SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K
__________
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act Of 1934
Commission File Number 0-21952
__________
AMERICAN SAFETY RAZOR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 54-1050207
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P. O. Box 500
Staunton, Virginia 24402-0500
(Address of principal executive offices, including zip code)
__________
Registrant's telephone number, including area code:
(540) 248-8000
__________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share
__________
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
As of February 26, 1997, 12,092,849 shares of the Registrant's Common
Stock were outstanding. The aggregate market value of the Registrant's
Common Stock, which is the only class of voting stock of the Registrant,
held by non-affiliates was approximately $120,289,834 based on the closing
sales price of February 26, 1997. Determination of affiliate status for this
purpose is not a determination of affiliate status for any other purpose.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for the Annual
Meeting of Shareholders to be held on May 20, 1997 are incorporated by
reference into Part III of this Report on Form 10-K.
<PAGE>
Table of Contents
Part I
Page
Item 1. Business 1
General 1
Products 3
Sales and Marketing 4
Manufacturing 5
Raw Materials 5
Competition 6
Other Factors Affecting the Business of the Company 6
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Executive Officers of the Registrant 11
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
Part III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 18
Item 13. Certain Relationships and Related Transactions 18
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K 19
_______________________
Market share and product distribution data shown throughout were obtained
through Information Resources Incorporated, a nationally recognized market
research firm based in Chicago, Illinois, which provides the Company with
scanner based product movement data from U.S. grocery stores with annual all
commodity volume of at least $2 million and data from drug stores and mass
merchandisers in major U.S. markets.
<PAGE>
PART I
ITEM 1 - Business
General
American Safety Razor Company (together with its subsidiaries, the
"Company"), established in 1875, is a leading designer, manufacturer and
marketer of high quality brand name and private-brand consumer products. The
Company's principal products consist of shaving blades and razors, bladed
hand tools and blades, industrial and specialty and medical blades, fiber
and foot care and custom bar soap products. The Company distributes its
products to the retail and professional trades in the United States and in
selected international markets.
The Company is the largest manufacturer in terms of units of private-
brand and value-brand shaving blades and razors in the United States, and
has the fourth largest domestic unit volume share of the overall domestic
shaving blade and razor market (based on market research data for 1996
prepared by an independent market research firm). On March 29, 1996, the
Company purchased certain assets of Israel based Bond-America Israel Blades,
Ltd., and its wholly-owned U.S. subsidiary, A. I. Blades, Inc.
(collectively, "Bond") for net consideration of approximately $16.7 million,
net of cash, including acquisition related expenses. Bond is engaged in the
manufacture and distribution of private-brand and value-brand shaving razors
and blades. Since the date of acquisition through December 31, 1996, Bond's
products generated net sales of $11.2 million. Total shaving blade and razor
products which generated 1996 net sales of $114.4 million provide consumers
with a value-priced alternative to more heavily advertised premium national
brands. The Company's shaving blade and razor products are sold both under a
retailer's own store label and under the Company's value-brand names such as
Personna registered, Gem registered, Flicker registered, Legmate registered,
Bump Fighter registered, Burma Shave registered, Treet registered, GEM Blue
Star registered, Pal registered, MBC trademark and Royal trademark. The
Company provides both total shaving systems and components which can be used
alone or with most other nationally recognized premium priced brands. These
products are sold to major national mass-merchandise, drug and supermarket
chains. The Company believes that its products have achieved product quality
equivalency by using substantially the same materials and processes as those
used by manufacturers of competing premium brand-name products. The Company
attributes its leadership in the private-brand and value-brand markets to
its long history of dedication to quality, customer service, low-cost
manufacturing and competitive pricing.
The Company is also the largest manufacturer in terms of units of both
premium and value-priced bladed hand tools and blades (based on publicly
available information and Company estimates) which are sold primarily under
its Personna registered, American Line trademark and Ardell trademark brand
names. These products which generated 1996 net sales of $40.7 million,
capitalize on the Company's precision shaving blade technology and include
such items as single edge blades, paint scrapers, utility blades and knives
and carpet blades and knives. The Company's bladed hand tools and blades are
sold to consumers and professionals through home-improvement centers, retail
paint chains and hardware stores and to professionals through wholesalers,
distributors and specialty supply jobbers.
The Company has developed a line of industrial and specialty and
medical blades. The industrial and specialty blades perform many of the
cutting, slicing and chopping functions involved in manufacturing processes
employed by a variety of industries including food-processing, fiber
cutting, automotive and printing. In addition, the Company manufactures and
markets carbon and stainless steel surgical blades, disposable scalpels and
surgical prep blades for the U.S. health care markets under the Personna
registered brand name to customers including Allegiance Health Care, General
Medical and Owens & Minor. In 1996, these products generated net sales of
$16.5 million.
The Company intends to strengthen its relationships with retailers who
carry value-brand and private-brand consumer products by expanding its
offerings of personal care products. Consistent with this strategy, the
Company acquired Megas Beauty Care, Inc. ("Megas") on June 10, 1994, and
Sterile Products Corporation, d.b.a. Absorbent Cotton Company ("ACCO") on
March 3, 1995. During March 1996, Megas Beauty Care, Inc., was merged into
Absorbent Cotton Company ("ACCO") and ACCO changed its name to Megas Beauty
Care, Inc. ("Megas"). Megas manufactures cotton swabs, cotton balls, puffs,
cosmetic pads, pharmaceutical and beauty coils, pocket tissue, and foot care
products. As a result, the Company believes it is currently one of the
largest private-brand manufacturers of fiber and foot care products in the
United States. For 1996, Megas had net sales of $55.8 million. The products
of Megas are both sold under retailers' private-brand names as well as the
Company's own value-priced Megas registered, Crystal registered and ACCO
registered brands.
The Company believes it is a leading domestic manufacturer of
<PAGE> 1
cosmetic/skin care, bath, pharmaceutical and specialty custom bar soaps.
These products, which generated 1996 net sales of $33.2 million, are
marketed primarily under customers' private brands and also under the
Company's brand names such as Kensington registered, Lavender & Old Lace
registered and Sandalwood registered.
Operating Strategy
The Company's operating strategy is founded in four key areas:
- Capitalize on the growing demand for private-brand and value-brand
personal care products. The Company believes that private-brand and
value-brand products generally offer higher margins to retailers
and significant savings to consumers over premium-brand products.
To continue to increase its sales of private-brand and value-brand
products, the Company is focusing on developing its partnerships
with major retailers, developing product line extensions that build
on the Company's reputation for high quality products, expanding
its package design capabilities and marketing support, and
expanding the Company's existing distribution channels. This
strategy has led in part to the growth in sales of the Company's
private-brand and value-brand shaving blade and razor products to
$114.4 million in 1996.
- Increase penetration of markets currently served and enter new
markets. The Company's efforts to increase market penetration are
focused on international markets for shaving blades and razors
which are estimated to be approximately three times the size of the
United States market. The Company intends to continue to increase
the international sales of its shaving blade and razor products
through its existing strategy of developing distributors in
selected target markets, expanding its sales base in established
markets through local sales offices and improving its cost-
competitiveness in more mature markets through local manufacturing
activities and increased local promotion. Consistent with this
strategy, the Company acquired Bond on March 29,1996, which has a
manufacturing facility located in Nazareth Illit, Israel. The
Company's international net sales (including export sales and sales
within Puerto Rico) were $46.7 million in 1996.
- Develop or acquire new products and product line extensions. The
Company is focusing its product development efforts on designing
new products and product line extensions that build on the
Company's reputation for high quality products, packaging and
service, and which utilize the Company's existing distribution
channels. Recent examples are the Company's introduction of the
LegMate Therapy trademark line of sensitive skin shaving products
for women, the Company's patented moving blade cartridge, a shaving
system sold under the MBC trademark trade name which has its own
handle and fits the Sensor registered handle manufactured by The
Gillette Company ("Gillette"), the introduction of the Lady MBC
trademark shaving system, the addition of Burma Shave registered
line extensions including a mug, a mug and soap set, a mug, soap
and brush set, a handle and cartridge and a cartridge pack, and the
Bump Fighter registered shaving system, with its accessories line,
including a shaving gel, cleanser, beard relaxer and skin
conditioner, designed to meet the shaving needs of African-American
men. The Company is currently relaunching the Bump Fighter
registered line of shaving products which includes, new packaging
and the addition of a treatment mask and reformulated aftershave
skin conditioner. Burma Shave registered is also being relaunched
to the mature shaving market to include a shaving cream and
aftershave skin conditioner. The Company is also introducing the
Revlon Perfect Finish trademark female shaving system which
combines innovation and functionality with the Revlon registered
brand name to revolutionize the way women shave. The Company sells
its shaving blades and razors under a number of nationally
recognized names. The Company believes that it can increase sales
of its shaving blades and razors by introducing additional brand
name niche products which can be sold through its existing sales
and distribution channels. By concentrating on niche markets, the
Company believes it will be able to compete more effectively with
its larger competitors. In addition, the Company has expanded its
product offerings by entering into the fiber and foot care products
market through the acquisitions of Megas. The Company intends to
leverage its existing distribution strengths and shelf space with
retailers who carry private-brand products to provide incremental
distribution for these personal care consumer products.
The Company is also expanding sales of its consumer bladed hand
tools and blades to home-improvement centers and hardware chains by
introducing new products and improved packaging. Several large,
national home-improvement centers and hardware chains offer the
Company's bladed hand tools and blades as one of their featured
lines in this class of merchandise.
<PAGE> 2
- Reduce operating costs and improve productivity. The Company has
implemented several programs to reduce operating costs and increase
productivity and efficiency. The Company operates an efficient, low
cost manufacturing and packaging operation for shaving blades and
razors in Obregon, Mexico, which has resulted in significant
savings to the Company, primarily as a result of lower payroll
costs. In addition, the Company is continuing to invest capital
resources to improve productivity, efficiency and operating
capabilities as evidenced by (i) the late 1996 expansion of
manufacturing capacity in Obregon, Mexico, (ii) the purchase in
July 1995, of a new manufacturing/distribution facility in
Knoxville, Tennessee and in 1996, the conversion of this facility
to a fully integrated shaving blades and razors manufacturing
operation, (iii) the completion in 1996 of the expansion of
synthetic soap manufacturing capabilities in a new manufacturing
facility in Columbus, Indiana, and (iv) the planned integration in
1997 of the industrial blade business into a single facility in
Verona, Virginia while closing manufacturing facilities in Union
and Maplewood, New Jersey. In addition, the Company continues to
institute a total quality management program and invest a
significant portion of its capital resources in labor-saving
equipment and employee training.
Through the implementation of its operating strategy, the Company has
maintained strong cash flow growth and increased net sales. For 1996, the
Company's net sales grew to $260.6 million and EBITDA grew to $43.9 million.
EBITDA for any relevant period represents operating income plus
depreciation, amortization of goodwill and other intangibles, restructuring
expenses and litigation settlements.
Products
The following table sets forth net sales and percentage of total net
sales by class of products for the years ended December 31, 1996, 1995 and
1994. Information with respect to industry segments is presented on page 36
of this Report.
<TABLE>
1996 1995
---------------- ------------------
(In millions)
<S> <C> <C> <C> <C>
Shaving blades and razors (1) $114.4 43.9% $ 97.1 42.2%
Bladed hand tools and blades 40.7 15.6 39.2 17.0
Industrial and specialty and
medical blades 16.5 6.4 15.8 6.8
------ ----- ------ -----
Total 171.6 65.9 152.1 66.0
Fiber and foot care (2) 55.8 21.4 48.7 21.1
Custom bar soap 33.2 12.7 29.7 12.9
------ ----- ------ -----
Total $260.6 100.0% $230.5 100.0%
------ ----- ------ -----
------ ----- ------ -----
1994
---------------
(In millions)
Shaving blades and razors $ 92.0 47.8%
Bladed hand tools and blades 39.5 20.5
Industrial and specialty and
medical blades 13.9 7.2
------ -----
Total 145.4 75.5
Fiber and foot care (2) 18.7 9.7
Custom bar soap 28.5 14.8
------ -----
Total $192.6 100.0%
------ -----
------ -----
(1) The year ended December 31, 1996, includes net sales of Bond of $11.2
million since its March 29, 1996, acquisition date.
(2) The year ended December 31, 1995, includes net sales of ACCO of $16.6
million since its March 3, 1995, acquisition date and the year ended
December 31, 1994, includes net sales of Megas of $18.7 million since its
June 10, 1994, acquisition date.
</TABLE>
Shaving Blades and Razors. The Company designs, manufacturers and markets a
full line of shaving blades and razors, including single-edge, double-edge
and injector blades, twin-blade fixed and pivoting head cartridges,
disposables, single-edge razors, women's shaving razors and special purpose
shaving blades. During the fourth quarter of 1994 the Company launched its
patented moving blade cartridge, a shaving system sold under the MBC
trademark trade name which has its own handle and fits the Sensor registered
handle manufactured by Gillette. The product's patents cover the design and
engineering that give this cartridge's two blades their unique flexing and
flow-through capabilities which provides for a close and comfortable shave.
This innovative shaving system is being sold through both the Company's
private-brand and branded products distribution channels. The Company
provides both total shaving systems and components which can be used alone
or with most other nationally-recognized premium brands. These shaving
products are marketed under the Company's own brands (i.e., Personna
registered, GEM registered, Flicker registered, Legmate registered, Bump
Fighter registered, Burma Shave registered, Treet registered, GEM Blue Star
registered, Pal registered, MBC trademark and Royal trademark) or under the
store brands of the Company's private-brand shaving blade and razor
customers.
Bladed Hand Tools and Blades. The Company designs, manufactures and markets
bladed hand tools and blades, such as single edge blades, paint scrapers,
utility blades and knives and carpet blades and knives primarily under its
Personna registered, American Line trademark and Ardell trademark brand
<PAGE> 3
names. The majority of the Company's bladed hand tools and blades are sold
to retail customers through home-improvement centers, retail paint chains
and hardware stores and to professionals through wholesalers, distributors
and specialty supply jobbers.
Industrial and Specialty and Medical Blades. The Company designs,
manufactures and markets disposable blades for both the industrial and
medical markets. Although the industrial and specialty blade market is large
and diverse, the Company's products are specially designed for niche
industrial applications. These industrial and specialty blades perform many
of the cutting, slicing or chopping functions involved in manufacturing
processes employed by a variety of industries including food processing,
fiber cutting, automotive and printing. The Company manufactures and markets
carbon and stainless steel surgical blades, disposable scalpels and surgical
prep blades for the U.S. health care markets under the Personna registered
brand name.
Fiber and Foot Care. The Company believes it is one of the largest private-
brand manufacturers and distributors of cotton swabs, cotton balls and puffs
and cotton cosmetic pads. In addition, the Company also manufactures
pharmaceutical and beauty coils and foot care products. All of the foregoing
products are sold under retailers' private-brand names as well as the
Company's own value-priced brands Megas registered, Crystal registered and
ACCO registered. The Company believes that it is one of the few large fiber
and foot care products manufacturers and distributors which can bleach its
own products--a process integral to the production of cotton products.
Custom Bar Soap. The Company manufacturers custom designed and formulated
bar soap for sale to the broad variety of pharmaceutical, cosmetic/skin-care
and department store customers, primarily under such customers' own brand
names. The Company's flexible manufacturing equipment, product design and
development capabilities and reputation for high quality allow it to compete
successfully in all major custom bar soap market segments. The Company also
develops and markets seasonal gift soap products.
Sales and Marketing
The Company utilizes internal sales and marketing resources, as well
as third party distributors and manufacturer's representatives, to market
its product lines. The Company's sales personnel receive a fixed salary plus
a bonus based on sales performance or Company earnings.
The Company's brand-name and private-brand shaving blades and razors
and fiber and foot care products are sold through mass-merchandise, drug and
supermarket chains. The Company's sales of consumer health and beauty care
products is managed by a senior vice president who oversees a number of
division vice presidents of sales and related personnel. Marketing support
for the brand-name shaving blades and razors and fiber and foot care
products focuses on media advertising, direct mail advertisements, temporary
price reductions and point of sale promotions. To assist stores in promoting
their private-brand shaving blades and razors and fiber and foot care
products, the Company helps customers develop customized marketing programs,
including managing product introductions and promotional planning support.
In addition, such merchandising vehicles as trial size programs, floor
displays, point of purchase advertising, bonus sizes, coupons, rebates,
store signs and promotional packs are available and incorporated into
individual customers' programs. The Company also provides customers with
market research to assist the customer in determining the effectiveness of
various marketing programs.
The Company's shaving blades and razors international sales effort is
headed by a vice president who reports to the senior vice president. The
vice president of international sales directs daily activities through group
managers responsible for specific geographic regions. The Company uses a
variety of sales strategies and organizations, depending upon the specific
country to sell its products. The Company has a manufacturing and packaging
facility in Mexico, a manufacturing, warehousing and packaging facility in
Nazareth Illit, Israel, warehousing and packaging operations in Puerto Rico
and the United Kingdom, and warehousing facilities in Canada to further its
penetration in those markets.
The Company sells bladed hand tools, blades and industrial and
specialty blades to home-improvement centers, retail paint chains and
hardware stores, to original equipment manufacturers and to distributors,
who in turn sell to the professional trades. The Company's sales effort for
these products is overseen by a vice president, a general manager in Europe
and a director of domestic sales.
<PAGE> 4
The Company distributes medical blades to hospitals, nursing homes,
doctors' offices and other health care practitioners. The Company's medical
blade sales efforts are headed by a vice president who oversees a number of
regional managers. The Company focuses its medical blade marketing efforts
through targeted trade journal advertising, direct mail promotions, medical
trade shows and a volume rebate program.
The Company's soap sales effort is headed by a sales and marketing
vice president who oversees a number of sales people and national account
representatives who work with customers to custom design soap products and
programs. The Company also utilizes manufacturers' representatives to sell
its products to customers in the hospitality industry, such as hotels, and
to market its line of industrial and corporate promotional products.
Manufacturing
The Company is a fully integrated manufacturer performing all aspects
of the manufacture of shaving blades and razors, blades for use with bladed
hand tools and industrial and specialty and medical blades from metal
forming and plastic injection molding to assembly and packaging. Blades are
manufactured at the Company's facilities in Verona, Virginia, Knoxville,
Tennessee, and Nazareth Illit, Israel. The Company operates a low-cost,
highly efficient injection molding, flexible packaging and assembly facility
in Obregon, Mexico and is presently increasing capacity at this facility. In
July 1995, the Company purchased a new facility in Knoxville, Tennessee. The
Company has completed the first full year of a three-year manufacturing
integration plan to manufacture, mold, assemble and package shaving blades
and razors at this facility. In addition, the Company is presently
integrating its industrial blade business into a single facility in Verona,
Virginia, and is closing its manufacturing facilities in Union and
Maplewood, New Jersey.
Proprietary manufacturing processes allow the Company to produce a
wide variety of products of different quantities, sizes and packaging while
maintaining a high level of quality. The Company is continually working to
improve its blade making productivity by adding new technologies and/or
manufacturing processes, i.e., improved grinding, slitting or automatic
package loading. Most of the processes which the Company uses to manufacture
products are unique and proprietary.
The production of the Company's fiber and foot care products starts
with the receipt of cotton fibers in bales. The cotton is bleached, either
internally or through the use of contract bleachers. Once the cotton has
been bleached, the cotton is processed into yarn which is then used either
in the production of (i) cotton balls, (ii) cotton swabs, (iii) cotton pads,
or (iv) other cotton products. The Company's fiber and foot care products
are manufactured at its facilities in Cleveland, Ohio, Valley Park,
Missouri, and Sparks, Nevada.
The manufacture of soap is a specialized process which involves the
reaction between tallow (animal fat), vegetable oil or a fatty acid with a
caustic substance (called an alkaline) and water. The resulting soap mixture
is then treated with additives to decrease the harshness of the substance
and to give the soap functional or cosmetic applications. The Company has
the ability to produce soap through four different manufacturing processes,
producing a variety of soap products with different characteristics. The
Company manufactures soap in its Dayton, Ohio and Columbus, Indiana
facilities.
Raw Materials
The principal raw materials used by the Company in the manufacturer of
blade products are stainless and carbon steel, plastics and packaging
supplies, all of which are normally readily available in the marketplace.
While all raw materials are purchased from outside sources, the Company is
not dependent upon any single supplier in its operations for any materials
essential to its business or not otherwise commercially available to the
Company. The Company has been able to obtain an adequate supply of raw
materials, and no shortage of raw materials is currently anticipated.
The principal raw materials used by the Company in the manufacture of
its fiber and foot care products include cotton fiber, plastic and paper
sticks for cotton swabs, foam insoles and packaging supplies. The Company
has developed several different qualified sources for its key material
requirements. The Company bleaches cotton for the majority of its production
requirements. The Company also maintains a relationship with several
qualified sources for additional contract bleaching. The prices of certain
of the raw materials purchased by Megas are subject to commodity price
volatility, particularly with respect to cotton fiber and paper sticks,
which may affect profitability of the Company's fiber and foot care
products. The Company has been able to obtain an adequate supply of high
<PAGE> 5
quality raw materials, and no shortage of raw materials is currently
anticipated.
The principal raw materials used by the Company in the manufacture of
its custom bar soap products are tallow, various chemicals, coconut oil,
fatty acids, fragrances and packaging supplies. The prices of certain of the
raw materials used by the Company, such as coconut oil and fatty acids, are
volatile, which may affect the profitability of the Company's soap products.
The Company has been able to obtain an adequate supply of high quality raw
materials, and no shortage of raw materials is currently anticipated.
Competition
The shaving blade and razor market is competitive and sensitive to
changing consumer preferences and demands. The Company's principal
competitors in the shaving blade and razor market are Gillette, the Schick
Division of Warner-Lambert and Societe Bic, S.A. These competitors are
substantially larger and have substantially greater resources than the
Company.
The Company is the leading producer of value-brand and private-brand
shaving blades and razors in the United States where the Company's primary
competitors are smaller, privately held companies. Periodically, one of the
premium-brand shaving blade and razor manufacturers mentioned above attempts
to compete with the Company by lowering prices or entering the private-brand
market. The Company believes that it is unlikely that a new shaving blade
and razor manufacturer will appear in the near future given the proprietary
nature of the manufacturing processes used by the Company and each of its
competitors.
In the bladed hand tools and blades and industrial and specialty
blades markets, competition is based on quality, price and customer service.
The Company believes that it competes favorably on these bases and is a
leading producer of bladed hand tools and blades and industrial and
specialty blades in the United States. The Company has a number of smaller
competitors in bladed hand tools and blades such as I.B.U. and U.S. Blades.
The medical blade market is dominated by a division of Becton Dickinson and
Company.
Megas competes in private-brand cotton swabs, cotton balls, puffs,
cotton cosmetic pads, pharmaceutical and beauty coils and foot care
products, on the basis of producing equal or better quality products than
the national brand equivalents and offering a complete program of products
in both private-brand and value-brand products. The market for these
products is highly competitive, often attracting large national brand
manufacturers seeking to add incremental private-brand business. Kimberly-
Clark, in particular, has become very active in the private-brand pocket
tissue category. In addition, companies such as Chesebrough-Pond's, Johnson
& Johnson and Dr. Scholl's are continually re-investing in their premium
brands, partly in an attempt to reclaim market share lost to private-brand
and value-brand products.
The custom bar soap market is very fragmented with numerous
participants, some of which have greater resources than the Company.
Competition in the custom bar soap market is based primarily on quality,
price and customer service.
Other Factors Affecting the Business of the Company
Trademarks and Patents
The Company owns all of the rights to the large number of trademarks used
in its blade, fiber and foot care and soap businesses. Such trademarks
include, among others, "Personna", "MBC", "GEM", "Flicker", "Bump Fighter",
"Burma Shave", "Megas", "Crystal", "ACCO", "Kensington", "Lavender & Old
Lace", and "Sandalwood". Trademarks are registered in the United States and
in many other countries, and the Company considers such trademarks, in the
aggregate, to be material to its business. In addition, the Company owns
various patents and licenses related to the design and manufacture of
certain of its products. The Company considers such patents to be important
to its business, and the "MBC" patent is considered material to the conduct
of the Company's business. There are no trademarks, patents or licenses
expiring in 1997 which the Company expects would have a material effect on
its business.
The Company considers many of the processes which it uses to
manufacture its products unique and proprietary. The Company has not,
however, applied for patent or copyright protection for any of these
processes. The Company relies on non-disclosure and non-compete agreements
with many of its employees and with the former owners of the Company's
predecessor to protect its proprietary rights in these patents, licenses and
<PAGE> 6
processes.
Employees and Labor Relations
As of December 31, 1996, the Company employed approximately 2,100
people worldwide, of which approximately 1,635 were hourly employees.
Four collective bargaining agreements cover certain of the Company's
employees: the first, at the Verona, Virginia plant, covers 390 employees
and expires on September 25, 2000; the second, at the Company's Dayton, Ohio
plant, covers 180 employees and expires on March 24, 1999; the third, at the
Company's St. Louis plant, covers 160 employees and expires on September 1,
1999, and the fourth at the Company's Nazareth Illit, Israel plant, covers
160 employees and expires on April 1, 1999. In addition to the foregoing
employees, the Company employs an aggregate of 745 hourly employees at its
Knoxville, Tennessee; Union, New Jersey; Maplewood, New Jersey; Cleveland,
Ohio; Sparks, Nevada; Nottingham, England; Obregon, Mexico; and San Juan,
Puerto Rico facilities, none of whose employees is covered by a collective
bargaining agreement. The Company considers its relations with its employees
to be satisfactory.
Past Litigation
In January 1991, the Company was named as a defendant in a patent
infringement suit filed by Warner-Lambert regarding the Company's alleged
use of a water soluble lubricating strip on certain of its shaving products
(the "Patent Litigation"). The suit was settled pursuant to the Settlement
Agreement in June 1992, after an unfavorable judgment had been rendered
against the Company. As part of the Settlement Agreement, the Company is
permitted to manufacture and sell throughout the world razor blade
cartridges with lubricating strip attachments. In return for this right and
as settlement for all past practices, the Company agreed to pay Warner-
Lambert $12.0 million over 4 1/2 years. In addition, the Company was
required to make certain accelerated payments if, among other things, the
unit sales volume of affected products exceeded certain benchmark levels. As
a consequence, the Company made accelerated payments of $0.3, $0.4 million,
$1.1 million and $1.6 million on March 31, 1993, March 31, 1994, March 31,
1995, and March 31, 1996, respectively. As part of the Settlement Agreement,
Warner-Lambert and the Company released each other from any claims that were
or could have been raised in the Patent Litigation. In addition, in October
1991, the Company obtained, in relation to the Patent Litigation, a non-
exclusive license to certain patent rights in exchange for the payment of
$1.4 million, all of which was paid by March 31, 1994. In October 1996, the
Company made its final payment under the Settlement Agreement and there are
no other liabilities or obligations to be incurred under the Settlement
Agreement.
Environmental Matters
The Company is subject to various federal, state and local
environmental laws and regulations and the environmental laws and
regulations of the various foreign jurisdictions in which the Company does
business. The Company anticipates that such laws and regulations will become
increasingly stringent in the future.
In December 1986, the Company entered into a Special Order with the
predecessor agency of the Virginia Department of Environmental Quality
("VDEQ") pursuant to which the Company agreed to investigate and cleanup
groundwater contamination at the Company's Verona, Virginia razor blade
manufacturing facility. Pursuant to a plan of remediation approved by the
VDEQ's executive director on February 18, 1988 and fully implemented in
1989, the Company built and currently operates a groundwater treatment
facility to treat the contaminated groundwater. The Company regularly
monitors the level of contamination in the groundwater. The Company is not
presently aware of any additional contamination that is required to be
remediated at this time at the Verona site.
In October 1996, as a result of a review of safety and environment
compliance at its razor blade manufacturing facility in Verona, Virgina, the
Company discovered that modifications to the facility in 1994 may have
violated federal and state air regulations. A federal rule adopted in
December 1994, regulates the emissions of the trichloroethylene used in
twenty-four blade cleaners attached to the Company's razor blade grinders.
It required the submission of notices by January 31, 1995, to the United
States Environmental Protection Agency ("EPA") from facilities with solvent
cleaning machines and imposed emissions standards. Halogenated solvent
<PAGE> 7
cleaning machines for which construction commenced after November 1993, were
to comply with the emissions controls by December 1994. Existing machines
are to comply with the control requirements by December 1997. The Company's
compliance review revealed that two of the blade cleaners had been installed
in 1994 without the new machine air emission controls and without obtaining
additional air permits. The review also revealed that although the Company
had submitted notice of the new and existing blade cleaners as sources of
trichloroethylene to the VDEQ it had not notified the EPA. Promptly upon
learning of the situation the Company reported it to the EPA. The Company's
report to the agencies enclosed the federal notices for the blade cleaners
and announced a compliance plan for the two blade cleaners installed in
1994. The plan commits the Company to attempt the early installation of the
facility wide solvent vapor recovery system to meet the December 1997
deadline for controlling emissions from the existing blade cleaners. The
early control of the twenty-four machines should result in a net
environmental benefit. Conversations with the EPA indicate that it is
considering initiating an administrative enforcement action. However, the
Company believes that its prompt, voluntary notification of the EPA coupled
with its environmentally beneficial compliance plan should mitigate any
administrative penalty the agency might seek through operation of EPA's
"Voluntary Disclosure Policy".
When the Company purchased the Maplewood, New Jersey facility as part
of the Ardell acquisition, the Company and the previous owners of Ardell
entered into an Administrative Consent Order on March 31, 1989 with the New
Jersey Department of Environmental Protection and Energy ("NJDEPE") pursuant
to which the previous owners of Ardell agreed to perform soil and
groundwater remediation under the New Jersey Environmental Cleanup and
Responsibility Act. Through September 1996, the previous owners had assumed
full financial and oversight responsibility for remediation of the site. At
that time, in settlement of claims by Ardell under its insurance policies
with Federal Insurance Company covering the periods March 6, 1979 to March
6, 1987, the Federal Insurance Company assumed primary financial and
oversight responsibility for the remediation. The estimated costs to
complete the remediation of approximately $0.6 million are being borne by
Federal Insurance Company and the previous owners of Ardell. The previous
owners have posted the requisite financial assurance bond with NJDEPE
securing such remediation obligations and have provided the Company with
evidence of having obtained the bond. They also agreed to the delay of
payments totaling approximately $1 million due them by the Company under the
acquisition agreement for Ardell until such time as the remediation achieves
certain defined benchmarks. The first partial principal payment of $0.3
million has been paid leaving $0.7 million still owed them by the Company.
The Company has the right to offset these amounts against any costs incurred
to ensure remediation. Additionally, as security, a letter of credit was
obtained by the sellers in favor of NJDEPE in the amount of $0.6 million
which remains intact. The Company has incurred only limited costs to date
regarding this matter and does not expect to incur any material future
costs.
In the late 1970's when Hewitt was owned by Procter and Gamble
("P&G"), Hewitt allegedly deposited soap products, wrappers and cartons at
the Cardington Road landfill, a Superfund site located in Moraine, Ohio. The
Company believes that the materials sent to the landfill by Hewitt did not
contain any "hazardous substances" as defined by the EPA. P&G defended
Hewitt's rights in this action since the first notice was received from the
EPA in 1987. The 1980 acquisition agreement relating to Hewitt provides that
P&G must hold the Company and Hewitt harmless from any litigation or
governmental agency actions that arise out of the operations of Hewitt prior
to closing. P&G defended Hewitt, although it had notified the Company that
it interpreted the indemnity to require indemnification only for material
judgments. P&G's defense efforts were limited to responding to EPA requests
for information and discussions with other potentially responsible parties.
Neither P&G nor Hewitt have been made party to the investigation and
cleanup. The sole involvement of the Company was to oversee P&G's defense
efforts, which involved only limited costs. In 1996, the Cardington Road
Coalition (a group of companies that agreed to clean up the site) (the
"Coalition") through a Consent Decree and an indemnification agreement
released the Company from all claims for a payment of approximately $26,000
($13,000 of which was paid by P&G). The Company signed the Consent Decree
which was approved by the United States District Court for the Southern
District of Ohio on August 12, 1996. The Decree releases the Company from
all claims associated with the Cardington Road landfill, except for
potential natural resource damage claims. The agreement to indemnify and
defend the Company from any future natural resource damage claims was signed
by the member companies of the Coalition (General Motors Corporation,
Tremont Landfill Company, NCR Corporation, Bridgestone/Firestone, Inc.) and
took effect March 13, 1996.
The Valley Park, Missouri plant facility of the Company's Megas
subsidiary, which was acquired on March 3, 1995, is located on a parcel of
land which is the subject of a CERCLA investigation. This investigation is
being undertaken in response to a release of "hazardous substances" from
upgradient industries. The affected area, which includes the groundwater
beneath a segment of the plant site, has been found to be contaminated by
various chlorinated solvents including trichloroethylene (TCE) and
trichloromethane (TCA). The contaminated aquifer had been the source of
municipal water supply wells. The results of a limited remedial
investigation completed for EPA and the State of Missouri in January 1988,
indicate that the source of the TCE contamination was located to the
<PAGE> 8
northwest of the Megas facility. The EPA and the State subsequently
developed a remediation plan to address the TCE contamination and have
executed a Consent Order with a potentially responsible party to implement
the plan. The focus of their investigation has now turned to the remediation
of the TCA contamination which the limited remedial investigation concluded
was originating west southwest of the Megas facility between Marshall Road
and the Merrimac River. Megas does not use or have records of having used
the identified "hazardous substances" in its facility and has not been found
to be a potentially responsible party. The Company has reviewed the EPA
limited remediation investigation report and performed limited soil gas
analysis on site. The results of the testing did not indicate soil
contamination that could have contributed to the underlying plume. Based on
the Company's investigation to date, results of the soil gas analyses
performed on site, and discussions held with the Missouri Attorney General's
office, the Company believes that it is unlikely that Megas will be
identified as a potentially responsible party in connection with the EPA
Superfund site. In the unlikely event that the Company is identified as a
potentially responsible party, the sellers of Megas have agreed to indemnify
the Company, until March 3, 2000, for certain environmental matters,
including costs incurred in connection with the Valley Park site, in an
amount not to exceed $300,000.
The Company, after consultation with its advisors, does not believe
that any of these matters will have a material effect on the Company's
consolidated financial position or results of operations, regardless of any
claims to indemnification.
<PAGE> 9
ITEM 2 - Properties
As of February 26, 1997, the Company owned or leased the following
facilities:
Approximate
Products Location Type of Facility Square Feet
-------- -------- ----------------- -----------
Shaving blades Verona, Virginia Manufacturing, 307,000
and razors, packaging,
bladed hand distribution,
tools and blades sales and
and industrial corporate
and specialty and
medical blades Nottingham, Packaging, 25,000
United Kingdom distribution
and sales
Knoxville, Manufacturing, 125,000
Tennessee packaging
and distribution
San Juan, Manufacturing, 26,000
Puerto Rico packaging,
distribution
and sales
Obregon, Mexico Manufacturing, 94,000
packaging and
distribution
Nazareth Illit, Manufacturing, 85,000
Israel packaging,
distribution
and sales
Bladed hand
tools and Union, New Jersey Manufacturing, 40,000
blades and packaging
industrial and distribution
and specialty
blades Maplewood, Packaging 15,000
New Jersey
Fiber and foot care Cleveland, Ohio Manufacturing, 123,000
packaging,
distribution
and sales
Valley Park, Manufacturing, 107,000
Missouri packaging,
distribution
and sales
Fenton, Missouri Distribution 42,000
Sparks, Nevada Manufacturing, 36,000
packaging,
and distribution
Soap Dayton, Ohio Manufacturing, 270,000
packaging,
distribution
and sales
Columbus, Indiana Manufacturing, 20,000
packaging,
distribution
and sales
Owned or
Products Location Type of Facility Leased
-------- -------- ---------------- --------
Shaving blades Verona, Virginia Manufacturing, Owned
and razors, packaging,
bladed hand distribution,
tools and blades sales and
and industrial corporate
and specialty and
medical blades Nottingham, Packaging, Leased
United Kingdom distribution
and sales
Knoxville, Manufacturing, Owned
Tennessee packaging
and distribution
San Juan, Manufacturing, Leased
Puerto Rico packaging,
distribution
and sales
Obregon, Mexico Manufacturing, Leased
packaging and
distribution
Nazareth Illit, Manufacturing, Leased
Israel packaging,
distribution
and sales
Bladed hand
tools and Union, New Jersey Manufacturing, Leased
blades and packaging
industrial and distribution
and specialty
blades Maplewood, Packaging Owned
New Jersey
Fiber and foot care Cleveland, Ohio Manufacturing, Leased
packaging,
distribution
and sales
Valley Park, Manufacturing, Owned
Missouri packaging,
distribution
and sales
Fenton, Missouri Distribution Leased
Sparks, Nevada Manufacturing, Leased
packaging,
and distribution
Soap Dayton, Ohio Manufacturing, Owned
packaging,
distribution
and sales
Columbus, Indiana Manufacturing, Leased
packaging,
distribution
and sales
Lease
Termination
Products Location Type of Facility Date
-------- -------- ---------------- -----------
Shaving blades Verona, Virginia Manufacturing,
and razors, packaging,
bladed hand distribution,
tools and blades sales and
and industrial corporate
and specialty and
medical blades Nottingham, Packaging, September 1997
United Kingdom distribution
and sales
Knoxville, Manufacturing,
Tennessee packaging
and distribution
San Juan, Manufacturing, June 2000
Puerto Rico packaging,
distribution
and sales
Obregon, Mexico Manufacturing, April 2006
packaging and
distribution
Nazareth Illit, Manufacturing, July 2002
Israel packaging,
distribution
and sales
Bladed hand
tools and Union, New Jersey Manufacturing, April 1997
blades and packaging
industrial and distribution
and specialty
blades Maplewood, Packaging
New Jersey
Fiber and foot care Cleveland, Ohio Manufacturing, February 1999
packaging,
distribution
and sales
Valley Park, Manufacturing,
Missouri packaging,
distribution
and sales
Fenton, Missouri Distribution June 1999
Sparks, Nevada Manufacturing, November 1998
packaging,
and distribution
Soap Dayton, Ohio Manufacturing,
packaging,
distribution
and sales
Columbus, Indiana Manufacturing, September 2005
packaging,
distribution
and sales
The Company supplements its distribution capabilities through public
warehouse facilities. In addition, the Company uses contract packagers in
selected domestic and international markets. The Company believes that the
variety of domestic and international locations give the Company operating
flexibility.
The Company considers all of its facilities to be in good operating
condition and adequate for their present purposes. The Company's production
facilities are capable of being utilized at a higher capacity to support
increased demand, if necessary.
<PAGE> 10
ITEM 3 - Legal Proceedings
The Company is party to routine litigation incidental to the conduct
of its business, the disposition of which is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
ITEM 4 - Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of stockholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1996.
Executive Officers of the Registrant
Set forth below are the executive officers of the Company as of March
3, 1997, their ages, positions, and a description of their business
experiences for the last five years. Except for Mr. Heim, Mr. Paterson, Mr.
Piron and Mr. Van Noy, all of the below named executive officers have been
employees of the Company for more than the last five years.
Name Age Position with Company
Thomas H. Quinn 49 Chairman and Chief Executive Officer
William C. Weathersby 55 President, Chief Operating Officer
James V. Heim 43 Senior Vice President - Consumer and Personal
Products
Thomas G. Kasvin 49 Senior Vice President - Chief Financial Officer
H. Vincent Nelson 52 Vice President - Branded Products
John W. Paterson 54 Vice President - Medical
George L. Pineo 62 Vice President - International, Shaving
Michael J. Piron 56 Vice President - Technical and Logistics
Operations
William L. Robbins 55 Vice President - Private-Brand, Shaving
Gary S. Wade 47 Vice President - Industrial
Jack Van Noy 65 President - Megas Beauty Care, Inc.
Mr. Quinn became Chairman of the Board of Directors of the Company in
April 1989, in connection with the acquisition of the Company. Since 1988,
Mr. Quinn has been President, Chief Operating Officer and a director of
Jordan Industries, Inc., a diversified industrial holding company, and
Chairman of the Board and Chief Executive Officer of Welcome Home, Inc., and
a director of Ameriking, Inc., and Motors and Gears, Inc.
Mr. Weathersby joined the Company in January 1990, and has served as
President and a director since that time. Prior to joining the Company, Mr.
Weathersby held senior executive positions with Revlon Health Care and
Squibb Corporation. From 1985 through 1989, Mr. Weathersby was Group
President, Squibb Corporation, and a member of its Executive Committee.
Mr. Heim joined the Company in June 1996, and has served as Senior Vice
President - Consumer and Personal Products since that time. From November
1985 through May 1996, Mr. Heim held various executive positions with
Maybelline Corporation. From September 1994 through May 1996, Mr. Heim was
General Manager of Maybelline Canada, Inc./The Yardley Company, and from
January 1992 through August 1994, he was Senior Vice President, Maybelline
Sales.
Mr. Kasvin joined the Company in August 1991, and has served as Vice
President - Chief Financial Officer since that time until August 1996, when
he became Senior Vice President - Chief Financial Officer. From May 1982
through July 1991, Mr. Kasvin was corporate controller for the Marmon Group,
a privately held, diversified manufacturing company.
Mr. Nelson has been Vice President - Branded Products of the Company
since January 1994. From June 1983 until July 1994, Mr. Nelson served as
National Sales Manager of Branded Products. Prior to joining the Company,
Mr. Nelson held various sales and sales management positions with The
Gillette Company and Mennen Company.
<PAGE> 11
Mr. Paterson joined the Company in July 1993, and has served as Vice
President - Medical since that time. From 1990 through 1992, Mr. Paterson
served as Vice President, Marketing and Sales of Cryomedical Sciences. Prior
to that time, Mr. Paterson held various sales and marketing positions where
he was responsible for the marketing of medical devices with Johnson &
Johnson and Abbott Laboratories.
Mr. Pineo has been Vice President - International, Shaving of the
Company since 1984. Prior thereto, he was employed by The Gillette Company
in various engineering, marketing, manufacturing and general management
positions in Puerto Rico, Mexico, Columbia, Chile and Australia.
Mr. Piron has been Vice President - Technical and Logistics Operations
of the Company since January 1994. Prior to joining the Company, Mr. Piron
was Vice President of Operations for the Consumer Products Group at Bristol
Myers Squibb. From 1963 through 1987, Mr. Piron held various manufacturing
and logistics positions in consumer products with Johnson & Johnson, Warner-
Lambert and Hoechst Celanese.
Mr. Robbins has been Vice President - Private-Brands, Shaving of the
Company since 1983 and has been employed by the Company since 1973. Prior to
joining the Company, Mr. Robbins held various positions with Chesebrough-
Pond's and Johnson & Johnson.
Mr. Wade has been employed in various sales positions in the Company's
industrial blade division since 1978. In 1990, Mr. Wade was appointed Vice
President - Industrial. Prior to joining the Company, Mr. Wade was employed
in various sales positions by Philip Morris U.S.A.
Mr. Van Noy, President of Megas Beauty Care, Inc., joined the Company
on March 3, 1995, in connection with the acquisition of ACCO by the Company.
Mr. Van Noy joined ACCO in 1979 as its President following a career at
American Hospital Supply Corporation. Starting as a territory salesman at
American Hospital Supply Corporation, Mr. Van Noy held various management
positions including vice president of American Pharmaseal and managing
director of American Hospital Supply Europe with reporting responsibility
for seven business units.
PART II
ITEM 5 - Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock, par value $.01 per share (the "Common
Stock") is traded in the over-the-counter market and has been included in
the NASDAQ National Market under the symbol "RAZR" since the Company's Form
S-1 registration statement relating to the initial public offering of its
Common Stock became effective on June 8, 1993. Information with respect to
market prices of the Common Stock for each of the quarters in 1995 and 1996
is presented under Item 8 of this Report.
As of February 26, 1997, the Company's shares of Common Stock were held
by approximately 2,400 shareholders of record (including brokers, dealers,
banks and other nominees participating in The Depository Trust Company).
The Company has not paid and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. From time to time,
the Board of Directors intends to review the Company's dividend policy. Any
payment of dividends will be at the discretion of the Board of Directors and
will be dependent on the earnings and financial requirements of the Company
and other factors, including the restrictions imposed by the General
Corporation Law of the State of Delaware on the payment of dividends and
covenants in the Company's revolving credit facility and the indenture
related to the 9 7/8% Series B Senior Notes described in Note 5 of Notes to
Consolidated Financial Statements under Item 8 of this Report.
<PAGE> 12
ITEM 6 - Selected Financial Data
The following data should be read in conjunction with the consolidated
financial statements of the Company included under Item 8 of this Report and
management's discussion and analysis of financial condition and results of
operations included under Item 7 of this Report.
<TABLE>
Year ended December 31,
Statement of Income Data: 1996 (1) 1995 (2) 1994 (3)
-------- -------- --------
<S> <C> <C> <C>
Net sales $260,636 $230,453 $192,573
Costs and expenses
Cost of sales 169,949 149,994 119,192
Selling, general and administrative
expenses 54,867 48,487 43,366
Amortization of intangible assets 2,503 2,341 3,219
Termination of consulting agreement - - -
Litigation settlement expense - 947 -
-------- -------- --------
Operating income 33,317 28,684 26,796
Interest expense 11,719 10,582 7,580
Recapitalization expense - - -
-------- -------- --------
Income (loss) before income taxes and
extraordinary item 21,598 18,102 19,216
Income taxes 8,425 7,241 7,895
-------- -------- --------
Income (loss) before extraordinary item 13,173 10,861 11,321
Extraordinary item, net of income tax
benefit - (980) -
-------- -------- --------
Net income (loss) $ 13,173 $ 9,881 $ 11,321
======== ======== ========
Earnings (loss) per share:
Income (loss) before extraordinary item $1.09 $0.90 $0.94
Extraordinary item - (0.08) -
----- ----- -----
Net income (loss) $1.09 $0.82 $0.94
===== ===== =====
Weighted average number of shares
outstanding 12,093 12,093 12,093
====== ====== ======
December 31,
Balance Sheet Data: 1996 1995 1994
-------- -------- --------
Total assets $229,997 $208,263 $180,000
Long-term obligations, including
current portion 112,181 109,789 99,577
Redeemable preferred stock - - -
Stockholders' equity (deficit) 44,523 30,898 21,139
Year ended December 31,
Statement of Income Data: 1993 1992
-------- --------
Net sales $158,141 $151,117
Costs and expenses
Cost of sales 95,884 91,972
Selling, general and administrative
expenses 35,593 35,439
Amortization of intangible assets 7,110 7,116
Termination of consulting agreement 1,969 -
Litigation settlement expense - -
-------- --------
Operating income 17,585 16,590
Interest expense 12,056 18,485
Recapitalization expense - 1,664
-------- --------
Income (loss) before income taxes and
extraordinary item 5,529 (3,559)
Income taxes 1,961 137
-------- --------
Income (loss) before extraordinary item 3,568 (3,696)
Extraordinary item, net of income tax
benefit (3,197) -
-------- --------
Net income (loss) $ 371 $ (3,696)
======== ========
Earnings (loss) per share:
Income (loss) before extraordinary item $0.34 $(0.71)
Extraordinary item (0.34) -
------ -----
Net income (loss) $ - $(0.71)
====== ======
Weighted average number of shares
outstanding 9,550 6,255
===== =====
December 31,
Balance Sheet Data: 1993 1992
-------- --------
Total assets $146,643 $147,614
Long-term obligations, including
current portion 94,297 152,495
Redeemable preferred stock - 7,742
Stockholders' equity (deficit) 9,592 (55,051)
(1) The Company's results of operations include results for Bond-America
Israel Blades, Ltd., and its wholly-owned subsidiary, A.I. Blades, Inc.
(collectively, "Bond") since its March 29, 1996, acquisition date.
Results for the period ended December 31, 1996, include net sales of
Bond of $11.2 million.
(2) The Company's results of operations include results for Absorbent Cotton
Company ("ACCO") since its March 3, 1995, acquisition date. Results for
the period ended December 31, 1995, include net sales of ACCO of $16.6
million.
(3) The Company's results of operations include results for Megas Beauty
Care, Inc., ("Megas") since its June 10, 1994, acquisition date.
Results for the period ended December 31, 1994, include net sales of
Megas of $18.7 million.
</TABLE>
<PAGE> 13
ITEM 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth information with respect to the Company's
business segments:
<TABLE>
Year ended December 31,
---------------------------------------
1996 1995
----------------- ---------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Net Sales:
Razors and blades
Shaving blades and
razors (1) $114.4 43.9% $ 97.1 42.2%
Bladed hand tools
and blades 40.7 15.6 39.2 17.0
Industrial, specialty
and medical blades 16.5 6.4 15.8 6.8
------ ----- ------ -----
Total 171.6 65.9 152.1 66.0
Fiber and foot care (2) 55.8 21.4 48.7 21.1
Custom bar soap 33.2 12.7 29.7 12.9
------ ----- ------ -----
Total $260.6 100.0% $230.5 100.0%
Operating Income:
Razors and blades $ 26.4 15.4% $ 24.1 15.9%
Fiber and foot care 4.1 7.3 3.0 6.2
Custom bar soap 2.8 8.4 1.6 5.3
------ ------
Total $ 33.3 12.8% $ 28.7 12.4%
Year ended December 31,
---------------------------------------
1994
-----------------
(Dollars in millions)
Net Sales:
Razors and blades
Shaving blades and
razors $ 92.0 47.8%
Bladed hand tools
and blades 39.5 20.5
Industrial, specialty
and medical blades 13.9 7.2
------ -----
Total 145.4 75.5
Fiber and foot care (2) 18.7 9.7
Custom bar soap 28.5 14.8
------ -----
Total $192.6 100.0%
Operating Income:
Razors and blades $ 22.2 15.3%
Fiber and foot care 2.3 12.3
Custom bar soap 2.3 8.1
------
Total $ 26.8 13.9%
(1) The year ended December 31, 1996, includes net sales of Bond of $11.2
million since its March 29, 1996, acquisition date.
(2) The year ended December 31, 1995, includes net sales of ACCO of $16.6
million since its March 3, 1995, acquisition date and the year ended
December 31, 1994, includes net sales of Megas of $18.7 million since
its June 10, 1994, acquisition date.
</TABLE>
GENERAL
The following discussion of results of operations and financial condition is
based upon and should be read in conjunction with the Consolidated Financial
Statements of the Company and notes thereto included under Item 8 of this
Report.
In 1996, the Company posted record net sales of $260.6 million. Net sales
benefited from the Company's purchase on March 29, 1996, of certain assets
of Israel based Bond - America Israel Blades, Ltd., and its wholly-owned U.
S. subsidiary, A.I. Blades, Inc. (collectively, "Bond"), a manufacturer and
distributor of private-brand and value-brand shaving products. Sales by Bond
since its acquisition date were $11.2 million. The Company's operating
income of $33.3 million or 12.8% of net sales was also a record. Operating
income for 1995 was negatively impacted by the $0.9 million litigation
settlement expense relating to the American Medical Manufacturing, Inc. suit
which was settled in June, 1995. Net income for 1996 of $13.2 million set
another record, rising 21.3%, or $1.09 per share compared to income before
extraordinary item of $10.9 million, or $0.90 per share for 1995 which
includes litigation settlement expense of $0.6 million after taxes, or $0.05
per share.
The Company is a leading designer, manufacturer and marketer of high quality
brand-name and private-brand consumer products. The Company's principal
products consist of razors and blades, sales of which are broken into three
broad categories, shaving blades and razors, bladed hand tools and blades,
and industrial and specialty and medical blades. The Company also
manufactures fiber and foot care products and custom bar soaps. The Company
distributes its products to the retail and professional trades in the United
States and in selected international markets.
The Company's operating strategy consists of four key elements: (i)
capitalize on the growing demand for private-brand and value-brand personal
care consumer products; (ii) increase penetration of markets currently
served by the Company and enter new markets; (iii) develop new products and
product line extensions; and (iv) reduce operating costs and improve
productivity. This strategy contemplates that the Company will acquire or
dispose of businesses that assist the Company in attaining its strategic
goals.
<PAGE> 14
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales.
Net sales for 1996 and 1995 were $260.6 million and $230.5 million,
respectively, an increase of $30.1 million, or 13.1%. Sales by Bond, since
its March 29, 1996, acquisition date, contributed $11.2 million to the net
sales increase. The impact of increases in unit volume and new product
introductions within the Company's other operating units accounted for
substantially all of the remaining $18.9 million increase in net sales. Net
sales of the Company's shaving blades and razors for 1996 (excluding Bond)
and 1995 were $103.2 million and $97.1 million, respectively, an increase of
$6.1 million or 6.3%. Net sales of domestic branded shaving products
increased 10.7%, primarily benefiting from increased promotional programs
and continued strength in the MBC trademark, Lady MBC trademark and Burma
Shave trademark shaving system line of products. Net sales of international
shaving products (excluding Bond) increased 6.6%, primarily benefiting from
increased distribution of the MBC trademark and Lady MBC trademark line of
products and from increased sales primarily in Canada, Mexico, Europe and
the Far East. In addition, international net sales during 1996 were
negatively impacted by exchange rate fluctuations. Net sales of domestic
private-brand shaving products increased 1.5% and also benefitted from sales
of the Company's MBC trademark and Lady MBC trademark products.
Net sales of bladed hand tools and blades for 1996 and 1995 were $40.7
million and $39.2 million, respectively, an increase of $1.5 million or
3.8%. This increase primarily reflects increased sales of the Company's
American Line trademark and Personna registered line of products and
increased product promotions.
Net sales of industrial and specialty and medical blades for 1996 and 1995
were $16.5 million and $15.8 million, respectively, an increase of $0.7
million, or 5.0%. Sales of industrial and specialty products decreased 5.2%
due primarily to inventory adjustments at major original equipment
manufacturers and other user customers. Sales of medical products increased
19.7% due to new product introductions and an expanding customer base.
Net sales of fiber and foot care products for 1996 and 1995 were $55.8
million and $48.7 million, respectively, an increase of $7.1 million, or
14.7%. On a fully comparable basis (including 1995 net sales of ACCO of $3.1
million prior to its acquisition date), net sales increased $4.1 million, or
7.9%. Fiber and foot care experienced sales growth across all of its product
lines, particularly in cotton pads, swabs, and tissues primarily resulting
from increased product promotions and increased sales to certain customers.
Net sales of the Company's custom bar soap products for 1996 and 1995 were
$33.2 million and $29.7 million, respectively, an increase of $3.5 million,
or 11.6%. This increase primarily reflects the strong growth in sales of the
Company's pharmaceutical/skin care products.
Gross Profit.
Gross profit increased $10.2 million to $90.7 million for 1996 from $80.5
million for 1995. As a percentage of net sales, gross profit was 34.8% for
1996 and 34.9% for 1995. This decrease was primarily due to the lower
margins earned on sales of Bond products and higher depreciation expense,
related to the Company's capacity expansion projects. This decrease was
substantially offset by lower production costs resulting from increased
output from the Company's Mexico operations and the Columbus, Indiana,
synthetic soap operations and from fiber and foot care's efforts to control
manufacturing costs while increasing sales volume, lower material costs and
lower shipping costs primarily resulting from negotiating lower shipping
rates with carriers.
Operating and Other Expenses.
Selling, general and administrative expenses were substantially unchanged at
21.1% of net sales for 1996 compared to 21.0% for 1995. Amortization of
goodwill and other intangible assets increased for 1996 to $2.5 million from
$2.3 million for 1995, primarily reflecting an increase in amortization of
goodwill relating to the ACCO and Bond acquisitions.
Litigation settlement expense of $0.9 million, including legal fees incurred
during the three months ended June 30, 1995, relate to the American Medical
Manufacturing, Inc. suit which was settled in June 1995.
Interest expense increased in 1996 to $11.7 million from $10.6 million in
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.
The Company's effective income tax rate for 1996 and 1995 was 39% and 40%,
respectively. (See Note 8 to the Consolidated Financial Statements.)
<PAGE> 15
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales.
Net sales for 1995 and 1994 were $230.5 million and $192.6 million,
respectively, an increase of $37.9 million, or 19.7%. Sales by Megas and
ACCO contributed $30.0 million to the net sales increase. The impact of
increases in unit volume and new product introductions within the Company's
other operating units accounted for approximately 85% of the remaining $7.9
million increase in net sales with the balance of this increase
predominantly caused by fluctuations in exchange rates while increases in
selling prices had a minimal impact. Net sales of the Company's shaving
blades and razors for 1995 and 1994 were $97.1 million and $92.0 million, an
increase of $5.1 million or 5.6%. Net sales of domestic private-brand and
international shaving products increased 8.3% and 8.8%, respectively,
benefiting from sales of the Company's MBC trademark product. International
net sales also benefited from favorable exchange rate fluctuations. Net
sales of domestic branded shaving products were substantially unchanged.
Net sales of bladed hand tools and blades for 1995 and 1994 were $39.2
million and $39.5 million, respectively, a decrease of 0.9%. While sales for
the Company's branded blades and tools in retail markets continued to grow,
overall sales were negatively affected by reductions in purchases by
original equipment manufacturers and wholesale distributors in reaction to
reduced activity in the construction trades during 1995.
Net sales of industrial and specialty and medical blades for 1995 and 1994
were $15.8 million and $13.9 million, respectively, an increase of 13.2%.
The net sales increase reflects the continued strong performance of
industrial and specialty products, up 16.9%, benefiting from the Company's
quality and technological advantages. Steady growth also continued in
medical products, up 8.4%.
Net sales of the Company's custom bar soap products for 1995 and 1994 were
$29.7 million and $28.5 million, respectively, an increase of $1.2 million
or 4.5%. This increase primarily reflects the continued growth in net sales
of the Company's pharmaceutical/skin care products.
Gross profit.
Gross profit increased $7.1 million to $80.5 million for 1995 from $73.4 for
1994. As a percentage of net sales, gross profit declined to 34.9% in 1995
from 38.1% in 1994. The reduction in gross profit resulted primarily from
the higher proportion of sales in the lower margin fiber and foot care
products coupled with increased cost of cotton fibers, and custom bar soap
material cost increases, changes in product mix and increased depreciation
expense.
Operating and Other Expenses.
Selling, general and administrative expenses were 21.0% of net sales for
1995 compared to 22.5% for 1994, a 1.5% of net sales decrease primarily
reflecting the lower level of selling, general and administrative costs
needed to support the Company's fiber and foot care operations and cost
reductions resulting from consolidation of the fiber and foot care
operations.
Amortization of goodwill and other intangible assets declined for 1995 to
$2.3 million from $3.2 million for 1994, primarily reflecting the March 31,
1994 expiration of amortization of certain noncompete agreements and other
intangible assets, partially offset by the increase in amortization of
goodwill and noncompete agreements relating to the Megas and ACCO
acquisitions.
Interest expense increased in 1995 to $10.6 million from $7.6 million in
1994 largely as a result of an increase in interest rates on the Company's
short-term borrowings during 1995, the higher interest rate resulting from
the Company's debt offering in August, 1995, and from increased borrowings
to finance the Megas and ACCO acquisitions and the purchase of the
Knoxville, Tennessee facility in July, 1995.
The litigation settlement expense of $0.9 million, including legal fees,
relates to settlement of the American Medical Manufacturing, Inc. ("AMMI")
suit. During May, 1994, 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 judgement on certain of the claims and filed an appeal to
dismiss the remaining claims which was denied. The case was settled in June,
1995.
Costs of $1.0 million (net of tax benefit) associated with the retirement of
indebtedness have been presented as an extraordinary charge for early
extinguishment of debt in the results of operations during the year ended
December 31, 1995.
<PAGE> 16
The Company's effective income tax rate for 1995 and 1994 was substantially
unchanged at 40% and 41%, respectively.
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 $25.5 million and $18.2 million
for 1996 and 1995, respectively. The increase of $7.3 million in 1996 as
compared to 1995 was primarily due to increased earnings and the net effects
of differences in the changes in the components of working capital.
In connection with the March 29, 1996, acquisition of Bond, the Company
borrowed $12.7 million under its revolving credit facility. At December 31,
1996, long-term indebtedness amounted to $112.2 million (including the
current portion of $1.4 million), and the Company had approximately $43.2
million available for future borrowings and letters of credit under its
revolving credit facility. The weighted-average interest rate incurred by
the Company with respect to its debt obligations in 1996 was approximately
9.6%.
The Company's liquidity requirements are primarily the funding of working
capital needs, which consist of inventory and trade receivables, capital
expenditures and scheduled principal and interest payments on indebtedness.
Capital expenditures in 1996 totaled $11.3 million, as compared to $12.4
million in 1995 and $7.2 million in 1994. The Company anticipates spending
approximately $12.5 million in 1997 for capital expenditures and
approximately $1.8 million of previously provided costs to finalize the
Ardell restructuring in 1997. The Ardell restructuring will permit increased
manufacturing flexibility, efficiency and quality as this facility is more
completely integrated into the Company's operations.
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 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 markets
transactions or dispositions of businesses that no longer meet strategic
objectives. The Company has no present plans in this regard.
<PAGE> 17
ITEM 8 - Financial Statements and Supplementary Data
The consolidated financial statements of the registrant are submitted
as a separate section of this Report starting on page 21. Information
related to "Quarterly Data (Unaudited)" is summarized below:
<TABLE>
1996
-----------------------------------------
First Second Third Fourth
------ ------ ------ ------
(In thousands, except per share
and market price data)
<S> <C> <C> <C> <C>
Net sales $57,460 $64,862 $71,052 $67,262
Gross profit 19,917 22,377 24,638 23,755
Net income 2,267 2,850 4,092 3,964
Net income per share $ .19 $ .24 $ .34 $ .33
Market price
High $ 9.75 $ 12.25 $ 12.25 $ 14.00
Low 7.50 9.00 9.88 11.50
1995
-----------------------------------------
First Second Third Fourth
------ ------ ------ ------
(In thousands, except per share
and market price data)
Net sales $51,286 $58,102 $61,438 $59,627
Gross profit 17,818 19,727 21,362 21,552
Income before extraordinary
item 1,915 1,898 3,580 3,468
Extraordinary item -- -- (971) (9)
Net income 1,915 1,898 2,609 3,459
Per share
Income before extraordinary
item $ .16 $ .16 $ .30 $ .29
Extraordinary item -- -- (.08) --
Net income .16 .16 .22 .29
Market price
High $ 14.00 $ 12.75 $ 12.25 $ 9.63
Low 11.13 11.25 9.38 7.50
</TABLE>
ITEM 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEMS 10, 11, 12, AND 13.
The information required by these Items, other than the information
set forth in Part I under the Section entitled "Executive Officers of the
Registrant", is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A for its
Annual Meeting of Stockholders to be held on May 20, 1997.
<PAGE> 18
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) (1), (2) and (3)--The response to this portion of Item 14 is submitted
as a separate section of this Report starting on page 21.
(b) Reports on Form 8-K filed in the fourth quarter of 1996.
None
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this Report starting on page 48.
(d) Financial Statement Schedule--The response to this portion of Item 14
is submitted as a separate section of this Report on page 47.
<PAGE> 19
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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, as of
the 6th day of March, 1997.
AMERICAN SAFETY RAZOR COMPANY
/s/Thomas H. Quinn
-------------------
Thomas H. Quinn
Chairman of the Board and Chief Executive Officer
Power of Attorney
Each person whose signature appears below hereby constitutes and appoints
William C. Weathersby and Jonathan F. Boucher, and each of them, the true
and lawful attorneys-in-fact and agents of the undersigned, with full power
of substitution and resubstitution, for and in the name, place and stead of
the undersigned and to file the same, with all exhibits thereto, in any and
all capabilities, to sign any and all amendments (including post-effective
exhibits thereto, and other documents in connection therewith) with the
Securities and Exchange Commission, and hereby grants to such attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities as of the 6th day of March, 1997.
Signature Title
--------- -----
/s/Thomas H. Quinn Chairman of the Board and
----------------------- Chief Executive Officer
Thomas H. Quinn (Principal Executive Officer)
/s/William C. Weathersby Director, President and
------------------------ Chief Operating Officer
William C. Weathersby
/s/Thomas G. Kasvin Senior Vice President
------------------------ Chief Financial Officer (Principal Financial
Thomas G. Kasvin Officer and Principal Accounting Officer)
/s/Jonathan F. Boucher Director, Vice President and Assistant Secretary
------------------------
Jonathan F. Boucher
/s/John W. Jordan II Director
-------------------------
John W. Jordan II
/s/David W. Zalaznick Director
------------------------
David W. Zalaznick
/s/John R. Lowden Director
------------------------
John R. Lowden
/s/Paul D. Rhines Director
------------------------
Paul D. Rhines
/s/D. Patrick Curran Director
------------------------
D. Patrick Curran
/s/William C. Ballard, Jr. Director
--------------------------
William C. Ballard, Jr.
<PAGE> 20
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1996
AMERICAN SAFETY RAZOR COMPANY
STAUNTON, VIRGINIA
<PAGE> 21
FORM 10-K--ITEM 14(a)(1) AND (2)
American Safety Razor Company
List of Financial Statements and Financial Statement Schedule
The following consolidated financial statements of American Safety Razor
Company are included in Item 8:
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Income--Years ended December 31, 1996, 1995 and
1994
Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements--December 31, 1996
The following consolidated financial statement schedule of American Safety
Razor Company is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been
omitted.
<PAGE> 22
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
1996 1995
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,979 $ 2,147
Trade receivables, less allowances of
$2,558 in 1996, and $2,012 in 1995 37,904 33,100
Inventories 43,866 38,577
Deferred income taxes 3,760 3,498
Prepaid expenses 1,833 1,363
-------- --------
Total current assets 89,342 78,685
Property and equipment, net 61,022 49,578
Intangible assets, net:
Goodwill 70,678 70,475
Other 5,055 5,921
-------- --------
75,733 76,396
Prepaid pension cost and other 3,900 3,604
-------- --------
Total assets $229,997 $208,263
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 14,212 $ 10,956
Accrued expenses 10,195 10,018
Payroll and related liabilities 5,220 3,657
Accrued interest 4,234 4,251
Income taxes payable 370 713
Current maturities of long-term obligations 1,419 4,614
-------- --------
Total current liabilities 35,650 34,209
Long-term obligations 110,762 105,175
Retiree health and insurance benefits 22,292 21,608
Pension and other liabilities 3,383 3,288
Deferred income taxes 13,387 13,085
Contingent liabilities and commitments
Stockholders' equity:
Common Stock, $.01 par value, 25,000,000
shares authorized; 12,092,849 shares issued and
outstanding in 1996, 11,502,477 in 1995 121 115
Class B Common Stock, $.01 par value,
2,900,000 shares authorized; 590,372 shares
issued and outstanding in 1995 - 6
Additional capital 65,756 65,756
Deficit (20,714) (33,887)
Foreign currency translation (640) (1,092)
-------- --------
44,523 30,898
-------- --------
Total liabilities and stockholders' equity $229,997 $208,263
======== ========
See accompanying notes.
</TABLE>
<PAGE> 23
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year ended December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $260,636 $230,453 $192,573
Cost of sales 169,949 149,994 119,192
-------- -------- --------
Gross profit 90,687 80,459 73,381
Selling, general and
administrative expenses 54,867 48,487 43,366
Amortization of intangible assets 2,503 2,341 3,219
Litigation settlement expense - 947 -
-------- -------- --------
Operating income 33,317 28,684 26,796
Interest expense 11,719 10,582 7,580
-------- -------- --------
Income before income taxes and
extraordinary item 21,598 18,102 19,216
Income taxes 8,425 7,241 7,895
-------- -------- --------
Income before extraordinary
item 13,173 10,861 11,321
Extraordinary item, net of income
tax benefit of $654 in 1995 - (980) -
-------- -------- --------
Net income $ 13,173 $ 9,881 $ 11,321
======== ======== ========
Weighted average number of
shares outstanding 12,093 12,093 12,093
Earnings per share:
Income before extraordinary item $ 1.09 $ .90 $ .94
Extraordinary item - (.08) -
-------- -------- --------
Net income $ 1.09 $ .82 $ .94
======== ======== ========
See accompanying notes.
</TABLE>
<PAGE> 24
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Operating activities
Net income $ 13,173 $ 9,881 $ 11,321
Adjustments to reconcile net
income to net cash provided by
operating activities:
Extraordinary charge - 980 -
Depreciation 8,081 6,592 4,962
Amortization 2,503 2,341 3,219
Interest and financing costs 727 997 1,069
Deferred income taxes 273 1,446 3,020
Retiree health and insurance
benefits 684 858 805
Pension and other 254 301 385
Changes in operating assets
and liabilities net of
effects of acquisitions:
Trade receivables (1,213) (3,210) (2,138)
Inventories (171) (3,445) (2,793)
Prepaid expenses (119) (244) (25)
Accounts payable 666 (889) 970
Accrued and other expenses 998 2,061 1,314
Income taxes payable (343) 539 174
-------- -------- --------
Net cash provided by operating activities 25,513 18,208 22,283
Investing activities
Capital expenditures (net of disposals
of $74 in 1996, $268 in 1995 and
$23 in 1994) (11,269) (12,109) (7,211)
Acquisitions, net of cash acquired (16,673) (7,704) (12,618)
Deferred loan costs and other 62 (4,452) (508)
-------- -------- --------
Net cash used in investing activities (27,880) (24,265) (20,337)
Financing activities
Repayment of long-term obligations (11,225) (118,269) (19,126)
Proceeds from borrowings 13,424 125,795 17,000
-------- -------- --------
Net cash provided from (used in)
financing activities 2,199 7,526 (2,126)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents (168) 1,469 (180)
Cash and cash equivalents,
beginning of period 2,147 678 858
-------- -------- --------
Cash and cash equivalents,
end of period $ 1,979 $ 2,147 $ 678
======== ======== ========
See accompanying notes.
</TABLE>
<PAGE> 25
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
American Safety Razor Company and its subsidiaries (the "Company") is a
leading designer, manufacturer and marketer of high quality brand-name and
private-brand consumer products. The Company's principal products consist of
shaving blades and razors, bladed hand tools and blades, industrial and
specialty and medical blades, fiber and foot care products, and custom bar
soaps principally sold to the retail and professional trades in the United
States and in selected international markets.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Accordingly, actual results could
differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of American
Safety Razor Company and its subsidiaries, all of which are wholly-owned.
The consolidated financial statements also include the accounts of Bond-
America Israel Blades, Ltd., and its wholly-owned U.S. subsidiary, A.I.
Blades, Inc. (collectively, "Bond") and Megas Beauty Care, Inc., ("Megas")
since their acquisition dates (see Note 12). During March 1996, Megas Beauty
Care, Inc., was merged into Absorbent Cotton Company ("ACCO"), which was
acquired on March 3, 1995, and ACCO changed its name to Megas Beauty Care,
Inc. ("Megas"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market. Cost for
approximately 56 percent and 53 percent of inventories for 1996 and 1995,
respectively, is determined by the last-in, first-out ("LIFO") method. Cost
of the remaining inventories, operating supplies and inventories of foreign
and certain domestic subsidiaries, is determined by the first-in, first-out
method.
Property and Equipment
Property and equipment are stated on the basis of cost. Expenditures for
renewals and betterments are capitalized, and expenditures for repairs and
maintenance are expensed as incurred. Depreciation is computed by the
straight-line method over the estimated useful lives of the related assets,
which are as follows:
Land improvements 5-20 years
Buildings and improvements 15-40 years
Machinery and equipment 3-15 years
Intangible Assets
Intangible assets are stated on the basis of cost. Goodwill is being
amortized on a straight-line basis over a forty-year period. The Company
periodically reviews goodwill to assess recoverability based on expectations
of undiscounted cash flows and operating income of the related business
unit. Any impairment in carrying value would be recognized in operating
results if a permanent decline in value were to occur. Noncompete agreements
are being amortized using the straight-line method over the terms of the
related agreements. Deferred loan costs are amortized using the straight-
line method over the term of the related long-term obligations.
Advertising Expenses
Advertising costs are expensed when incurred and approximated $732,000 in
1996, $1,161,000 in 1995, and $1,112,000 in 1994.
Foreign Currency Translation
The accounts of the Company's foreign subsidiaries are generally measured
using local currency as the functional currency. Accordingly, assets and
liabilities are translated into U.S. dollars at period-end exchange rates,
and income and expense are translated at average monthly exchange rates. Net
exchange gains or losses resulting from such translations are excluded from
net earnings and accumulated as a separate component of stockholders'
equity. Gains and losses from foreign currency transactions are included in
net earnings and are not significant in amount. The effect of exchange rate
changes on cash flows is not material.
<PAGE> 26
Foreign Exchange
The Company periodically hedges foreign currency exposures through a hedging
program. Gains and losses on these contracts are deferred and offset against
foreign exchange gains or losses on the underlying hedged transaction. At
December 31, 1996 and 1995, the Company had approximately $2,370,000 and
$3,500,000, respectively, of foreign exchange forward contracts outstanding
which expire at various dates, all less than one year. The carrying values
of these contracts at December 31, 1996 and 1995, approximated their fair
values.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company restricts its cash and cash equivalents to
financial institutions with high credit ratings and credit risk on trade
receivables is minimized due to the diverse geographic areas covered by the
Company's operations and its diverse customer base.
Earnings Per Share
Earnings per share has been computed based on the weighted average number of
shares outstanding during each of the years. Stock options outstanding
during each of the years did not have a material dilutive effect on weighted
average shares outstanding or earnings per share.
Statement of Cash Flows
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents. The Company
paid income taxes of $8,750,000 in 1996, $4,296,000 in 1995 and $4,829,000
in 1994. The Company paid interest of $11,123,000 in 1996, $5,610,000 in
1995, and $6,531,000 in 1994. In connection with the acquisition of Megas,
the Company issued a subordinated note of $2,500,000 (see Note 12).
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related Interpretations in
accounting for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recognized. The Company provides additional pro forma disclosures of the
fair-value based method in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (See Note 9).
2. INVENTORIES
<TABLE>
Inventories consisted of:
December 31,
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Raw materials $15,463 $16,070
Work in process 5,951 5,053
Finished goods 20,289 17,274
Operating supplies 2,819 2,166
------- -------
44,522 40,563
Excess of current cost over LIFO inventory value 656 1,986
------- -------
$43,866 $38,577
======= =======
</TABLE>
<PAGE> 27
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consisted of:
December 31,
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Land and land improvements $ 1,817 $ 1,786
Buildings and improvements 9,843 9,647
Machinery and equipment 73,158 60,506
Construction in progress 10,216 3,808
------- -------
95,034 75,747
Less accumulated depreciation (34,012) (26,169)
------- -------
$61,022 $49,578
======= =======
</TABLE>
4. INTANGIBLE ASSETS
<TABLE>
Intangible assets consisted of:
December 31,
1996 1995
-------- -------
(In thousands)
<S> <C> <C>
Goodwill $83,996 $81,618
Noncompete agreements 2,422 2,422
Deferred loan costs 4,250 4,250
------- -------
90,667 88,290
Less accumulated amortization (14,935) (11,894)
------- -------
$75,733 $76,396
======= =======
</TABLE>
In 1995, in connection with the recapitalization of its indebtedness, the
Company recognized an additional $1,404,000 of amortization of its deferred
loan costs which are included as part of the extraordinary item in 1995.
5. LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consist of the following:
December 31,
1996 1995
------- --------
(In thousands)
<S> <C> <C>
Revolving loans, average rate of 6.86%,
due August 2000 $ 6,100 $ -
9 7/8% Series B Senior Notes, due August 2005 100,000 100,000
9% subordinated note, due June 2000 2,500 2,500
Other:
Settlement obligation, non-interest bearing,
net of unamortized discount at 8% of
$129 in 1995 - 3,401
3% Industrial Development Authority note,
due March 30, 2002 2,078 2,379
Other obligations 1,503 1,509
-------- --------
112,181 109,789
Less current maturities 1,419 4,614
-------- --------
$110,762 $105,175
======== ========
</TABLE>
<PAGE> 28
On August 3, 1995, the Company sold $100,000,000 aggregate principal amount
of 9 7/8% Series A Senior Notes which were due August 2005. In addition, the
Company replaced its existing bank credit agreement with a new bank credit
agreement which provides for borrowings and letters of credit of up to
$50,000,000.
The Company filed a registration statement with the Securities and Exchange
Commission, which became effective on October 17, 1995, to offer to exchange
its 9 7/8% Series B Senior Notes due 2005 (the "New Notes") for any and all
of its outstanding 9 7/8% Series A Senior Notes (the "Old Notes"). Effective
November 16, 1995, the New Notes were exchanged for a like principal amount
of Old Notes. The exchange of the New Notes for the Old Notes had no
financial accounting impact.
The 9 7/8% Series B Senior Notes require semi-annual interest payments on
August 1 and February 1 of each year, commencing February 1, 1996, and a
principal payment of $100,000,000 on August 1, 2005. The 9 7/8% Series B
Senior Notes are guaranteed by certain domestic subsidiaries of the Company.
The Company is required to pay an annual commitment fee of .31% on the
average daily unborrowed amounts under its revolving credit facility.
Interest is based on the bank's prime rate or the London Interbank offered
rate plus 1.25%. Borrowings under this facility mature on August 3, 2000. At
December 31, 1996, the Company had approximately $43,150,000 available for
future borrowings and letters of credit under its revolving credit facility.
The weighted-average interest rate incurred by the Company with respect to
its debt obligations, was approximately 9.6% and 8.9% for the years ended
December 31, 1996 and 1995, respectively.
The 9% subordinated note was issued to the seller in connection with the
Megas acquisition and is due in equal installments on June 10, 1999 and June
10, 2000.
The settlement obligation relates to a patent infringement suit which was
settled in June 1992.
The industrial development authority note requires semi-annual payments of
$185,000 through September 2001 with a final payment of $435,000 due March
2002. Other obligations include debt obligations of purchased subsidiaries.
Maturities of long-term obligations subsequent to December 31, 1996,
approximate $1,419,000 in 1997, $458,000 in 1998, $1,710,000 in 1999,
$7,816,000 in 2000, $350,000 in 2001 and $100,428,000 thereafter.
At December 31, 1995, $1,548,000 of maturities related to the settlement
obligation were accelerated in accordance with the terms of the contract and
were paid in March, 1996.
The Company's trade receivables, inventories and property and equipment are
pledged as collateral for the industrial development authority note and
trade receivables and inventories are pledged as collateral for the
revolving credit facility. The revolving credit facility contains certain
financial covenants which require the Company, among other requirements, to
meet certain financial ratios relating to interest coverage and
indebtedness. The indenture related to the 9 7/8% Series B Senior Notes
limits the ability of the Company, among other limitations, to pay
dividends, make certain other restricted payments or incur certain
additional indebtedness unless it meets a cash flow coverage ratio, as
defined. In addition, the Company may be required to offer to purchase
Senior Notes equal to 100% of the principal amount thereof, with the
proceeds of certain asset sales, as defined.
At December 31, 1996 and 1995, the carrying value of the Company's financial
instruments approximate their fair values except for the 9 7/8% Series B
Senior Notes which have a fair value of approximately $105,000,000 and
$101,500,000 (based on the quoted market price) at December 31, 1996 and
1995, respectively.
In August, 1995, in connection with the repayment of its bank credit
agreement and subordinated notes, the Company wrote-off deferred financing
costs and paid a prepayment premium in the aggregate amount of approximately
$1,634,000. These costs have been presented as an extraordinary charge for
early extinguishment of debt of $980,000 (net of a tax benefit) in the
results of operations during the year ended December 31, 1995.
6. RETIREMENT PLANS
The Company and certain subsidiaries have defined benefit pension plans
covering substantially all employees. Benefits are generally based on
employee years of service and compensation. The Company's funding policy is
to contribute such amounts as are necessary to provide assets sufficient to
meet the benefits to be paid to plan members.
<PAGE> 29
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets for the Company's defined benefit pension
plans:
<TABLE>
December 31,
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ 75,123 $70,299
======== =======
Accumulated benefit obligation $ 81,261 $76,401
======== =======
Projected benefit obligation 91,863 86,580
Plan assets at fair value 102,059 92,581
-------- -------
Projected benefit obligation
less than plan assets 10,196 6,001
Unrecognized net gain (9,450) (5,030)
Unrecognized prior service cost 865 389
-------- -------
Net pension asset $ 1,611 $ 1,360
======== =======
</TABLE>
The significant assumptions used in determining the actuarial present value
of the projected benefit obligation were as follows:
<TABLE>
December 31,
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Weighted-average discount rates 7.5% 7.5% 8.5%
Rates of increases in compensation levels 5.0% 5.0% 5.0%
Expected long-term rates of return on assets 11.0% 11.0% 11.0%
</TABLE>
Effective December 31, 1995, the weighted-average discount rate was
decreased to 7.5% which increased the projected benefit obligation by
approximately $8,726,000. The net pension asset is comprised of a prepaid
pension asset of $3,560,000 in 1996 and $3,252,000 in 1995 and an accrued
pension liability of $1,949,000 in 1996 and $1,892,000 in 1995. Amortization
of unrecognized prior service cost is based on the expected future service
of active employees expected to receive benefits. The plan assets were
primarily invested in listed common stocks, cash equivalents, corporate
bonds and U.S. government debt securities.
A summary of the components of net periodic pension cost of the defined
benefit plans follows:
<TABLE>
December 31,
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Service cost $ 2,285 $ 1,841 $ 2,103
Interest cost 6,309 6,017 5,634
Actual return on plan assets (14,734) (17,677) 764
Net amortization and deferral 6,013 10,154 (8,198)
------- ------- -------
Net periodic pension (income) cost $ (127) $ 335 $ 303
======= ======= =======
</TABLE>
The Company and certain subsidiaries sponsor defined contribution benefit
plans for substantially all U.S. employees. The plans permit employees to
contribute up to 15% of their salary to the plan. The Company also makes
contributions to the plans which approximated $159,000 for 1996 and $121,000
for 1995. No contributions were made to the plans during 1994.
<PAGE> 30
7. RETIREE HEALTH AND INSURANCE BENEFITS
The Company sponsors several defined benefit postretirement medical and life
insurance plans providing benefits to certain employees who have worked a
minimum of five years and attained age 55 while in service with the Company.
The Company requires salaried employees retiring after April 1, 1993 to have
20 years of service after age 40 to receive full benefits and has
implemented maximum payments for certain of its hourly employees. Salaried
employees hired after May 1, 1991, are not eligible to participate in these
postretirement benefit plans. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features
such as deductibles and coinsurance. The Company's policy is to fund the
costs of these medical and life insurance benefit plans as they become due.
The following table presents the plans' accumulated postretirement benefit
obligation reconciled with amounts recognized in the Company's consolidated
balance sheets:
<TABLE>
December 31,
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $10,133 $ 9,536
Fully eligible active plan participants 3,320 4,013
Other active plan participants 7,936 8,200
------- -------
21,389 21,749
Unrecognized reduction of prior service cost 1,854 2,340
Unrecognized net loss (951) (2,481)
------- -------
Accrued postretirement benefit cost $22,292 $21,608
======= =======
</TABLE>
Effective December 31, 1995, the weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was decreased
to 7.5% from 8.5% in 1994 and the ultimate health care cost trend rate was
changed to 5.75% in 2000 from 6.5% in 2000 which increased the accumulated
postretirement benefit obligation by approximately $2,330,000.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
Year Ended December 31,
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Service cost $ 617 $ 542 $ 572
Interest cost 1,533 1,568 1,419
Net amortization and deferral (419) (486) (410)
------ ------ ------
Net periodic postretirement
benefit cost $1,731 $1,624 $1,581
====== ====== ======
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 8% for 1997 (9%
for 1996) and is assumed to decline gradually to 5.75% for 2000 and
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. An increase in the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by
$1,386,000 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for 1996 by $156,000.
<PAGE> 31
8. TAXES ON INCOME
The provision for taxes on income is comprised of the following:
<TABLE>
Year Ended December 31,
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $6,784 $4,972 $4,089
State and local 393 476 451
Foreign 975 347 335
------ ------ ------
Total current 8,152 5,795 4,875
------ ------ ------
Deferred:
Federal 277 944 2,243
State and local 26 530 617
Foreign (30) (28) 160
------ ------ ------
Total deferred 273 1,446 3,020
------ ------ ------
Total provision for income taxes $8,425 $7,241 $7,895
====== ====== ======
</TABLE>
The provision for income taxes in 1995 applicable to the extraordinary item
consisted of current federal and state income tax benefits of $576,000 and
$78,000, respectively. The Company has not provided taxes of approximately
$608,000 on the undistributed pre-tax earnings of $8,755,000 of foreign
subsidiaries as it is the intent of the Company to support these
subsidiaries with such earnings. Income before income taxes and
extraordinary item attributable to foreign operations for 1996, 1995 and
1994 was approximately $2,818,000, $3,120,000 and $1,575,000, respectively.
The Company's effective income tax rate varies from the United States
statutory rate as follows:
<TABLE>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States rate 35% 35% 35%
Foreign taxes in excess of
(less than) U.S. rate 3 (1) (1)
State income taxes, net of
federal tax benefit 4 4 4
Goodwill amortization 3 4 3
Interest on tax basis adjustments 11 - -
Employee benefits and other provisions 4 - -
Reduction of valuation allowance (23) - -
Other--net 2 (2) -
--- -- --
Effective income tax rate 39% 40% 41%
=== == ==
</TABLE>
<PAGE> 32
At December 31, 1996 and 1995 the Company had deferred tax liabilities and
assets which have been netted by tax jurisdiction for presentation purposes.
The significant components of these amounts at December 31, 1996 and 1995
are as follows:
<TABLE>
December 31,
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $ 7,352 $ 7,541
Employee benefits 1,657 1,555
Other 14,183 9,806
------- -------
Total deferred tax liabilities 23,192 18,902
Deferred tax assets:
Employee benefits 10,135 9,950
Settlement agreement - 1,276
Selling and promotion costs 1,172 980
Inventory reserve 1,102 628
Restructuring costs 669 677
Net operating loss carryforward 89 59
Other 398 745
------- -------
Total deferred tax assets 13,565 14,315
Valuation allowance for deferred assets - (5,000)
------- -------
Net deferred tax assets 13,565 9,315
------- -------
Net deferred tax liabilities $ 9,627 $ 9,587
======= =======
</TABLE>
The deferred tax liabilities and assets are disclosed in the consolidated
balance sheets at December 31, 1996 and 1995 as follows:
<TABLE>
December 31,
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Noncurrent deferred income tax liabilities $13,387 $13,085
Current deferred income tax assets 3,760 3,498
------- -------
Net deferred tax liabilities $ 9,627 $ 9,587
======= =======
</TABLE>
Management has determined, based on the Company's recent history of earnings
and its expectations for future earnings, that operating income will more
likely than not be sufficient to fully recognize the Company's deferred tax
assets. Accordingly, the Company has reversed its valuation allowance of $5
million relating to its deferred tax assets. Included in the deferred tax
liabilities-other are the Company's estimated tax liabilities relating to
the ultimate outcome of its current Internal Revenue Service (IRS)
examinations and other tax issues. Upon favorable ultimate settlement of
these matters, up to approximately $5 million of such estimated tax
liabilities would reduce goodwill.
The Company's federal income tax returns for 1989 through 1994 have been
examined by the IRS. The Company acquired certain intangible assets at the
time of acquisition of the Company and of Ardell for $29 million, and to
date the Company has claimed federal income tax deductions of $29 million
for the amortization of those assets. In 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,
and January 1997, the Company received revenue agent's reports proposing
adjustments to the value of the intangible assets which value is
substantially below the value paid for 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 other deductions
described above and certain other deductions taken by the Company. The
Company disagrees with such proposed disallowances, and is vigorously
contesting such proposed disallowances at the IRS appellate level. The
Company believes that it is likely that its case will proceed to U.S. Tax
Court. During 1996, the Company provided additional taxes related to its IRS
examinations. 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 these issues. However, the Company believes that the
<PAGE> 33
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.
9. STOCKHOLDERS' EQUITY
The Company has an incentive stock option plan whereby incentive stock
options may be granted to directors, officers and other key employees to
purchase a specified number of shares of common stock at a price not less
than the fair market value on the date of grant and for a term not to exceed
10 years. The plan provides for the granting of options to purchase up to
500,000 shares of Common Stock. Grants of options for 10,000 shares of
Common Stock for each of two new directors issued in June 1993 become
exercisable in five equal installments commencing one year from the date of
grant. Grants of options issued to key management employees become 40%
exercisable two years following the date of grant and the remainder are
exercisable over the following three years in equal annual installments. The
plan also provides for the granting of stock appreciation rights ("SARs") to
officers and key employees with terms of ten years. The terms of the SARs
are determined at the time of grant. Upon exercise, holders of SARs are
paid, at the option of the Company, cash or Common Stock in an amount equal
to the appreciation in market value of such stock between grant date and the
exercise date. At December 31, 1996, there were no SARs granted.
On February 22, 1996, the compensation committee of the Board of Directors
of the Company approved the repricing of all outstanding stock options under
the incentive stock option plan based on the market price of the Company's
Common Stock at the close of business on February 22, 1996 of $8.63 per
share. The stock option data below has been updated for each period
presented to give effect to the repricing.
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related Interpretations in
accounting for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recognized.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based
Compensation," and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using
the Black-Scholes option-pricing model. Significant weighted-average
assumptions used in the model for valuing stock options granted during 1996
(no stock options were granted during 1995) are as follows:
<TABLE>
1996
----
<S> <C>
Risk-free interest rate 6.6%
Expected life of the option 8.0 years
Expected volatility of stock .261
Expected dividend yield 0%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The
Company's pro forma information follows (in thousands except for earnings
per share data):
<TABLE>
1996
--------
<S> <C>
Net income
As reported $13,173
Pro forma 12,955
Earnings per share
As reported $ 1.09
Pro forma 1.07
</TABLE>
Stock options granted during 1996 (net of forfeitures and including stock
options issued prior to 1996 which were repriced on February 22, 1996),
aggregated 367,500 shares and their weighted-average estimated fair value at
the date of grant is $4.54 per share.
<PAGE> 34
Stock option plan activity is summarized below:
<TABLE>
Exercise Price Per Share
------------------------
Number of Weighted
Shares Range Average
--------- ------------ --------
<S> <C> <C> <C>
Outstanding at 12-31-93 96,500 $8.63 $ 8.63
Granted in 1994 129,500 8.63 8.63
Cancelled in 1994 (4,000) 8.63 8.63
------- ------------ ------
Outstanding at 12-31-94 222,000 8.63 8.63
Cancelled in 1995 (6,000) 8.63 8.63
------- ------------ ------
Outstanding at 12-31-95 216,000 8.63 8.63
Granted in 1996 154,000 8.63-11.00 10.84
Cancelled in 1996 (2,500) 8.63 8.63
------- ------------ ------
Outstanding at 12-31-96 367,500 $8.63-$11.00 $ 9.56
======= ============ ======
</TABLE>
Stock options outstanding at December 31, 1996, aggregated 367,500 shares
and have a weighted-average remaining contractual life of 8.4 years and a
weighted-average exercise price of $9.56 per share. Stock options
exercisable at December 31, 1996, 1995 and 1994 totaled 103,400, 35,800 and
4,000 shares, respectively. Stock options exercisable at December 31, 1996,
have a weighted-average exercise price of $8.63 per share. Stock options
reserved for future grant at December 31, 1996 and 1995 totaled 132,500 and
284,000 shares, respectively.
Changes in the components of stockholders' equity are as follows:
<TABLE>
Common Stocks
-------------------------------
Par Additional
Shares Value Capital
---------- ----- ----------
(In thousands, except share data)
<S> <C> <C> <C>
Balance at December 31, 1993 12,092,849 $121 $65,756
Foreign currency translation - - -
Net income - - -
---------- ---- -------
Balance at December 31, 1994 12,092,849 121 65,756
Foreign currency translation - - -
Net income - - -
---------- ---- -------
Balance at December 31, 1995 12,092,849 121 65,756
Foreign currency translation - - -
Net income - - -
---------- ---- -------
Balance at December 31, 1996 12,092,849 $121 $65,756
========== ==== =======
Foreign
Currency
Deficit Translation Total
-------- ----------- ---------
(In thousands, except share data)
Balance at December 31, 1993 $(55,089) $(1,196) $ 9,592
Foreign currency translation - 226 226
Net income 11,321 - 11,321
-------- ------- -------
Balance at December 31, 1994 (43,768) (970) 21,139
Foreign currency translation - (122) (122)
Net income 9,881 - 9,881
-------- ------- -------
Balance at December 31, 1995 (33,887) (1,092) 30,898
Foreign currency translation - 452 452
Net income 13,173 - 13,173
-------- ------- -------
Balance at December 31, 1996 $(20,714) $ (640) $44,523
======== ======= =======
</TABLE>
<PAGE> 35
10. SEGMENT INFORMATION
The Company's products are reported in three industry segments which consist
of Razors and Blades, Fiber and Foot Care and Custom Bar Soap. The razors
and blades segment includes private-brand and branded shaving blades and
razors, and branded disposable and cartridge razors, bladed hand tools and
blades, and industrial and specialty and medical blades. The fiber and foot
care segment includes cotton swabs, cotton balls and puffs, cosmetic pads
and foot care products. The custom bar soap segment includes cosmetic/skin
care, bath, pharmaceutical and specialty custom bar soaps.
<TABLE>
Net Sales
------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Razors and Blades $171,611 $152,036 $145,431
Fiber and Foot Care 55,856 48,708 18,701
Custom Bar Soap 33,169 29,709 28,441
-------- -------- --------
$260,636 $230,453 $192,573
======== ======== ========
Industry Segments
-----------------------------
Operating Income
-----------------------------
1996 1995 1994
------- ------- -------
(In thousands)
Razors and Blades $26,474 $24,111 $22,179
Fiber and Foot Care 4,074 3,007 2,350
Custom Bar Soap 2,769 1,566 2,267
------- ------- -------
33,317 28,684 26,796
Interest expense 11,719 10,582 7,580
------- ------- -------
Income before income taxes and
extraordinary item $21,598 $18,102 $19,216
======= ======= =======
Capital Expenditures
-----------------------------
1996 1995 1994
------- -------- -------
Razors and Blades $ 9,372 $10,110 $6,184
Fiber and Foot Care 972 856 354
Custom Bar Soap 999 1,411 696
------- ------- ------
$11,343 $12,377 $7,234
======= ======= ======
Year-End Assets
-------------------------------
1996 1995 1994
------- -------- -------
(In thousands)
Razors and Blades $167,468 $143,367 $130,808
Fiber and Foot Care 36,126 37,714 23,668
Custom Bar Soap 26,403 27,182 25,524
-------- -------- --------
$229,997 $208,263 $180,000
======== ======== ========
Interest expense
Income before income taxes and
extraordinary item
Depreciation and Amortization
-----------------------------
1996 1995 1994
-------- ------ ------
Razors and Blades $ 7,503 $6,079 $6,339
Fiber and Foot Care 1,985 1,901 827
Custom Bar Soap 1,096 953 1,015
------- ------ ------
$10,584 $8,933 $8,181
======= ====== ======
</TABLE>
Summarized data for the Company's foreign operations (principally in Canada,
the United Kingdom, Europe, Israel, the Far East and the Caribbean) are as
follows:
<TABLE>
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Net sales $41,948 $32,299 $28,176
Operating income 3,335 3,261 1,573
Year-end assets 32,913 16,499 13,243
</TABLE>
Export sales from the Company's United States operations aggregated
$4,816,000 in 1996, $4,705,000 in 1995 and $5,835,000 in 1994.
11. COMMITMENTS, CONTINGENCIES AND OTHER
The Company leases buildings, office space and equipment under operating
lease agreements which expire on various dates through 2006. Certain leases
contain renewal or purchase options which may be exercised by the Company.
Rent for leases amounted to approximately $2,697,000 in 1996, $2,199,000 in
1995 and $1,816,000 in 1994. Future minimum rental commitments under all
noncancellable operating leases at December 31, 1996 approximate $2,549,000
in 1997, $2,149,000 in 1998, 1,287,000 in 1999, $995,000 in 2000 and
$870,000 in 2001.
The Company is subject to litigation incidental to the conduct of its
business and is also subject to government agency regulations relating to
its products, environmental matters, taxes and other aspects of its
business. While the ultimate outcome of proceedings against the Company
cannot be predicted with certainty, management does not expect that these
matters will have a significant effect on the consolidated financial
position or results of operations of the Company.
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 judgement on certain of the
<PAGE> 36
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 litigation settlement expenses have been
reflected in the statement of income for the year ended December 31, 1995.
At December 31, 1996, outstanding checks less amounts on deposit amounted to
$1,051,000 which is included in accounts payable in the accompanying
consolidated balance sheets. In addition, at December 31, 1996 and 1995,
accrued health insurance claims amounted to $600,000 and $800,000,
respectively, which is included in accrued expenses in the accompanying
consolidated balance sheets.
In connection with the Company's restructuring of Ardell, at December 31,
1996 and 1995 the unexpended costs amounted to $1,782,000 and $1,805,000,
respectively, and are included in accrued expenses in the accompanying
consolidated balance sheets.
12. ACQUISITIONS
On March 29, 1996, the Company purchased certain assets of Israel based
Bond-America Israel Blades, Ltd., and its wholly-owned U.S. subsidiary, A.I.
Blades, Inc. (collectively, "Bond") for net consideration of approximately
$16,673,000, net of cash, including acquisition related expenses. Bond is
engaged in the manufacture and distribution of private-brand and value-brand
shaving razors and blades. The acquisition was financed by borrowings of
$12,718,000 under the Company's revolving credit facility and internally
generated funds and has been accounted for under the purchase method of
accounting. Goodwill of $2,386,000 is being amortized on a straight-line
basis over a forty-year period.
On March 3, 1995, the Company purchased all of the capital stock of Sterile
Products Corporation, d.b.a. Absorbent Cotton Company ("ACCO") for net
consideration of approximately $10,400,000 including assumed debt, net of
cash, and acquisition related expenses. ACCO is a manufacturer and
distributor of private-brand and value-brand cotton squares, cotton balls
and puffs, and pharmaceutical coil. The acquisition was financed by
borrowings of $8,800,000 under the Company's revolving credit facility and
has been accounted for under the purchase method of accounting. Goodwill of
$2,746,000 is being amortized on a straight-line basis over a forty-year
period and two noncompete agreements aggregating $422,000 with the former
owners are being amortized using the straight-line method over the terms of
the agreements which expire in December 2005 and August 2007.
On June 10, 1994, the Company purchased all of the issued and outstanding
capital stock of Megas from its sole shareholder for an aggregate purchase
price of $20,568,000 including seller financing of $2,500,000 described
below, other assumed debt obligations of $5,450,000 and related fees and
expenses. Megas is engaged in the manufacture and sale of cotton swabs,
cotton balls and puffs, and foot care products. The acquisition was
financed by term loans from the Company's existing bank lenders and the
seller's 9% subordinated note of $2,500,000 and has been accounted for under
the purchase method of accounting. Goodwill of $11,634,000 is being
amortized on a straight-line basis over a forty-year period and a noncompete
agreement with the sole shareholder of $2,000,000 is being amortized on a
straight-line basis over the six-year term of the agreement which expires in
June 2000.
Bond's, Megas' and ACCO's results of operations have been included in the
consolidated statement of income since their date of acquisition.
Pro forma results of operations for the years ended December 31, 1996 and
1995, as if the Bond and ACCO acquisitions occurred as of the beginning of
the respective periods, are not presented as the effects are not material.
<PAGE> 37
13. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
In August 1995, the Company sold $100,000,000 of 9 7/8% Series A Senior
Notes due 2005 and in November 1995, exchanged such notes for its 9 7/8%
Series B Senior Notes due 2005. The Series B Senior Notes have been
guaranteed, on a joint and several basis by certain domestic subsidiaries of
the Company, which guarantees are senior unsecured obligations of each
guarantor and will rank pari passu in right of payment with all other
indebtedness of each guarantor. However, the guarantee of one of the
guarantor subsidiaries ranks junior to its outstanding subordinated note.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of December 31, 1996
and 1995 and for the years ended December 31, 1996, 1995 and 1994, of (a)
ASR, the parent company, the combined guarantor subsidiaries, the non-
guarantor subsidiaries, and elimination entries necessary to combine such
entities on a consolidated basis, and
(2) The investment in subsidiaries carried on the cost basis for purposes
of the supplemental financial information. Earnings (losses) of subsidiaries
are therefore not reflected in the related investment accounts.
<PAGE> 38
<TABLE>
Condensed Consolidating Balance Sheets
December 31, 1996
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 201 $ 12 $ 1,766
Trade receivables, net 13,923 10,691 13,290
Advances receivable--subsidiaries 49,343 - -
Inventories 24,030 8,954 11,371
Deferred income taxes and prepaid
expenses 4,224 851 518
-------- ------- -------
Total current assets 91,721 20,508 26,945
Property and equipment, net 35,995 15,707 9,320
Intangible assets, net 52,760 22,472 501
Prepaid pension cost and other 73 3,806 21
Investment in subsidiaries 29,581 - 900
-------- ------- -------
Total assets $210,130 $62,493 $37,687
======== ======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and other $ 20,299 $ 8,470 $ 5,462
Advances payable--subsidiaries - 34,103 15,206
Current maturities of long-term
obligations 1,011 202 206
-------- ------- -------
Total current liabilities 21,310 42,775 20,874
Long-term obligations 107,867 2,895 -
Retiree health and insurance benefits
and other 15,515 10,160 -
Deferred income taxes 10,956 2,431 -
Stockholders' equity
Common Stock 121 484 77
Additional capital 65,756 15,662 14,257
Deficit (13,496) (11,914) 5,217
Dividends 2,063 - (2,063)
Foreign currency translation 38 - (675)
-------- ------- -------
54,482 4,232 16,813
-------- ------- -------
Total liabilities and
stockholders' equity $210,130 $62,493 $37,687
======== ======= =======
Eliminations Consolidated
------------ ------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ - $ 1,979
Trade receivables, net - 37,904
Advances receivable--subsidiaries (49,343) -
Inventories (489) 43,866
Deferred income taxes and prepaid
expenses - 5,593
-------- --------
Total current assets (49,832) 89,342
Property and equipment, net - 61,022
Intangible assets, net - 75,733
Prepaid pension cost and other - 3,900
Investment in subsidiaries (30,481) -
-------- --------
Total assets $(80,313) $229,997
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and other $ - $ 34,231
Advances payable--subsidiaries (49,309) -
Current maturities of long-term
obligations - 1,419
-------- --------
Total current liabilities (49,309) 35,650
Long-term obligations - 110,762
Retiree health and insurance benefits
and other - 25,675
Deferred income taxes - 13,387
Stockholders' equity
Common Stock (561) 121
Additional capital (29,919) 65,756
Deficit (521) (20,714)
Dividends - -
Foreign currency translation (3) (640)
-------- --------
(31,004) 44,523
-------- --------
Total liabilities and
stockholders' equity $(80,313) $229,997
======== ========
</TABLE>
<PAGE> 39
<TABLE>
Condensed Consolidating Balance Sheets
December 31, 1995
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 346 $ 50 $ 1,751
Trade receivables, net 13,173 10,381 9,546
Advances receivable--subsidiaries 45,156 - -
Inventories 21,562 10,329 6,982
Deferred income taxes and prepaid
expenses 3,277 1,246 338
-------- ------- -------
Total current assets 83,514 22,006 18,617
Property and equipment, net 31,500 15,916 2,162
Intangible assets, net 52,920 23,476 -
Prepaid pension cost and other 87 3,498 19
Investment in subsidiaries 27,280 - 900
-------- ------- -------
Total assets $195,301 $64,896 $21,698
======== ======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and other 20,457 6,678 2,460
Advances payable--subsidiaries - 39,764 5,356
Current maturities of long-term
obligations 4,402 212 -
-------- ------- -------
Total current liabilities 24,859 46,654 7,816
Long-term obligations 102,078 3,097 -
Retiree health and insurance benefits
and other 15,052 9,844 -
Deferred income taxes 10,458 2,627 -
Stockholders' equity
Common Stock 121 484 77
Additional capital 65,756 15,662 11,957
Deficit (23,061) (13,472) 2,976
Foreign currency translation 38 - (1,128)
-------- ------- -------
42,854 2,674 13,882
-------- ------- -------
Total liabilities and
stockholders' equity $195,301 $64,896 $21,698
======== ======= =======
Eliminations Consolidated
------------ ------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ - $ 2,147
Trade receivables, net - 33,100
Advances receivable--subsidiaries (45,156) -
Inventories (296) 38,577
Deferred income taxes and prepaid
expenses - 4,861
-------- --------
Total current assets (45,452) 78,685
Property and equipment, net - 49,578
Intangible assets, net - 76,396
Prepaid pension cost and other - 3,604
Investment in subsidiaries (28,180) -
-------- --------
Total assets $(73,632) $208,263
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and other - 29,595
Advances payable--subsidiaries (45,120) -
Current maturities of long-term
obligations - 4,614
-------- --------
Total current liabilities (45,120) 34,209
Long-term obligations - 105,175
Retiree health and insurance benefits
and other - 24,896
Deferred income taxes - 13,085
Stockholders' equity
Common Stock (561) 121
Additional capital (27,619) 65,756
Deficit (330) (33,887)
Foreign currency translation (2) (1,092)
-------- --------
(28,512) 30,898
-------- --------
Total liabilities and
stockholders' equity $(73,632) $208,263
======== ========
</TABLE>
<PAGE> 40
<TABLE>
Condensed Consolidating Statements of Income
Year Ended December 31, 1996
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Net sales $138,685 $89,025 $52,710
Cost of sales 79,920 70,313 39,309
-------- ------- -------
Gross profit 58,765 18,712 13,401
Selling, general and
administrative expenses 33,153 11,447 10,267
Amortization of intangible assets 1,481 980 42
-------- ------- -------
Operating income 24,131 6,285 3,092
Interest expense 8,477 3,622 (380)
-------- ------- -------
Income before income taxes 15,654 2,663 3,472
Income taxes 6,089 1,105 1,231
-------- ------- -------
Net income (loss) $ 9,565 $ 1,558 $ 2,241
======== ======= =======
Eliminations Consolidated
------------ ------------
(In thousands)
Net sales $(19,784) $260,636
Cost of sales (19,593) 169,949
-------- --------
Gross profit (191) 90,687
Selling, general and
administrative expenses - 54,867
Amortization of intangible assets - 2,503
-------- --------
Operating income (191) 33,317
Interest expense - 11,719
-------- --------
Income before income taxes (191) 21,598
Income taxes - 8,425
-------- --------
Net income (loss) $ (191) $ 13,173
======== ========
</TABLE>
<TABLE>
Condensed Consolidating Statements of Income
Year Ended December 31, 1995
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Net sales $126,275 $78,418 $40,215
Cost of sales 72,425 63,229 28,816
-------- ------- -------
Gross profit 53,850 15,189 11,399
Selling, general and
administrative expenses 30,176 9,999 8,255
Amortization of intangible assets 1,399 942 -
Litigation settlement expense 947 - -
-------- ------- -------
Operating income 21,328 4,248 3,144
Interest expense 7,166 3,981 (565)
-------- ------- -------
Income before income taxes
and extraordinary item 14,162 267 3,709
Income taxes 6,340 321 601
-------- ------- -------
Income (loss) before
extraordinary item 7,822 (54) 3,108
Extraordinary item, net of
income tax benefit of $654 (980) - -
-------- ------- -------
Net income (loss) $ 6,842 $ (54) $ 3,108
======== ======= =======
Eliminations Consolidated
------------ ------------
(In thousands)
Net sales $(14,455) $230,453
Cost of sales (14,476) 149,994
-------- --------
Gross profit 21 80,459
Selling, general and
administrative expenses 57 48,487
Amortization of intangible assets - 2,341
Litigation settlement expense - 947
-------- --------
Operating income (36) 28,684
Interest expense - 10,582
-------- --------
Income before income taxes
and extraordinary item (36) 18,102
Income taxes (21) 7,241
-------- --------
Income (loss) before
extraordinary item (15) 10,861
Extraordinary item, net of
income tax benefit of $654 - (980)
-------- --------
Net income (loss) $ (15) $ 9,881
======== ========
</TABLE>
<PAGE> 41
<TABLE>
Condensed Consolidating Statements of Income
Year Ended December 31, 1994
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Net sales $122,743 $47,143 $36,095
Cost of sales 69,502 35,811 27,139
-------- ------- -------
Gross profit 53,241 11,332 8,956
Selling, general and
administrative expenses 29,772 6,166 7,428
Amortization of intangible assets 2,399 735 85
-------- ------- -------
Operating income 21,070 4,431 1,443
Interest expense 2,294 5,286 -
-------- ------- -------
Income (loss) before income taxes 18,776 (855) 1,443
Income taxes 7,932 (319) 282
-------- ------- -------
Net income (loss) $ 10,844 $ (536) $ 1,161
======== ======= =======
Eliminations Consolidated
------------ ------------
(In thousands)
Net sales $(13,408) $192,573
Cost of sales (13,260) 119,192
-------- --------
Gross profit (148) 73,381
Selling, general and
administrative expenses - 43,366
Amortization of intangible assets - 3,219
-------- --------
Operating income (148) 26,796
Interest expense - 7,580
-------- --------
Income (loss) before income taxes (148) 19,216
Income taxes - 7,895
-------- --------
Net income (loss) $ (148) $ 11,321
======== ========
</TABLE>
<PAGE> 42
<TABLE>
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 1996
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net cash provided by operating
activities $ 16,109 $ 7,822 $1,580
Investing activities
Capital expenditures (8,711) (1,912) (646)
Purchase of Bond, net of
cash acquired (16,673) - -
Other 62 - -
Investment in subsidiaries (2,301) - -
Advances from (to) subsidiaries 7,037 - -
-------- ------- ------
Net cash used in investing
activities (20,586) (1,912) (646)
Financing activities
Repayment of long-term obligations (10,949) (276) -
Proceeds from borrowings 13,218 - 206
Advances from (to) subsidiaries - (5,672) 938
Dividends 2,063 - (2,063)
-------- ------- ------
Net cash (used in) provided by
financing activities 4,332 (5,948) (919)
-------- ------- ------
Net increase (decrease) in cash
and cash equivalents (145) (38) 15
Cash and cash equivalents,
beginning of period 346 50 1,751
-------- ------- ------
Cash and cash equivalents,
end of period $ 201 $ 12 $1,766
======== ======= ======
Eliminations Consolidated
------------ ------------
(In thousands)
Operating activities
Net cash provided by operating
activities $ 2 $ 25,513
Investing activities
Capital expenditures - (11,269)
Purchase of Bond, net of
cash acquired - (16,673)
Other - 62
Investment in subsidiaries 2,301 -
Advances from (to) subsidiaries (7,037) -
-------- --------
Net cash used in investing
activities (4,736) (27,880)
Financing activities
Repayment of long-term obligations - (11,225)
Proceeds from borrowings - 13,424
Advances from (to) subsidiaries 4,734 -
Dividends - -
-------- --------
Net cash (used in) provided by
financing activities 4,734 2,199
-------- --------
Net increase (decrease) in cash
and cash equivalents - (168)
Cash and cash equivalents,
beginning of period - 2,147
-------- --------
Cash and cash equivalents,
end of period $ - $ 1,979
======== ========
</TABLE>
<PAGE> 43
<TABLE>
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 1995
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net cash provided by (used in)
operating activities $ 18,041 $(1,154) $1,359
Investing activities
Capital expenditures (9,721) (2,000) (388)
Purchase of ACCO, net of
cash acquired (7,704) - -
Other (4,452) - -
Investment in subsidiaries (11,295) - (900)
Advances from (to) subsidiaries 6,101 - -
-------- ------- ------
Net cash used in investing
activities (27,071) (2,000) (1,288)
Financing activities
Repayment of long-term obligations (116,837) (1,432) -
Proceeds from borrowings 125,795 - -
Advances from (to) subsidiaries - 4,633 1,423
-------- ------- ------
Net cash provided by
financing activities 8,958 3,201 1,423
-------- ------- ------
Net increase (decrease) in cash
and cash equivalents (72) 47 1,494
Cash and cash equivalents,
beginning of period 418 3 257
-------- ------- ------
Cash and cash equivalents,
end of period $ 346 $ 50 $1,751
======== ======= ======
Eliminations Consolidated
------------ ------------
(In thousands)
Operating activities
Net cash provided by (used in)
operating activities $ (38) $ 18,208
Investing activities
Capital expenditures - (12,109)
Purchase of ACCO, net of cash
acquired - (7,704)
Other - (4,452)
Investment in subsidiaries 12,195 -
Advances from (to) subsidiaries (6,101) -
-------- --------
Net cash used in investing
activities 6,094 (24,265)
Financing activities
Repayment of long-term obligations - (118,269)
Proceeds from borrowings - 125,795
Advances from (to) subsidiaries (6,056) -
-------- --------
Net cash provided by
financing activities (6,056) 7,526
-------- --------
Net increase (decrease) in cash
and cash equivalents - 1,469
Cash and cash equivalents,
beginning of period - 678
-------- --------
Cash and cash equivalents,
end of period $ - $ 2,147
======== ========
</TABLE>
<PAGE> 44
<TABLE>
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 1994
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries
------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net cash provided by operating
activities $20,148 $ 1,738 $299
Investing activities
Capital expenditures (5,852) (1,051) (308)
Purchase of Megas, net of
cash acquired (12,618) - -
Other (508) - -
Investment in subsidiaries 17 - -
Advances from (to) subsidiaries 1,253 - -
------- ------- ----
Net cash used in investing
activities (17,708) (1,051) (308)
Financing activities
Repayment of long-term obligations (19,126) - -
Proceeds from borrowings 17,000 - -
Advances (to) from subsidiaries - (687) (485)
------- ------- ----
Net cash used in financing
activities (2,126) (687) (485)
------- ------- ----
Net increase (decrease) in cash
and cash equivalents 314 - (494)
Cash and cash equivalents,
beginning of period 104 3 751
------- ------- ----
Cash and cash equivalents,
end of period $ 418 $ 3 $257
======= ======= ====
Eliminations Consolidated
------------ ------------
(In thousands)
Operating activities
Net cash provided by operating
activities $ 98 $22,283
Investing activities
Capital expenditures - (7,211)
Purchase of Megas, net of cash
acquired - (12,618)
Other - (508)
Investment in subsidiaries (17) -
Advances from (to) subsidiaries (1,253) -
------- -------
Net cash used in investing
activities (1,270) (20,337)
Financing activities
Repayment of long-term obligations - (19,126)
Proceeds from borrowings - 17,000
Advances (to) from subsidiaries 1,172 -
------ -------
Net cash used in financing
activities 1,172 (2,126)
------ -------
Net increase (decrease) in cash
and cash equivalents - (180)
Cash and cash equivalents,
beginning of period - 858
------ -------
Cash and cash equivalents,
end of period $ - $ 678
====== =======
</TABLE>
<PAGE> 45
Report of Independent Accountants
Stockholders and Board of Directors
American Safety Razor Company
We have audited the accompanying consolidated balance sheets of American
Safety Razor Company and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income and cash flows for each of the
three years in the period ended December 31, 1996. We have also audited the
financial statement schedule listed in Item 14(a) of this Form 10-K. These
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
the financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Safety Razor Company and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects, the information required to be included therein.
Coopers and Lybrand L.L.P.
Richmond, Virginia
February 4, 1997
<PAGE> 46
<TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
AMERICAN SAFETY RAZOR COMPANY
(IN THOUSANDS)
Additions
------------------
Balance Charged to Charged
Beginning Costs and to Other
Description of Period Expenses Accounts
----------- --------- ---------- --------
<S> <C> <C> <C>
Year ended 12-31-96
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $1,026 $ 593 $ 3 (1)
Allowance for discounts and
other deductions 986 3,223 32 (1)
------ ------ ---
$2,012 $3,816 $35
====== ====== ===
Year ended 12-31-95
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 794 $ 594 $ 71 (1)
Allowance for discounts and
other deductions 633 3,534 235 (1)
------ ------ ----
$1,427 $4,128 $306
====== ====== ====
Year ended 12-31-94
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 710 $ 241 $83 (1)
Allowance for discounts and
other deductions 745 2,125 0
------ ------ ---
$1,455 $2,366 $83
====== ====== ===
Balance
End of
Description Deductions Period
----------- ---------- -------
Year ended 12-31-96
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 370 (2) $1,252
Allowance for discounts and
other deductions 2,935 (3) 1,306
------ ------
$3,305 $2,558
====== ======
Year ended 12-31-95
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 433 (2) $1,026
Allowance for discounts and
other deductions 3,416 (3) 986
------ ------
$3,849 $2,012
====== ======
Year ended 12-31-94
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 240 (2) $ 794
Allowance for discounts and
other deductions 2,237 (3) 633
------ ------
$2,477 $1,427
====== ======
(1) Allowance balance of subsidiary at acquisition date
(2) Accounts written off, net of recoveries
(3) Discounts taken by customer
</TABLE>
<PAGE> 47
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
2.1 Stock Sale and Purchase Agreement for the
Registrant, dated April 12, 1989, by, between,
and among J. Gray Ferguson, Arthur J. Gajarsa,
Joseph F. Hackett and William L. Robbins, III,
the Registrant and ASR Acquisition Corp. (1) **
2.2 Agreement for Purchase and Sale of Stock, dated
April 17, 1989, by and among Howard E. Strauss,
Bert Ghavami, and Ardell Acquisition Corp.(1) **
2.3 Amendment No. 1 to Agreement for Purchase and
Sale of Stock, dated April 28, 1989, by and
among Howard E. Strauss, Bert Ghavami, and Ardell
Acquisition Corp. **
2.4 Agreement for Purchase and Sale of Stock of
Megas Beauty Care, Inc. dated May 16, 1994
between Megas Holdings, Inc. and Robert Bender (1) ***
2.5 Stock Purchase Agreement dated February 7, 1995,
by and among Sterile Products Holdings, Inc. and
C. C. (Jack) Van Noy, George P. Goemans, Tamalpais
Capital, and Newtek Venture (1) ****
2.6 Asset Purchase Agreement, dated as of March 6, 1996,
by and among MLO Razor Company (1996) Ltd.
("Purchaser"), and Bond-America Israel Blades Ltd.
("Seller"), Nostrum Establishment and Kaftor
VePerach Ltd., the stockholders of Seller
(individually each an "Owner" and collectively,
the "Owners") and Robert Mandel, Daniel Mandel,
Alfred Mernone, Shulamit Weiman, Noam Weiman, Efrat
Gershoni and Ayin Mor Ltd. (individually each a
"Beneficial Owner" and collectively the "Beneficial
Owners" and together with the
Owners, the "Stockholders"). (1) *******
2.7 Amendment No. 1 to Asset Purchase Agreement (the
"Amendment"), dated as of March 25, 1996, by and
among Bond Blades International Ltd. (formerly
known as MLO Razor Company (1996) Ltd.),
("Purchaser"), and Bond-America Israel Blades Ltd.,
("Seller"), Nostrum Establishment and Kaftor
VePerach Ltd., the stockholders of Seller
(individually each an "Owner" and collectively,
the "Owners") and Robert Mandel, Daniel Mandel,
Alfred Mernone, Shulamit Weiman, Noam Weiman, Efrat
Gershoni and Ayin Mor Ltd. (individually each a
"Beneficial Owner" and collectively the "Beneficial
Owners" and together with the Owners, the
"Stockholders"). *******
2.8 Asset Purchase Agreement, dated as of March 6, 1996,
by and among American Safety Razor Company
("Purchaser"), and A.I. Blades, Inc. ("Seller") and
Bond-America Israel Blades, Ltd., the sole
stockholder of Seller ("Bond"), Nostrum
Establishment and Kaftor VePerach Ltd., Robert
Mandel, Daniel Mandel, Alfred Mernone, Shulmait
Weiman, Noam Weiman, Efrat Gershoni and Ayin
Mor Ltd. (individually each a "Beneficial
Owner" and collectively the "Beneficial Owners"
and together with Bond, the "Stockholders"). (1) *******
<PAGE> 48
2.9 Amendment No. 1 to Asset Purchase Agreement (the
"Amendment"), dated as of March 25, 1996, by
and among American Safety Razor Company
("Purchaser"), and A.I. Blades, Inc. ("Seller")
and Bond-America Israel Blades Ltd., the sole
stockholder of Seller ("Bond"), Nostrum
Establishment and Kaftor VePerach Ltd., Robert
Mandel, Daniel Mandel, Alfred Mernone,
Shulamit Weiman, Noam Weiman, Efrat Gershoni and
Ayin Mor Ltd. (individually each a "Beneficial
Owner" and collectively the "Beneficial Owners"
and together with Bond, the "Stockholders"). *******
3.1 Amended and Restated Certificate of Incorporation
of the Registrant *
3.2 Amended and Restated By-laws of the Registrant *
4.1 Specimen of Stock Certificate **
4.2 Recapitalization Agreement, dated May 24, 1993,
among the Registrant and its Stockholders *
4.3 Subscription Agreement, dated April 28, 1989,
by and among the Registrant, JZCC and Allsop **
4.4 Registration Rights Agreement, dated as of
August 3, 1995, among the Registrant, the
Guarantors and the Initial Purchasers, relating
to the Senior Notes ******
4.5 Indenture governing the Senior Notes, dated as
of August 3, 1995, by and among the Registrant,
the Guarantors and the Trustees *****
4.6 Preferred Stock Exchange Agreement, dated
June 14, 1993, among the Registrant and
the holders of Preferred Stock *
4.7 Common Stock Conversion Agreement, dated
May 24, 1993, among the Registrant and
the holders of Common Stock *
4.8 Stockholders Agreement, dated April 14, 1989,
between the Registrant and its Stockholders **
4.9 First Amendment to the Stockholders Agreement,
dated April 28, 1989, between the Registrant
and its Stockholders **
4.10 Second Amendment to the Stockholders Agreement,
dated December 29, 1992, between the Registrant
and its Stockholders **
4.11 Third Amendment to the Stockholders Agreement,
dated June 15, 1993, among the Registrant and
certain of its Stockholders *
4.12 $2,500,000 Subordinated Secured Note, due
June 10, 2000, executed by Megas Holdings, Inc.
in favor of Robert Bender ***
4.13 Junior Security Agreement, dated June 10, 1994,
by Megas Beauty Care, Inc. (formerly Megas
Holdings, Inc.) in favor of Robert Bender ****
4.14 Multicurrency Credit Agreement, dated as of
August 3, 1995, among the Registrant, the
Guarantors and First National Bank of Chicago,
as agent, including exhibits *****
<PAGE> 49
4.15 Guarantees of the Guarantors pursuant to the
Multicurrency Credit Agreement ******
4.16 Security Agreement, dated August 3, 1995,
between the Registrant and First National
Bank of Chicago, as agent, including schedules ******
4.17 Guarantor Security Agreements, dated August 3,
1995, by and among the Guarantors and First
National Bank of Chicago, as agent, including
schedules ******
10.1(a) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
William C. Weathersby (2) *
10.1(b) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
William L. Robbins (2) *
10.1(c) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
George L. Pineo (2) *
10.1(d) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
Gary S. Wade (2) *
10.1(e) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
Joseph F. Hackett (2) *
10.1(f) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
Thomas G. Kasvin (2) *
10.1(g) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
Thomas B. Boyd (2) *
10.1.(h) Non-Disclosure/Non-Compete Agreement, dated
June 15, 1993, between the Registrant and
Bruce L. Stichter (2) *
10.2(a) Indemnification Agreement, dated June 15, 1993,
between the Registrant and Thomas H. Quinn (2) *
10.2(b) Indemnification Agreement, dated June 15, 1993,
between the Registrant and William C.
Weathersby (2) *
10.2(c) Indemnification Agreement, dated June 15, 1993,
between the Registrant and Jonathan F. Boucher (2) *
10.2(d) Indemnification Agreement, dated June 15, 1993,
between the Registrant and John W. Jordan, II (2) *
10.2(e) Indemnification Agreement, dated June 15, 1993,
between the Registrant and David W. Zalaznick (2) *
10.2(f) Indemnification Agreement, dated June 15, 1993,
between the Registrant and John R. Lowden (2) *
10.2(g) Indemnification Agreement, dated June 15, 1993,
between the Registrant and Paul D. Rhines (2) *
10.2(h) Indemnification Agreement, dated June 15, 1993,
between the Registrant and D. Patrick Curran (2) *
<PAGE> 50
10.2(i) Indemnification Agreement, dated June 15, 1993,
between the Registrant and William C.
Ballard, Jr. (2) *
10.3 Financial Advisory Agreement, dated July 12, 1995,
between the Registrant and TJC Management ******
10.4 Settlement Agreement, dated June 5, 1992, by and
between Warner-Lambert Company and the Registrant **
10.5 Administrative Consent Order, dated March 13, 1989,
between the Registrant and the New Jersey Department
of Environmental Protection and Energy **
10.6 Employment Agreement, dated March 3, 1995, by and
between Sterile Products Holdings, and Sterile
Products Corporation and C. C. Van Noy (2) ****
10.7 The American Safety Razor Company Stock Option Plan *
16 Letter re Change in Certifying Accountant ****
21 List of Subsidiaries of the Registrant 52
23 Consent of Coopers & Lybrand L.L.P. 53
27 Financial Data Schedule 54
-----------------------
* Incorporated by reference to the exhibits filed with the
Registrant's Form 10-K for the fiscal year ended December 31,
1993.
** Incorporated by reference to the exhibits filed with the
Registrant's Form S-1 Registration Statement (No. 33-60298).
*** Incorporated by reference to the exhibits filed with the
Registrant's Form 8-K/A, dated June 10, 1994 relating to the
acquisition of Megas Beauty Care, Inc.
**** Incorporated by reference to the exhibits filed with the
Registrant's Form 10-K for the fiscal year ended December 31,
1994.
***** Incorporated by reference to the exhibits filed with the
Registrant's Form 8-K, dated August 15, 1995.
****** Incorporated by reference to the exhibits filed with the
Registrant's Form S-4 Registration Statement (No. 33-96046).
******* Incorporated by reference to the exhibits filed with the
Registrant's Form 10-Q for the quarter ended March 31, 1996.
(1) Disclosure schedules relating to the representations and
warranties have not been filed; such schedules will be filed
supplementally upon the request of the Securities and Exchange
Commission.
(2) This exhibit is a management contract or compensatory plan or
arrangement required to be identified in this Form 10-K pursuant
to Item 14(c) of this Report.
<PAGE> 51
Exhibit 21
LIST OF SUBSIDIARIES OF THE REGISTRANT (1):
Subsidiary
----------
American Safety Razor Corporation
American Safety Razor of Canada Limited
ASR Holdings, Inc.
Ardell Industries, Inc.
Autenticos Sistemas de Rasurar de Mexico, S.A. de C.V.
Bond Blades International, Ltd.
The Hewitt Soap Company, Inc.
Industrias Manufactureras ASR de Puerto Rico, Inc.
Megas Beauty Care, Inc.
Personna International de Republica Dominicana, S.A.
Personna International Limited
Personna International UK Limited
Personna International (Deutschland) GmbH
Personna International de Puerto Rico, Inc.
(1) Each subsidiary is 100% owned by the Company or certain of its
subsidiaries.
<PAGE> 52
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of American Safety Razor Company and subsidiaries on Form S-8 (File No. 33-
73982) of our report dated February 4, 1997, on our audits of the
consolidated financial statements and financial statement schedule of
American Safety Razor Company and subsidiaries as of December 31, 1996 and
1995, and for the years December 31, 1996, 1995, and 1994, which report is
included in this Annual Report on Form 10-K.
Coopers and Lybrand L.L.P.
Richmond, Virginia
March 3, 1997
<PAGE> 53
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Form 10-K of American Safety Razor
Company for the year ended December 31, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1979
<SECURITIES> 0
<RECEIVABLES> 40462
<ALLOWANCES> 2558
<INVENTORY> 43866
<CURRENT-ASSETS> 89342
<PP&E> 95034
<DEPRECIATION> 34012
<TOTAL-ASSETS> 229997
<CURRENT-LIABILITIES> 35650
<BONDS> 110762
0
0
<COMMON> 121
<OTHER-SE> 44402
<TOTAL-LIABILITY-AND-EQUITY> 229997
<SALES> 260636
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<CGS> 169949
<TOTAL-COSTS> 169949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 593
<INTEREST-EXPENSE> 11719
<INCOME-PRETAX> 21598
<INCOME-TAX> 8425
<INCOME-CONTINUING> 13173
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13173
<EPS-PRIMARY> 1.09
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