,097,649 shares
issued and outstanding at September 30,
1997 (12,092,849 at December 31, 1996) 121 121
Additional capital 65,798 65,756
Deficit (10,337) (20,714)
Foreign currency translation (1,169) (640)
---------- ----------
54,413 44,523
--------- ---------
Total liabilities and stockholders' equity $256,307 $229,997
======== ========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $79,061 $71,052 $217,847 $193,374
Cost of sales 52,473 46,414 145,309 126,442
------- ------- -------- --------
Gross profit 26,588 24,638 72,538 66,932
Selling, general and administrative expenses 15,414 14,416 44,273 41,111
Amortization of intangibles 617 610 1,855 1,816
------- ------- ------- -------
Operating income 10,557 9,612 26,410 24,005
Interest expense 3,155 3,043 9,191 8,907
------- ------- ------- -------
Income before income taxes 7,402 6,569 17,219 15,098
Income taxes 2,964 2,477 6,842 5,889
------- ------- -------- -------
Net income $4,438 $4,092 $10,377 $9,209
====== ====== ======= ======
Weighted average shares outstanding 12,094,000 12,093,000 12,093,000 12,093,000
========== ========== ========== ==========
Earnings per share:
Net income $.37 $.34 $.86 $.76
==== ==== ==== ====
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
September 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities
Net income $10,377 $9,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,265 7,819
Interest and financing costs 408 568
Retiree benefits and other (1,391) 500
Deferred income taxes 445 (366)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Trade receivables (8,447) (3,072)
Inventories (5,508) (1,230)
Prepaid expenses 77 279
Accounts payable 3,234 1,072
Accrued and other expenses (1,421) (73)
Income taxes (4,792) 422
------- -------
Net cash provided by operating activities 1,247 15,128
Investing activities
Capital expenditures (9,305) (9,243)
Acquisitions, net of cash acquired (10,352) (16,628)
Other (4) (226)
--------- --------
Net cash used in investing activities (19,661) (26,097)
Financing activities
Proceeds from borrowings 21,940 20,318
Repayment of long-term obligations (4,115) (9,998)
Proceeds from option exercise 42 -
-------- --------
Net cash provided from financing activities 17,867 10,320
------- -------
Net decrease in cash and cash equivalents (547) (649)
Cash and cash equivalents, beginning of period 1,979 2,147
------- -------
Cash and cash equivalents, end of period $1,432 $1,498
====== ======
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 nine month periods ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. 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, 1996.
NOTE B - INVENTORIES
Classifications of inventories are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
<S> <C> <C>
Raw materials $19,410 $15,463
Work-in-process 6,135 5,951
Finished goods 25,518 20,289
Operating supplies 3,287 2,819
------- -------
54,350 44,522
Excess of current cost over LIFO inventory value 973 656
------- -------
$53,377 $43,866
======= =======
</TABLE>
NOTE C - OTHER INFORMATION
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 for 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.
NOTE D - PURCHASE OF THE COTTON DIVISION OF AMERICAN WHITE CROSS, INC.
On April 22, 1997, the Company purchased certain assets of The Cotton Division
of American White Cross, Inc. ("Cotton") for net consideration of approximately
$10.4 million including estimated acquisition related expenses. The acquisition
was accounted for under the purchase method of accounting and was financed
primarily by additional borrowings under the Company's revolving credit
facility.
Cotton is engaged in the manufacture and distribution of private-brand and
value-brand cotton swabs, cotton rounds and squares, cotton balls and puffs,
pharmaceutical coil and cotton rolls. Shortly after the acquisition, the Company
began to consolidate the Cotton operations into its fiber and foot care
operations. Pro forma combined results of operations of the Company and Cotton
are not presented as the effects are not material.
NOTE E - LONG TERM OBLIGATIONS
On April 22, 1997, in connection with its acquisition of Cotton, the Company
borrowed $9.8 million under its revolving credit facility. At September 30,
1997, the Company had utilized $24.2 million of its revolving credit facility
and had approximately $25.8 million available for future borrowings under this
facility.
NOTE F - EARNINGS PER SHARE
Stock options outstanding during the three and nine months ended September 30,
1997 and 1996, did not have a material dilutive effect on weighted average
shares outstanding or earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS
128 requires dual presentation of basic EPS and diluted EPS on the face of the
income statement for all periods presented.
The Company will adopt FAS 128 effective December 31, 1997. Pro forma earnings
per share data calculated in accordance with FAS 128 for the three and nine
months ended September 30, 1997 and 1996, are as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income $4,438 $4,092 $10,377 $9,209
====== ====== ======= ======
Basic EPS $.37 $.34 $.86 $.76
==== ==== ==== ====
Weighted average shares outstanding 12,094 12,093 12,093 12,093
====== ====== ====== ======
Diluted EPS $.36 $.34 $.85 $.76
==== ==== ==== ====
Weighted average shares outstanding 12,281 12,148 12,243 12,127
====== ====== ====== ======
</TABLE>
<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,
1996. On April 22, 1997, the Company purchased certain assets of The Cotton
Division of American White Cross, Inc. ("Cotton"), a manufacturer and
distributor of private-brand and value-brand cotton swabs, cotton rounds and
squares, cotton balls and puffs, pharmaceutical coil and cotton rolls. Sales by
Cotton since its acquisition of $13.9 million had an immaterial effect on net
income.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Net Sales. Net sales for the three months ended September 30, 1997 and 1996,
were $79.1 million and $71.1 million, respectively, an increase of $8.0 million,
or 11%. Sales by Cotton, since its acquisition contributed $7.4 million to the
increase. Net sales of the Company's shaving blades and razors for the three
months ended September 30, 1997, totaled $31.7 million, a 4% decrease compared
to net sales for the three months ended September 30, 1996, of $33.1 million.
Net sales of domestic private-brand shaving products and international shaving
products were substantially unchanged with net sales of international shaving
products negatively impacted approximately 5% by unfavorable exchange rates. Net
sales of domestic branded shaving products decreased 12% due primarily to the
timing of certain promotional programs.
Net sales of bladed hand tools and blades for the three months ended September
30, 1997 and 1996, were $12.2 million and $10.2 million, respectively, an
increase of $2.0 million, or 20%. This strong growth primarily reflects
increased sales of the Company's American Line(TM) and Personna(R) brands of
products as a result of new distribution gains and seasonal promotional
activity.
Net sales of industrial and specialty and medical blades for the three months
ended September 30, 1997 and 1996, were substantially unchanged at $4.3 million.
Sales of industrial and specialty products decreased 4% due primarily to
cyclical usage and purchasing patterns by certain customers and mix shifts to
lower priced blade products. Sales of medical products increased 5% due
primarily to an expanding customer base and new product offerings.
Net sales of fiber and foot care products, excluding Cotton, for the three
months ended September 30, 1997 and 1996, were $15.8 million and $14.7 million,
respectively, an increase of $1.1 million or 7%. Fiber and foot care experienced
sales growth across most of its product lines due primarily to increased
distribution of products.
Net sales of the Company's custom bar soap products for the three months ended
September 30, 1997 and 1996, were $7.7 million and $8.8 million, respectively, a
decrease of $1.1 million or 12%. This decrease was caused primarily by lower
sales to certain of the Company's pharmaceutical/skin care customers relating to
their inventory management programs.
Gross Profit. Gross profit increased $2.0 million to $26.6 million during the
three months ended September 30, 1997, from $24.6 million for the three months
ended September 30, 1996. As a percentage of net sales, gross profit was 33.6%
for the three months ended September 30, 1997, and 34.7% for the three months
ended September 30, 1996. This decrease was due primarily to lower margins in
the newly acquired Cotton operations and the negative impact of unfavorable
exchange rates.
Operating and Other Expenses. Selling, general and administrative expenses were
19.5% of net sales for the three months ended September 30, 1997, compared to
20.3% for the three months ended September 30, 1996. This decrease primarily
reflects spreading these costs over an increased sales base due to the Cotton
acquisition and was somewhat offset by an increase in sales and marketing
expenses in the Company's shaving operations. Amortization of goodwill and other
intangible assets was substantially unchanged at $0.6 million for the three
months ended September 30, 1997 and 1996. Interest expense was substantially
unchanged at $3.2 million for the three months ended September 30, 1997,
compared to $3.0 million for the three months ended September 30, 1996.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Net Sales. Net sales for the nine months ended September 30, 1997 and 1996, were
$217.8 million and $193.4 million, respectively, an increase of $24.4 million,
or 13%. Sales by Cotton contributed $13.9 million to the increase and sales by
Bond, acquired on March 29, 1996, contributed $2.3 million to the increase. Net
sales of the Company's shaving blades and razors for the nine months ended
September 30, 1997, totaled $89.3 million, a 6% increase over net sales for the
nine months ended September 30, 1996, of $84.5 million. Net sales of domestic
private-brand shaving products increased 7% primarily benefiting from continued
growth in sales of the Company's MBC(TM) products and increased promotional
support of products by customers. Net sales of international shaving products
increased 5% reflecting stronger sales primarily in Canada, Puerto Rico, Latin
America, Mexico, the United Kingdom, and Asia. International net sales were
negatively impacted approximately 3% by unfavorable exchange rates. Net sales of
domestic branded shaving products were essentially flat due to lower promotional
activity offset in part by the Company's launch of the Revlon Perfect Finish(TM)
shaving product.
Net sales of bladed hand tools and blades for the nine months ended September
30, 1997 and 1996, were $33.1 million and $30.2 million, respectively, an
increase of $2.9 million, or 10%. This strong growth primarily reflects
increased sales of the Company's American Line(TM) and Personna(R) brands of
products as a result of new distribution gains and product line extensions.
Net sales of industrial and specialty and medical blades for the nine months
ended September 30, 1997 and 1996, were $12.3 million and $12.6 million,
respectively, a decrease of $0.3 million, or 3%. Sales of industrial and
specialty products decreased 9% due primarily to cyclical usage and purchasing
patterns by certain customers and mix shifts to lower priced blade products.
Sales of medical products increased 5% due primarily to an expanding customer
base and new product offerings.
Net sales of fiber and foot care products, excluding Cotton, for the nine months
ended September 30, 1997 and 1996, were $44.2 million and $41.9 million,
respectively, an increase of $2.3 million or 6%. Fiber and foot care experienced
sales growth across most of its product lines due primarily to increased
distribution of products.
Net sales of the Company's custom bar soap products for the nine months ended
September 30, 1997 and 1996, were $25.0 million and $24.2 million, respectively,
an increase of $0.8 million or 3%. This increase primarily reflects the
continued growth in sales of the Company's pharmaceutical/skin care products.
Gross Profit. Gross profit increased $5.6 million to $72.5 million during the
nine months ended September 30, 1997, from $66.9 million for the nine months
ended September 30, 1996. As a percentage of net sales, gross profit was 33.3%
for the nine months ended September 30, 1997, and 34.6% for the nine months
ended September 30, 1996. This decrease was due primarily to lower margins in
the newly acquired Cotton operations and the negative impact of unfavorable
exchange rates.
Operating and Other Expenses. Selling, general and administrative expenses were
20.3% of net sales for the nine months ended September 30, 1997, compared to
21.3% for the nine months ended September 30, 1996. This decrease primarily
reflects spreading these costs over an increased sales base due to the Cotton
acquisition. Amortization of goodwill and other intangible assets was
substantially unchanged at $1.9 million for the nine months ended September 30,
1997, compared to $1.8 million for the nine months ended September 30, 1996.
Interest expense was substantially unchanged at $9.2 million for the nine months
ended September 30, 1997, compared to $8.9 million for the nine months ended
September 30, 1996.
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 $1.2 million and $15.1 million for the nine
months ended September 30, 1997 and 1996, respectively. The decrease of $13.9
million in net cash provided by operating activities for the nine month period
ended September 30, 1997, as compared to the nine month period ended September
30, 1996, was due primarily to i) an increase in trade accounts receivable and
inventories for the Company's newly acquired Cotton operations, ii) the timing
of customer payments, iii) an increase in inventories to improve customer
service, and iv) the payment of certain tax liabilities.
On April 22, 1997, in connection with its acquisition of Cotton, the Company
borrowed $9.8 million under its revolving credit facility. At September 30,
1997, the Company had utilized $24.2 million of its revolving credit facility
and had approximately $25.8 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.
<PAGE>
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 September 30, 1997.
<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
October 22, 1997 By /s/William C. Weathersby
- ---------------- ---------------------------
Date William C. Weathersby
President
October 22, 1997 By /s/Thomas G. Kasvin
- ---------------- ---------------------------
Date Thomas G. Kasvin
Senior Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1432
<SECURITIES> 0
<RECEIVABLES> 46039
<ALLOWANCES> 0
<INVENTORY> 53377
<CURRENT-ASSETS> 106196
<PP&E> 111222
<DEPRECIATION> 39594
<TOTAL-ASSETS> 256307
<CURRENT-LIABILITIES> 39652
<BONDS> 127646
0
0
<COMMON> 121
<OTHER-SE> 54292
<TOTAL-LIABILITY-AND-EQUITY> 256307
<SALES> 217847
<TOTAL-REVENUES> 217847
<CGS> 145309
<TOTAL-COSTS> 145309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9191
<INCOME-PRETAX> 17219
<INCOME-TAX> 6842
<INCOME-CONTINUING> 10377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10377
<EPS-PRIMARY> .86
<EPS-DILUTED> .86
</TABLE>
