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, 1998
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 24, 1998.
Class Outstanding at April 24, 1998
----- -----------------------------
Common Stock, $.01 Par Value 12,106,449
<PAGE>
<TABLE>
<CAPTION>
AMERICAN SAFETY RAZOR COMPANY
Index
-----
Page Number
-----------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 (Unaudited) and December 31, 1997 1
Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 1998 and March 31, 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 1998 and March 31, 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,800 $ 1,434
Trade receivables, net 38,100 45,277
Inventories 56,222 51,488
Income taxes receivable 1,463 896
Deferred income taxes 3,113 2,803
Prepaid expenses 2,376 1,410
-------- --------
Total current assets 103,074 103,308
Property and equipment 116,599 114,649
Less accumulated depreciation (43,046) (41,706)
-------- --------
73,553 72,943
Intangible assets, net:
Goodwill 68,444 68,978
Other 4,036 4,258
-------- --------
72,480 73,236
Prepaid pension cost and other 4,658 4,594
-------- --------
Total assets $253,765 $254,081
======== ========
</TABLE>
See accompanying notes.
-1-
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 15,783 $ 15,704
Accrued expenses and other 16,581 20,761
Current maturities of long-term obligations 2,220 2,107
-------- --------
Total current liabilities 34,584 38,572
Long-term obligations 123,710 121,505
Retiree benefits and other 24,791 24,983
Deferred income taxes 10,291 9,582
-------- --------
Total liabilities 193,376 194,642
-------- --------
Stockholders' equity:
Common Stock, $.01 par value, 25,000,000 shares authorized;
12,106,449 shares issued and outstanding at March 31, 1998
(12,098,049 at December 31, 1997) 121 121
Additional capital 65,874 65,801
Deficit (4,856) (5,645)
Foreign currency translation (750) (838)
-------- --------
60,389 59,439
-------- --------
Total liabilities and stockholders' equity $253,765 $254,081
======== ========
</TABLE>
See accompanying notes.
-2-
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $66,511 $63,103
Cost of sales 47,003 41,425
------- -------
Gross profit 19,508 21,678
Selling, general and administrative expenses 13,521 13,944
Amortization of intangibles 631 620
Restructuring charge 1,003 -
------ -------
Operating income 4,353 7,114
Interest expense 3,045 2,906
------ -------
Income before income taxes 1,308 4,208
Income taxes 519 1,654
------ -------
Net income $789 $2,554
==== ======
Basic earnings per share:
Net income $.07 $.21
==== ====
Weighted average number of shares outstanding 12,103 12,093
====== ======
Diluted earnings per share:
Net income $.06 $.21
==== ====
Weighted average number of shares outstanding 12,338 12,217
====== ======
</TABLE>
See accompanying notes.
-3-
<PAGE>
<TABLE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net income $ 789 $2,554
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,977 2,638
Interest and financing costs 136 137
Retiree benefits and other (167) (756)
Deferred income taxes 881 385
Changes in operating assets and liabilities:
Trade receivables 7,177 811
Inventories (4,734) (4,177)
Income taxes receivable (567) -
Prepaid expenses (966) (78)
Accounts payable 79 (305)
Accrued and other expenses (4,180) (4,074)
Income taxes payable (483) (2,737)
------- ------
Net cash provided by (used in) operating activities 942 (5,602)
Investing activities
Capital expenditures (2,956) (1,727)
Deferred loan fees and other - (28)
------ ------
Net cash used in investing activities (2,956) (1,755)
Financing activities
Repayment of long-term obligations (3,102) (222)
Proceeds from borrowings 5,409 6,944
Proceeds from exercise of stock options 73 -
------ ------
Net cash provided from financing activities 2,380 6,722
Net increase (decrease) in cash and cash equivalents 366 (635)
Cash and cash equivalents, beginning of period 1,434 1,979
------ ------
Cash and cash equivalents, end of period $1,800 $1,344
====== ======
</TABLE>
See accompanying notes.
-4-
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. 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, 1997.
NOTE B - INVENTORIES
Classifications of inventories are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(In thousands)
<S> <C> <C>
Raw materials $21,786 $20,352
Work-in-process 6,514 5,596
Finished goods 25,256 23,128
Operating supplies 3,361 3,107
------- -------
56,917 52,183
Excess of current cost over LIFO inventory value 695 695
------- -------
$56,222 $51,488
======= =======
</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 June 1997, the IRS issued a statutory notice of
deficiency disallowing substantially all of the Company's amortization
deductions relating to the intangible assets. The Company disagrees with the
IRS's disallowances and in September 1997, petitioned the U.S. Tax Court to
review and redetermine such disallowances. The outcome of these proceedings
cannot be predicted at this time and the Company will continue to evaluate the
potential impact on its tax reserves relating to this case. However, the Company
believes that the ultimate outcome of these issues will not have a materially
adverse impact on the consolidated financial position or results of operations
of the Company.
In March 1998, the Company recorded a restructuring charge of approximately $1.0
million which includes estimated costs of approximately $0.2 million to close
the Sparks, Nevada cotton operations and approximately $0.8 million in severance
and employee benefit costs relating to consolidation of the Company's domestic
shaving razor and blade and cotton products sales forces and other personnel
changes.
-5-
<PAGE>
NOTE D - LONG TERM OBLIGATIONS
At March 31, 1998, the Company had utilized $20.6 million of its revolving
credit facility and had approximately $29.4 million available for future
borrowings under this facility.
NOTE E - EARNINGS PER SHARE
The difference between the weighted average number of shares outstanding for
computing basic earnings per share and diluted earnings per share relates to the
Company's employee stock options outstanding which are assumed to be converted
for the diluted earnings per share calculation when the average market price of
the Company's common stock for the period exceeds the exercise price of the
employee stock options which are outstanding.
NOTE F - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. The Company's comprehensive income amounted to $0.9
million and $2.1 million for the three months ended March 31, 1998 and 1997,
respectively. Comprehensive income includes net income of $0.8 million and $2.6
million for the three months ended March 31, 1998 and 1997, respectively, and
other comprehensive income which includes foreign currency translation
adjustments of $0.09 million of income and $0.5 million of expense, for the
three months ended March 31, 1998 and 1997, respectively.
NOTE G - SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $100.0 million of Series B Senior Notes due 2005 have been
guaranteed, on a joint and several basis by certain domestic subsidiaries of the
Company, which guarantees are senior unsecured obligations of each guarantor and
will rank pari passu in right of payment with all other indebtedness of each
guarantor. However, the guarantee of one of the guarantor subsidiaries ranks
junior to its outstanding subordinated note.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of March 31, 1998 and
December 31, 1997, and for the three months ended March 31, 1998 and 1997, of
American Safety Razor Company - the parent company, the guarantor subsidiaries,
the non-guarantor subsidiaries, and elimination entries necessary to combine
such entities on a consolidated basis, and
(2) The investment in subsidiaries is 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.
During 1997, Ardell Industries, Inc., a non-guarantor subsidiary, was merged
into American Safety Razor Company - the parent company.
Separate financial statements and other disclosures concerning the guarantor
subsidiaries are not presented because management has determined that such
information would not be material to the holders of the Series B Senior Notes.
-6-
<PAGE>
<TABLE>
Condensed Consolidating Balance Sheets
March 31, 1998
(In thousands)
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 118 $ 91 $ 1,591 $ - $ 1,800
Trade receivables, net 16,411 10,480 11,209 - 38,100
Advances receivable--subsidiaries 34,325 - 3,409 (37,734) -
Inventories 31,202 13,928 12,019 (927) 56,222
Income taxes and prepaid expenses 6,347 (424) 1,029 - 6,952
-------- ------- ------- -------- --------
Total current assets 88,403 24,075 29,257 (38,661) 103,074
Property and equipment, net 40,179 23,458 9,916 - 73,553
Intangible assets, net 50,709 21,340 431 - 72,480
Prepaid pension cost and other 296 4,340 22 - 4,658
Investment in subsidiaries 39,026 - 900 (39,926) -
-------- ------- ------- -------- --------
Total assets $218,613 $73,213 $40,526 $(78,587) $253,765
======== ======= ======= ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and other $ 15,724 $12,271 $ 4,367 $ 2 $ 32,364
Advances payable--subsidiaries - 37,612 - (37,612) -
Current maturities of long-term
obligations 1,025 125 1,070 - 2,220
-------- ------- ------- -------- --------
Total current liabilities 16,749 50,008 5,437 (37,610) 34,584
Long-term obligations 120,984 2,726 - - 123,710
Retiree health and insurance benefits
and other 14,891 9,900 - - 24,791
Deferred income taxes 7,392 2,844 55 - 10,291
-------- ------- ------- -------- --------
Total liabilities 160,016 65,478 5,492 (37,610) 193,376
-------- ------- ------- -------- --------
Stockholders' equity
Common Stock 121 485 85 (570) 121
Additional capital 65,874 15,662 23,694 (39,356) 65,874
Deficit (9,888) (8,412) 14,492 (1,048) (4,856)
Dividends 2,452 - (2,452) - -
Foreign currency translation 38 - (785) (3) (750)
-------- ------- ------- -------- --------
58,597 7,735 35,034 (40,977) 60,389
-------- ------- ------- -------- --------
Total liabilities and
stockholders' equity $218,613 $73,213 $40,526 $(78,587) $253,765
======== ======= ======= ======== ========
</TABLE>
-7-
<PAGE>
<TABLE>
Condensed Consolidating Balance Sheets
December 31, 1997
(In thousands)
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 356 $ 433 $ 637 $ 8 $ 1,434
Trade receivables, net 20,172 13,283 11,822 - 45,277
Advances receivable--subsidiaries 33,608 - 4,299 (37,907) -
Inventories 29,106 12,603 10,724 (945) 51,488
Income taxes and prepaid expenses 5,730 (982) 361 - 5,109
-------- ------- ------- -------- --------
Total current assets 88,972 25,337 27,843 (38,844) 103,308
Property and equipment, net 39,836 23,135 9,972 - 72,943
Intangible assets, net 51,205 21,585 446 - 73,236
Prepaid pension cost and other 297 4,277 20 - 4,594
Investment in subsidiaries 39,026 - 900 (39,926) -
-------- ------- ------- -------- --------
Total assets $219,336 $74,334 $39,181 $(78,770) $254,081
======== ======= ======= ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and other $ 19,540 $13,346 $ 3,576 $ 3 $ 36,465
Advances payable--subsidiaries - 37,851 - (37,851) -
Current maturities of long-term
obligations 1,020 138 949 - 2,107
-------- ------- ------- -------- --------
Total current liabilities 20,560 51,335 4,525 (37,848) 38,572
Long-term obligations 118,748 2,757 - - 121,505
Retiree health and insurance benefits
and other 14,988 9,995 - - 24,983
Deferred income taxes 7,035 2,492 55 - 9,582
-------- ------- ------- -------- --------
Total liabilities 161,331 66,579 4,580 (37,848) 194,642
-------- ------- ------- -------- --------
Stockholders' equity
Common Stock 121 485 85 (570) 121
Additional capital 65,801 15,662 23,694 (39,356) 65,801
Deficit (10,407) (8,392) 14,147 (993) (5,645)
Dividends 2,452 - (2,452) - -
Foreign currency translation 38 - (873) (3) (838)
-------- ------- ------- -------- --------
58,005 7,755 34,601 (40,922) 59,439
-------- ------- ------- -------- --------
Total liabilities and
stockholders' equity $219,336 $74,334 $39,181 $(78,770) $254,081
======== ======= ======= ======== ========
</TABLE>
-8-
<PAGE>
<TABLE>
Condensed Consolidating Statements of Income (Unaudited)
Three Months Ended March 31, 1998
(In thousands)
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $32,177 $28,019 $11,317 $(5,002) $66,511
Cost of sales 19,610 23,665 8,675 (4,947) 47,003
------- ------- ------- ------- -------
Gross profit 12,567 4,354 2,642 (55) 19,508
Selling, general and
administrative expenses 8,183 2,977 2,361 - 13,521
Amortization of intangible assets 372 245 14 - 631
Restructuring charge 731 184 88 - 1,003
-------- ------- ------- ------- -------
Operating income 3,281 948 179 (55) 4,353
Interest expense 2,405 1,008 (368) - 3,045
-------- ------- ------- ------- -------
Income (loss) before income taxes 876 (60) 547 (55) 1,308
Income taxes 357 (40) 202 - 519
-------- ------- ------- ------- -------
Net income (loss) $ 519 $ (20) $ 345 $ (55) $ 789
======== ======= ======= ======= =======
</TABLE>
<TABLE>
Condensed Consolidating Statements of Income (Unaudited)
Three Months Ended March 31, 1997
(In thousands)
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $34,759 $22,009 $11,567 $(5,232) $63,103
Cost of sales 20,646 17,296 8,640 (5,157) 41,425
------- ------- ------- ------- -------
Gross profit 14,113 4,713 2,927 (75) 21,678
Selling, general and
administrative expenses 8,819 2,821 2,304 - 13,944
Amortization of intangible assets 369 237 14 - 620
------- ------- ------- ------- -------
Operating income 4,925 1,655 609 (75) 7,114
Interest expense 2,165 819 (78) - 2,906
------- ------- ------- ------- -------
Income (loss) before income taxes 2,760 836 687 (75) 4,208
Income taxes 1,039 367 248 - 1,654
------- ------- ------- ------- -------
Net income (loss) $ 1,721 $ 469 $ 439 $ (75) $ 2,554
======= ======= ======= ======= =======
</TABLE>
-9-
<PAGE>
<TABLE>
Condensed Consolidating Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1998
(In thousands)
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
Net cash (used in) provided by
operating activities $ (219) $1,057 $ 178 $(74) $ 942
Investing activities
Capital expenditures (1,616) (1,105) (235) - (2,956)
Advances from (to) subsidiaries (717) - - 717 -
------ ------ ------ ---- -------
Net cash (used in) provided from
investing activities (2,333) (1,105) (235) 717 (2,956)
Financing activities
Repayment of long-term obligations (3,047) (55) - - (3,102)
Proceeds from borrowings 5,288 - 121 - 5,409
Proceeds for exercise of stock options 73 - - - 73
Advances from (to) subsidiaries - (239) 890 (651) -
------ ------ ------ ---- ------
Net cash provided from (used in)
financing activities 2,314 (294) 1,011 (651) 2,380
Net increase (decrease) in cash and cash
equivalents (238) (342) 954 (8) 366
Cash and cash equivalents, beginning of
period 356 433 637 8 1,434
------ ------ ------ ---- ------
Cash and cash equivalents, end of
period $ 118 $ 91 $1,591 $ - $1,800
====== ====== ====== ==== ======
</TABLE>
-10-
<PAGE>
<TABLE>
Condensed Consolidating Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1997
(In thousands)
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating activities
Net cash (used in) provided by
operating activities $(8,631) $2,289 $ 745 $ (5) $(5,602)
Investing activities
Capital expenditures (1,053) (317) (357) - (1,727)
Other (25) (3) - - (28)
Investment in subsidiaries 500 - (500) - -
Advances from (to) subsidiaries 4,377 - - (4,377) -
------- ------ ------ ------ -------
Net cash (used in) provided from
investing activities 3,799 (320) (857) (4,377) (1,755)
Financing activities
Repayment of long-term obligations (154) (68) - - (222)
Proceeds from borrowings 6,300 - 644 - 6,944
Advances from (to) subsidiaries - (1,783) (2,662) 4,445 -
------- ------ ------ ------ -------
Net cash provided from (used in)
financing activities 6,146 (1,851) (2,018) 4,445 6,722
Net increase (decrease) in cash and cash
equivalents 1,314 118 (2,130) 63 (635)
Cash and cash equivalents, beginning of
period 201 12 1,766 - 1,979
------- ------ ----- ------ -------
Cash and cash equivalents, end of
period $ 1,515 $ 130 $ (364) $ 63 $ 1,344
======= ====== ====== ====== =======
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included in this report and
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1997.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Net Sales. Net sales for the three months ended March 31, 1998 and 1997, were
$66.5 million and $63.1 million, respectively, an increase of $3.4 million, or
5%.
Net sales of the Company's shaving razors and blades for the three months ended
March 31, 1998, totaled $23.5 million, a 14% decrease compared to net sales for
the three months ended March 31, 1997, of $27.4 million. Net sales of domestic
branded and private brand shaving products decreased 37% and 7%, respectively,
due primarily to the timing of orders with several of the Company's major
customers, delays in retailers' modifications in Plan- o-grams due to the launch
of a new product by a competitor, heavy promotional activity by certain
competitors and the timing of the Company's own promotional activities. Net
sales of international shaving products decreased 3% due primarily to the impact
of unfavorable exchange rates.
Net sales of bladed hand tools and blades for the three months ended March 31,
1998 and 1997, were $11.0 million and $9.9 million, respectively, an increase of
$1.1 million, or 11%. This strong growth primarily reflects increased sales of
the Company's Personna(R), Ardell(TM) and American Line(TM) brands of products
as a result of new distribution gains and new product introductions in the
Personna(R) line of products.
Net sales of industrial and specialty and medical blades for the three months
ended March 31, 1998 and 1997, were $4.2 million and $3.9 million, respectively,
an increase of $0.3 million, or 7%. Sales of industrial and specialty products
increased 5% due primarily to penetration of new markets. Sales of medical
products increased 10% due primarily to increased distribution of products and
from new product offerings.
Net sales of cotton and foot care products for the three months ended March 31,
1998 and 1997, were $22.6 million and $14.4 million, respectively, an increase
of $8.2 million or 57%. This increase primarily reflects sales resulting from
the April 1997, acquisition of the Cotton Division of American White Cross, Inc.
("AWC") and sales growth across most product lines due primarily to increased
distribution of products.
Net sales of the Company's custom bar soap products for the three months ended
March 31, 1998 and 1997, were $5.2 million and $7.5 million, respectively, a
decrease of $2.3 million or 31%. This decrease results primarily from lower
sales to certain of the Company's pharmaceutical/skin care customers whose sales
have been impacted by weakness in the Asian markets and from the timing of their
promotional activities.
Gross Profit. Gross profit decreased $2.2 million to $19.5 million during the
three months ended March 31, 1998, from $21.7 million for the three months ended
March 31, 1997. As a percentage of net sales, gross profit was 29.3% for the
three months ended March 31, 1998, and 34.4% for the three months ended March
31, 1997. This decrease was due primarily to i) increased sales of handles and
systems which generally carry lower margins and other mix issues, higher
depreciation expense related to capacity expansion projects and the negative
impact of unfavorable exchange rates in the blade operations, ii) lower margins
in the newly acquired AWC cotton operations due to increased shipping costs
relating to product mix issues, increased manufacturing costs relating to the
start-up of two new cotton manufacturing facilities and the generally lower
margins associated with the acquired AWC business, and iii) from the effect of
absorbing manufacturing overheads and depreciation over a lower sales base in
the Company's soap operations.
-12-
<PAGE>
Operating and Other Expenses. Selling, general and administrative expenses were
20.3% of net sales for the three months ended March 31, 1998, compared to 22.1%
for the three months ended March 31, 1997. This decrease primarily reflects
spreading these costs over an increased sales base due to the AWC acquisition.
Amortization of goodwill and other intangible assets was substantially unchanged
at $0.6 million for the three months ended March 31, 1998 and 1997. Interest
expense was substantially unchanged at $3.0 million for the three months ended
March 31, 1998, and $2.9 million for the three months ended March 31, 1997.
The restructuring charge of $1.0 million includes estimated costs of
approximately $0.2 million to close the Sparks, Nevada cotton operations and
approximately $0.8 million in severance and employee benefit costs relating to
consolidation of the Company's domestic shaving razor and blade and cotton
products sales forces and other personnel changes.
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 $0.9 million for the three months ended
March 31, 1998, and net cash used in operating activities amounted to $5.6
million for the three months ended March 31, 1997. The increase of $6.5 million
in net cash provided by operating activities for the three month period ended
March 31, 1998, as compared to the three month period ended March 31, 1997, was
due primarily to the collection of trade accounts receivable and a deposit of
taxes paid in 1997 relating to the Company's audit of its tax returns for the
periods 1989-1994 offset somewhat by an increase in inventories and prepaid
expenses.
At March 31, 1998, the Company had utilized $20.6 million of its revolving
credit facility and had approximately $29.4 million available for future
borrowings under this facility.
Management believes that the Company's cash on hand, anticipated funds from
operations, and the amounts available to the Company under its revolving credit
facility will be sufficient to cover its working capital, capital expenditures,
debt service requirements and tax obligations as well as support the Company's
growth-oriented strategy for its existing business for at least the next 12
months. The Company anticipates that funding of any additional acquisitions will
require additional borrowings under its revolving credit facility. The Company
intends to maintain and further strengthen its financial condition and, in
connection therewith, may from time to time consider other possible
transactions, including other capital market transactions or disposition of
businesses that no longer meet its strategic objectives. The Company has engaged
Paine Webber, Inc. to explore strategic alternatives which could involve a
recapitalization, merger or sale of the Company. Currently, the Company has not
entered into any agreement or commitments concerning any such alternative.
-13-
<PAGE>
PART II, OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K: No reports on Form 8-K have been filed
during the quarter ended March 31, 1998.
-14-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN SAFETY RAZOR COMPANY
May 6, 1998 By /s/William C. Weathersby
- ----------- ------------------------
Date William C. Weathersby
President
May 6, 1998 By /s/Thomas G. Kasvin
- ----------- -----------------------
Date Thomas G. Kasvin
Senior Vice President
Chief Financial Officer
-15-
<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, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000750339
<NAME> AMERICAN SAFETY RAZOR
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1800
<SECURITIES> 0
<RECEIVABLES> 38100
<ALLOWANCES> 0
<INVENTORY> 56222
<CURRENT-ASSETS> 103074
<PP&E> 116599
<DEPRECIATION> 43046
<TOTAL-ASSETS> 253765
<CURRENT-LIABILITIES> 34584
<BONDS> 123710
0
0
<COMMON> 121
<OTHER-SE> 60268
<TOTAL-LIABILITY-AND-EQUITY> 253765
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<CHANGES> 0
<NET-INCOME> 789
<EPS-PRIMARY> .07
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