UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission File Number 0-21952
AMERICAN SAFETY RAZOR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 54-1050207
- ------------------------ --------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
One Razor Blade Lane, P. O. Box 979, Verona, Virginia 24482-0979
- ----------------------------------------------------------------
(Address of principal executive offices, including zip code)
(540) 248-8000
- -----------------------------
Registrant's telephone number
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 14, 1997.
Class Outstanding at April 14, 1997
----- -----------------------------
Common Stock, $.01 Par Value 12,092,849
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
Index
-----
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996 1
Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 1997 and March 31, 1996 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 1997 and March 31, 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31, December 31,
1997 1996
----------- ----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,344 $ 1,979
Trade receivables, net 37,093 37,904
Inventories 48,043 43,866
Deferred income taxes 3,460 3,760
Prepaid expenses 1,911 1,833
-------- --------
Total current assets 91,851 89,342
Property and equipment 96,016 95,034
Less accumulated depreciation (35,285) (34,012)
-------- --------
60,731 61,022
Intangible assets, net:
Goodwill 70,178 70,678
Other 4,838 5,055
-------- --------
75,016 75,733
Prepaid pension cost and other 4,229 3,900
-------- --------
$231,827 $229,997
======== ========
See accompanying notes.
</TABLE>
<PAGE> 1
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 13,907 $ 14,212
Accrued expenses and other 15,575 19,649
Income taxes payable 1,438 370
Current maturities of long-term obligations 2,046 1,419
-------- --------
Total current liabilities 32,966 35,650
Long-term obligations 116,869 110,762
Retiree benefits and other 25,686 25,675
Deferred income taxes 9,667 13,387
Stockholders' equity:
Common Stock, $.01 par value, 25,000,000
shares authorized; 12,092,849 shares
issued and outstanding at
March 31, 1997 and December 31, 1996 121 121
Additional capital 65,756 65,756
Deficit (18,160) (20,714)
Foreign currency translation (1,078) (640)
-------- --------
46,639 44,523
-------- --------
Total liabilities and stockholders' equity $231,827 $229,997
======== ========
See accompanying notes.
</TABLE>
<PAGE> 2
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share data)
<CAPTION>
Three Months Ended
March 31,
1997 1996
------- -------
<S> <C> <C>
Net sales $63,103 $57,460
Cost of sales 41,425 37,543
------- -------
Gross profit 21,678 19,917
Selling, general and administrative expenses 13,944 12,731
Amortization of intangibles 620 602
------- -------
Operating income 7,114 6,584
Interest expense 2,906 2,803
------- -------
Income before income taxes 4,208 3,781
Income taxes 1,654 1,514
------- -------
Net income $2,554 $2,267
====== ======
Weighted average shares outstanding 12,093,000 12,093,000
Earnings per share:
Net income $.21 $.19
==== ====
See accompanying notes.
</TABLE>
<PAGE> 3
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Operating activities
Net income $2,554 $2,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,638 2,419
Interest and financing costs 137 232
Retiree benefits and other (756) 89
Deferred income taxes 385 392
Changes in operating assets and liabilities
net of effects of the Bond acquisition:
Trade receivables 811 1,394
Inventories (4,177) (1,573)
Prepaid expenses (78) 15
Accounts payable (305) 3,103
Accrued and other expenses (4,074) (1,506)
Income taxes payable (2,737) 390
------ ------
Net cash (used in) provided by operating activities (5,602) 7,222
Investing activities
Capital expenditures (1,727) (2,568)
Acquisition of Bond, net of cash acquired - (12,492)
Deferred loan fees and other (28) (13)
------ -------
Net cash used in investing activities (1,755) (15,073)
Financing activities
Repayment of long-term obligations (222) (2,132)
Proceeds from borrowings 6,944 10,000
------ -------
Net cash provided from financing activities 6,722 7,868
Net increase (decrease) in cash and cash equivalents (635) 17
Cash and cash equivalents, beginning of period 1,979 2,147
------ -------
Cash and cash equivalents, end of period $1,344 $2,164
====== ======
See accompanying notes.
</TABLE>
<PAGE> 4
AMERICAN SAFETY RAZOR COMPANY
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended March 31, 1997, are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
NOTE B - INVENTORIES
Classifications of inventories are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(In thousands)
<S> <C> <C>
Raw materials $16,466 $15,463
Work-in-process 6,741 5,951
Finished goods 22,452 20,289
Operating supplies 3,040 2,819
------- -------
48,699 44,522
Excess of current cost over LIFO inventory value 656 656
------- -------
$48,043 $43,866
======= =======
</TABLE>
NOTE C - OTHER INFORMATION
The Company's federal income tax returns for 1989 through 1994 have been
examined by the IRS. The Company acquired certain intangible assets at the
time of acquisition of the Company and of Ardell for $29 million, and to
date the Company has claimed federal income tax deductions of $29 million
for the amortization of those assets. In 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. During
April 1997, the Company settled certain of the outstanding tax issues with
the IRS related to its tax years 1992, 1993 and 1994. In addition, during
April 1997, the Company agreed to a tentative settlement with the IRS
related to tax deductions of approximately $10 million of loan costs and
certain other costs. The tentative settlement of these issues with the IRS
is not expected to have a materially adverse impact on the consolidated
financial position or results of operations of the Company. With respect to
the proposed disallowances relating to the $29 million of intangible assets,
the Company disagrees with the IRS's proposed disallowances and is
vigorously contesting such proposed disallowances at the IRS appellate
level. The Company believes that, with respect to these proposed
disallowances, it is likely that its case will proceed to U.S. Tax Court.
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 ultimate outcome of
these issues will not have a materially adverse impact on the consolidated
financial position or results of operations of the Company.
Stock options outstanding during the three months ended March 31, 1997 and
1996, did not have a material dilutive effect on weighted average shares
outstanding or earnings per share.
NOTE D - LONG TERM OBLIGATIONS
At March 31, 1997, the Company had utilized $13.3 million of its revolving
credit facility and had approximately $36.7 million available for future
borrowings under this facility.
NOTE E - PURCHASE OF THE COTTON DIVISION OF AMERICAN WHITE CROSS, INC.
On March 21, 1997, the Company entered into a definitive agreement to
purchase certain assets of The Cotton Division of American White Cross, Inc.
("Cotton") for net consideration of approximately $10.0 million. The
transaction is expected to be completed by late April 1997. The acquisition
will be accounted for under the purchase method of accounting and will be
financed primarily by additional borrowings under the Company's revolving
credit facility. Cotton is engaged in the manufacture and distribution of
private-brand and value-brand cotton swabs, cotton rounds and squares,
cotton balls and puffs, pharmaceutical coil and cotton rolls.
NOTE F - ACCOUNTING CHANGE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128").
FAS 128 establishes standards for computing and presenting earnings per
share ("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share"
("Opinion 15"). FAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS which excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding during the period. This statement also
requires dual presentation of basic EPS and diluted EPS on the face of the
income statement for all periods presented. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15, with some
modifications. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Early
adoption is not permitted and the statement requires restatement of all
prior-period EPS data presented after the effective date.
The Company will adopt FAS 128 effective with its 1997 year end. Pro forma
earnings per share data calculated in accordance with FAS 128 for the three
months ended March 31, 1997 and March 31, 1996, is as follows (in thousands,
except per share data):
<TABLE>
1997 1996
------ ------
<S> <C> <C>
Net income $2,554 $2,267
====== ======
Basic EPS $.21 $.19
==== ====
Weighted average shares outstanding 12,093 12,093
====== ======
Diluted EPS $.21 $.19
==== ====
Weighted average shares outstanding 12,217 12,097
====== ======
</TABLE>
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included in this report
and the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Net Sales. Net sales for the three months ended March 31, 1997 and 1996,
were $63.1 million and $57.5 million, respectively, an increase of $5.6
million, or 9.8%. Sales by Bond, acquired on March 29, 1996, contributed
$3.3 million to the net sales increase. Net sales of the Company's shaving
blades and razors for the three months ended March 31, 1997 (excluding
Bond), totaled $24.1 million, a 4.5% increase over net sales for the three
months ended March 31, 1996, of $23.1 million. Net sales of domestic private-
brand shaving products (excluding Bond) increased 9.2% primarily benefiting
from continued growth of the MBC trademark and Lady MBC trademark products
and increased promotional support of products by customers. Net sales of
international shaving products (excluding Bond) increased 9.4% primarily
benefiting from increased distribution of the MBC trademark and Lady MBC
trademark products and from increased sales primarily in Puerto Rico, Europe
and Asia. International net sales were negatively impacted approximately
3.0% by unfavorable exchange rates. Net sales of domestic branded shaving
products decreased 3.6% primarily resulting from inventory adjustments by
certain customers.
Net sales of bladed hand tools and blades for the three months ended March
31, 1997 and 1996, were $9.9 million and $9.5 million, respectively, an
increase of $0.4 million, or 3.9%. This increase primarily reflects
increased sales of the Company's American Line trademark and Personna
registered line of products.
Net sales of industrial and specialty and medical blades for the three
months ended March 31, 1997 and 1996, were $3.9 million and $4.0 million,
respectively, a decrease of $0.1 million, or 2.4%. Sales of industrial and
specialty products decreased 1.2% and sales of medical products decreased
3.7% primarily due to inventory adjustments by certain customers.
Net sales of fiber and foot care products for the three months ended March
31, 1997 and 1996, were $14.4 million and $13.7 million, respectively, an
increase of $0.7 million or 5.3%. Fiber and foot care experienced sales
growth in its cotton pads, balls, puffs and tissues product lines primarily
resulting from increased sales to certain customers.
Net sales of the Company's custom bar soap products for the three months
ended March 31, 1997 and 1996, were $7.5 million and $7.2 million,
respectively, an increase of $0.3 million or 4.3%. This increase primarily
reflects continued growth in sales of the Company's pharmaceutical/skin care
products.
Gross Profit. Gross profit increased $1.8 million to $21.7 million during
the three months ended March 31, 1997, from $19.9 million for the three
months ended March 31, 1996. As a percentage of net sales, gross profit was
34.4% for the three months ended March 31, 1997, and 34.7% for the three
months ended March 31, 1996. This decrease was primarily due to the lower
margins earned on sales of Bond products and was somewhat offset by lower
manufacturing costs in the fiber and foot care and custom bar soap
operations.
Operating and Other Expenses. Selling, general and administrative expenses
were substantially unchanged at 22.1% of net sales for the three months
ended March 31, 1997, compared to 22.2% for the three months ended March 31,
1996. Amortization of goodwill and other intangible assets was substantially
unchanged at $0.6 million for the three months ended March 31, 1997 and
1996. Interest expense increased for the three months ended March 31, 1997,
to $2.9 million from $2.8 million for the three months ended March 31, 1996,
primarily reflecting increased borrowings to finance the Bond acquisition.
Historically, the Company has experienced a quarterly trend in operating
results in which the first quarter contributes the lowest net sales and
operating income of the year. The Company believes this quarterly trend
results mainly from lower sales volumes of its shaving blades and razors and
custom bar soap products during the first quarter. Strong sales of shaving
blades and razors and custom bar soaps in the second, third and fourth
quarters reflect the seasonal trends of the retail industry. In addition,
the Company schedules its product promotions to coincide with these strong
selling seasons. Since fixed operating expenses constitute a greater
percentage of sales during the first quarter, the Company's operating income
for this period is traditionally lower than other quarters of the year.
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 used
in operating activities amounted to $5.6 million for the three months ended
March 31, 1997, and net cash provided by operating activities amounted to
$7.2 million for the three months ended March 31, 1996. The decrease of
$12.8 million in net cash provided by operating activities for the three
month period ending March 31, 1997, as compared to the three month period
ended March 31, 1996, was primarily due to the increase in inventories, the
decrease in accounts payable and the payment of certain liabilities.
At March 31, 1997, the Company had utilized $13.3 million of its revolving
credit facility and had approximately $36.7 million available for future
borrowings under its revolving credit facility.
Management believes that the Company's cash on hand, anticipated funds from
operations and the amounts available to the Company under its revolving
credit facility will be sufficient to cover its working capital, capital
expenditures, debt service requirements and tax obligations as well as
support the Company's growth-oriented strategy for its existing business for
at least the next 12 months. The Company anticipates that funding of any
additional acquisitions will require additional borrowings under its
revolving credit facility. The Company intends to maintain and further
strengthen its financial condition and, in connection therewith, may from
time to time consider other possible transactions, including other capital
market transactions or disposition of businesses that no longer meet
strategic objectives. The Company has no present plans in this regard.
<PAGE> 8
PART II, OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K: No reports on Form 8-K have been
filed during the quarter ended March 31, 1997.
<PAGE> 9
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN SAFETY RAZOR COMPANY
April 18, 1997 By /s/William C. Weathersby
- -------------- ---------------------------
Date William C. Weathersby
President
April 18, 1997 By /s/Thomas G. Kasvin
- -------------- ----------------------------
Date Thomas G. Kasvin
Senior Vice President
Chief Financial Officer
<PAGE> 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Form 10-Q of American Safety Razor Company
for the quarter ended March 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1344
<SECURITIES> 0
<RECEIVABLES> 37093
<ALLOWANCES> 0
<INVENTORY> 48043
<CURRENT-ASSETS> 91851
<PP&E> 96016
<DEPRECIATION> 35285
<TOTAL-ASSETS> 231827
<CURRENT-LIABILITIES> 32966
<BONDS> 116869
0
0
<COMMON> 121
<OTHER-SE> 46518
<TOTAL-LIABILITY-AND-EQUITY> 231827
<SALES> 63103
<TOTAL-REVENUES> 63103
<CGS> 41425
<TOTAL-COSTS> 41425
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2906
<INCOME-PRETAX> 4208
<INCOME-TAX> 1654
<INCOME-CONTINUING> 2554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2554
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
