SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act Of 1934
Commission File Number 0-21952
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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)
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Registrant's telephone number, including area code:
(540) 248-8000
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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
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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 March 17, 1999, 12,110,049 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 $127,793,559 based on the closing sales price
of March 17, 1999. Determination of affiliate status for this purpose is not a
determination of affiliate status for any other purpose.
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Table of Contents
Part I
Page
Item 1. Business........................................................ 1
Introduction to Our Business.................................... 1
Product Lines................................................... 2
Sales and Marketing............................................. 3
Manufacturing................................................... 4
Raw Materials................................................... 5
Competition..................................................... 5
Other Factors Affecting Our Business............................ 6
Item 2. Properties...................................................... 9
Item 3. Legal Proceedings............................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............. 10
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 10
Item 6. Selected Financial Data......................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 12
Item 8. Financial Statements and Supplementary Data..................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................ 20
Part III
Item 10. Directors and Executive Officers of the Registrant...............21
Item 11. Executive Compensation.......................................... 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 26
Item 13. Certain Relationships and Related Transactions.................. 28
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K..................................................... 29
Signatures...................................................... 30
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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
Introduction to Our Business
Established in 1875, American Safety Razor Company (together with its
subsidiaries, the "Company") is a leading manufacturer of high-quality private
label and value brand consumer products. We operate our business in three
segments consisting of Razors and Blades (which includes three product lines:
consumer shaving razors and blades, both store and value brand, blades and
bladed hand tools and specialty industrial and medical blades); Cotton and Foot
Care and Custom Bar Soap. We distribute our products principally through the
following retail channels: national mass merchandisers (Wal-Mart, Target and
Kmart), drug stores (CVS, Walgreens and RiteAid), supermarkets (Safeway, Publix
and Albertson's) and home improvement centers (Home Depot, TruServ and Sherwin
Williams). For the fiscal year ended December 31, 1998, we had net sales of
$297.5 million.
We are the largest manufacturer of private label and value brand
consumer shaving razors and blades in the United States, and are the fourth
largest manufacturer in the total domestic consumer shaving market (based on
market research data for 1998 prepared by an independent market research firm).
These products, which generated $119.0 million of 1998 net sales worldwide,
represent 40.0% of total net sales and consisted of $68.5 million of domestic
net sales and $50.5 million of international net sales. Our products provide
consumers with a value-priced alternative to more heavily advertised premium
priced brands, while providing retailers with attractive margins. Our shaving
razor and blade products are primarily sold both under a retailer's store brand
and under our value brand names such as Personna(R), GEM(R), Flicker(R),
MBC(TM), Burma Shave(R) and Tri-Flexxx(TM). We market both complete razor and
blade systems and components which can be used alone or with most other premium
priced brands. Based on independent consumer tests, our products perform at
levels comparable to the premium priced products. We are the only domestic
provider of a complete line of private label disposable razors, blade shaving
systems and replacement blades. We attribute our leadership in the private label
and value brand markets to our long history of dedication to quality, low-cost
manufacturing and competitive pricing.
We believe that we are the largest single manufacturer of both premium
and value-priced replacement blades for bladed hand tools (based on publicly
available information and Company estimates). Our premium and value-priced
blades and bladed hand tools are sold primarily under our Personna(R), American
Line(TM) and Ardell(TM) brand names. These products generated $48.9 million of
1998 net sales representing 16.4% of total net sales. This product category
capitalizes on our precision shaving blade technology and includes such items as
single-edge blades, utility and carpet knives and replacement blades and paint
scrapers. Our blades and bladed hand tools are sold to consumers and
professionals through home-improvement centers/Do-It-Yourself retailers, retail
paint chains and hardware stores and to professionals through wholesalers,
distributors and specialty supply jobbers.
We have leveraged our technical and manufacturing expertise by
developing a line of high-quality specialty industrial and medical blades. These
products generated $16.1 million of 1998 net sales, representing 5.4% of total
net sales. These specialty industrial blades are used in manufacturing processes
employed by a variety of industries including food-processing, fiber cutting and
automotive. In addition, we manufacture and market carbon and stainless steel
surgical blades, disposable scalpels and surgical prep blades for the U.S.
health care markets under the Personna(R) brand name to customers including
Allegiance Health Care, McKesson General Medical and Owens & Minor.
We believe we are the leading private label and value brand
manufacturer of a full line of personal care cotton and foot care products in
the United States. This segment generated $87.3 million of 1998 net sales,
representing 29.3% of total net sales. Our cotton and foot care segment offers a
full product line including cotton swabs, cotton balls, puffs, cosmetic pads,
cotton rolls, pocket tissue, and foot care products. We have achieved market
leadership in this category due to a series of strategic acquisitions, including
Megas Beauty Care, Inc. in 1994, Absorbent Cotton Company in 1995 and the
purchase of certain assets of the American White Cross ("AWC") business in 1997.
We are a leading domestic manufacturer of cosmetic, bath,
pharmaceutical and specialty custom bar soaps. This segment generated $26.2
million of 1998 net sales, representing 8.8% of total net sales, and is marketed
primarily under customers' brand names. Our major customers include Estee
Lauder, Johnson & Johnson and the NuSkin Corporation.
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Operating Strategy
In order to steadily grow our business, improve operations and lower
our cost structure, our operating strategy is focused on five primary areas:
o Increase trade penetration through improved sales and marketing
efforts. We believe that private label and value brand products
generally offer higher margins to retailers and significant
savings to consumers over premium priced products. We intend to
improve our trade channel penetration by leveraging our
traditional strengths in key consumer product categories by
improving the effectiveness of our sales and marketing efforts.
Our marketing efforts will continue to focus on improved
packaging and point of sale promotional activities. In addition,
we expect to improve coordination between our sales and
production functions to increase order-fill rates, reduce our
inventory levels and improve efficiency in our production lines.
o Expand international market penetration and enter new markets.
The international market for the shaving razor and blade category
is approximately four times the size of the U.S. market. We
expect to expand into new markets while continuing to grow within
our current markets. We will continue to develop relationships
with distributors in targeted markets and establish local sales
and marketing organizations to take advantage of specific
regional opportunities. To this end, we acquired Wolco Holland
B.V. in September 1998, which distributes shaving products into
Northern European markets. Our international sales in all our
business segments were $59.6 million in 1998.
o Develop and introduce new products. We are continuously evolving
our primary product lines with product improvements, new
innovations and line extensions. We are currently planning to
launch our new three-blade shaving system, Tri-Flexxx(TM), to the
U.S. market in the second quarter of 1999. This new shaving
system is designed to fit the Gillette Sensor(R) and
SensorExcel(R) handles, and will allow us to address the new
three blade standard being set by the Gillette Mach3(TM).
o Continue to grow blades and bladed hand tools product line. Our
blades and bladed hand tools product line is highly regarded for
quality performance and maintains strong levels of professional
loyalty. Sales of these products were $48.9 million in 1998.
Historically, this part of our business has grown internally
through increased market penetration in the professional and
Do-it-Yourself retail channels. Our goal is to improve upon the
historical steady growth in this strong product category by
refocusing on new product introductions.
o Reduce operating costs. We have implemented a number of
initiatives to reduce operating costs and increase productivity
and efficiency in our consumer shaving and cotton and foot care
product lines. Over the last three years we have been able to
reduce manufacturing costs in our consumer shaving product line
by opening a highly automated blade manufacturing facility in
Knoxville, Tennessee, and expanding our low-cost injection
molding, assembly and packaging operation in Obregon, Mexico. The
integration in 1997 of our industrial blade business into our
Verona, Virginia facility permitted us to close manufacturing
facilities in Union and Maplewood, New Jersey. In addition, since
our acquisition of AWC, we have made significant progress in
reorganizing our six cotton and foot care manufacturing
facilities.
Product Lines
Our business operations are concentrated in three product segments:
Razors and Blades; Cotton and Foot Care; and Custom Bar Soap. Within the Razors
and Blades segment we offer three product lines: Consumer Shaving Razors and
Blades; Blades and Bladed Hand Tools; and Specialty Industrial and Medical
Blades.
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The following table sets forth net sales and percentage of total net
sales by segment and for product lines for the years ended December 31, 1996,
1997 and 1998.
<TABLE>
<CAPTION>
1996 1997 1998
--------------- ----------------- ----------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Razors and Blades
Consumer shaving razors and blades (1) $114.4 43.9% $120.8 40.8% $119.0 40.0%
Blades and bladed hand tools 40.7 15.6 45.4 15.3 48.9 16.4
Specialty industrial and medical blades 16.5 6.4 16.4 5.5 16.1 5.4
------- ------ ------- ------ ------- ------
Total 171.6 65.9 182.6 61.6 184.0 61.9
Cotton and foot care (2) 55.8 21.4 80.4 27.1 87.3 29.3
Custom bar soap 33.2 12.7 33.6 11.3 26.2 8.8
------- ------ ------- ------ ------- ------
Total $260.6 100.0% $296.6 100.0% $297.5 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
(1) Fiscal 1996 includes net sales of Bond of $11.2 million since its
acquisition on March 29, 1996.
(2) Fiscal 1997 includes net sales of AWC of $21.1 million since its acquisition
on April 22, 1997.
Consumer Shaving Razors and Blades. We design, manufacture and market a
full line of shaving razors and blades, including single-edge, double-edge and
injector blades, twin-blade fixed and pivoting head cartridges, moving-blade
cartridges, disposables, single-edge razors, women's shaving razors and
special-purpose shaving blades. We provide 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 our own brands or
under the store brands of our private label shaving razor and blade customers.
Blades and Bladed Hand Tools. We design, manufacture and market
replacement blades and bladed hand tools, such as single-edge blades, utility
blades and knives, carpet blades and knives and paint scrapers primarily under
our Personna(R), American Line(TM) and Ardell(TM) brand names. The majority of
our blades and bladed hand tools 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.
Specialty Industrial and Medical Blades. We design, manufacture and
market disposable blades for both the industrial and medical markets. Although
the specialty industrial blade market is large and diverse, our products are
specially designed for niche industrial applications. These specialty industrial
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 and automotive. We manufacture and market carbon and
stainless-steel surgical blades, disposable scalpels and surgical prep blades
for the U.S. health-care markets under the Personna(R) brand name.
Cotton and Foot Care. We believe we are one of the largest private
label manufacturers and distributors of cotton swabs, cotton balls and puffs and
cotton cosmetic pads. In addition, we also manufacture cotton roll, foot care
products and pocket tissue. All of the foregoing products are sold under
retailers' private label as well as our own value brands: Megas(R), ACCO(R),
Cottonettes(R) and Crystal(R). We believe that we are one of the few personal
care cotton products manufacturers and distributors that can bleach its own
cotton--a process integral to the production of cotton products.
Custom Bar Soap. We manufacture custom-designed and formulated bar soap
for sale to a broad variety of pharmaceutical, skin care and department store
customers, primarily under such customers' own brand names. Our flexible
manufacturing equipment, product design and development capabilities and
reputation for high quality allow us to compete in all major custom bar soap
market segments. Our expansion of synthetic soap manufacturing capacity in a new
highly efficient manufacturing facility in Columbus, Indiana, reflects our
commitment to new product development and a competitive cost structure.
Sales and Marketing
Our sales and marketing organization is divided into the following five
sales groups, based on distribution channel and target customers: (1) consumer
products, (2) international, (3) Do-it-Yourself and Industrial; (4) medical and
(5) soap. Our products
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are sold through our major distribution channels utilizing internal sales and
marketing resources, as well as third-party distributors and manufacturers'
representatives. Our sales personnel receive a fixed salary plus a bonus based
on sales performance or our earnings.
Consumer Products. Our private label and value brand shaving razors and
blades and cotton and foot care products are sold through mass merchandisers,
drug stores and supermarket chains. Our sales of consumer and personal care
products are managed by a vice president who oversees field sales and related
personnel. Marketing support for the value brand shaving razors and blades and
cotton and foot care products focuses on temporary price reductions, point of
sale promotions and direct mail advertisements and is managed by a vice
president. To assist stores in promoting their private label shaving and cotton
and foot care products, we help 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. We also provide customers with market research to assist in
determining the effectiveness of various marketing programs.
International Sales. Our international shaving razors and blades sales
effort is headed by a vice president who directs daily activities through group
managers responsible for specific geographic regions. We use a variety of sales
strategies and organizations, each tailored to the specific geographic locations
in which we sell our products, including extensive use of local distributors. We
have 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 our penetration in those markets.
Do-it-Yourself and Industrial. We sell blades and bladed hand tools to
national and regional chains of home-improvement/ Do-it-Yourself centers and
paint centers as well as hardware co-op, wholesale buying groups, and industrial
distributors. Specialty industrial blades are sold to direct users, original
equipment manufacturers and to a wide variety of distributors who service
professional and niche segments. Overall management of the industrial division
is headed by a vice president with specific responsibilities assigned to a
director of field sales, director of market development and a general manager in
Europe. Marketing needs for the entire division are overseen by a marketing
manager who reports to the vice president.
Medical. We distribute medical blades to hospitals, nursing homes and
other health care practitioners. Our medical blade sales efforts are headed by a
vice president who oversees a number of regional managers. We focus our medical
blade marketing efforts primarily through targeted trade-journal advertising,
direct mail promotions and medical trade shows.
Soap. Our soap sales effort is headed by a vice president--general
manager who oversees a number of sales people and national account
representatives who work with customers to custom design soap products and
programs. We also utilize manufacturers' representatives to sell our products to
customers in the hospitality industry, such as hotels, and to market our line of
industrial and corporate promotional products.
Manufacturing
We are a fully integrated manufacturer of shaving razors and blades,
blades for use with bladed hand tools and specialty industrial and medical
blades. Our manufacturing processes include blade forming, heat treating and
coating, plastic injection molding and assembly and packaging. Blades are
manufactured at our facilities in Verona, Virginia, Knoxville, Tennessee, and
Nazareth Illit, Israel. We operate a low-cost, highly efficient injection
molding, packaging and assembly facility in Obregon, Mexico. In July 1995, we
purchased a new facility in Knoxville, Tennessee in order to develop a fully
integrated shaving razors and blades manufacturing operation. During 1998, we
completed our three-year manufacturing plan to develop this fully integrated
facility which now performs all operations attendant to the manufacture,
molding, assembly and packaging of shaving razors and blades. In 1997, we
restructured our industrial blade business, moving substantially all of our
operations into a single facility in Verona, Virginia, and closed our
manufacturing facilities in Union and Maplewood, New Jersey.
Proprietary manufacturing processes allow us to produce a wide variety
of products of different quantities, sizes and packaging while maintaining a
high level of quality. We are continually working to improve our blade-making
productivity by adding new technologies and/or manufacturing processes. Most of
the processes that we use to manufacture products are
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proprietary.
The production of our cotton 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
cotton balls, cotton swabs, cotton pads or other cotton products. Our cotton and
foot care products are manufactured at our facilities in Cleveland, Ohio, Valley
Park, Missouri, Dayville, Connecticut, Canavanas, Puerto Rico, and Nogales,
Mexico.
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. We have the ability to
produce soap through four different manufacturing processes, producing a variety
of soap products with different characteristics. We manufacture soap in our
Dayton, Ohio and Columbus, Indiana facilities.
Raw Materials
The principal raw materials used by us in the manufacture of razor and
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, we are not dependent upon any
single supplier in our operations for any materials essential to our business or
not otherwise commercially available to us. We have 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 us in the manufacture of our cotton
and foot care products include cotton fiber, plastic and paper sticks for cotton
swabs, foam insoles and packaging supplies. We have developed several different
qualified sources for our key material requirements. We bleach cotton internally
for a portion of our production requirements while also maintaining
relationships with several sources for outside contract bleaching.
The prices of certain of the raw materials used in our cotton and foot
care operations are subject to commodity price volatility, particularly with
respect to cotton fiber and paper sticks, which may affect the profitability of
our cotton and foot care products. We have been able to obtain an adequate
supply of high-quality raw materials, and no shortage of raw materials is
currently anticipated.
The principal raw materials used by us in the manufacture of our 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 us, such as coconut oil and fatty acids, are volatile, which may affect
the profitability of our soap products. We have been able to obtain an adequate
supply of high-quality raw materials, and no shortage of raw materials is
currently anticipated.
Competition
The shaving razor and blade market is competitive and sensitive to
changing consumer preferences and demands and competition is based on quality,
price and customer service. Our principal competitors in the shaving razor and
blade 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 we do.
We are the leading producer of private label and value brand shaving
razors and blades in the United States where our primary competitors are
smaller, privately held companies. Periodically, one of the premium brand
shaving razor and blade manufacturers mentioned above attempts to compete with
us by lowering prices or entering the private label market. We believe that it
is unlikely that a new shaving razor and blade manufacturer will appear in the
near future given the proprietary nature of the manufacturing processes used by
us and each of our competitors.
In the blades and bladed hand tools and specialty industrial blades
markets, competition is based on quality, price and customer service. We believe
that we compete favorably on these bases and are a leading producer of blades
and bladed hand tools and specialty industrial blades in the United States. We
have a number of smaller competitors in blades and bladed hand tools such
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as I.B.U. and U.S. Blades. The medical blade market is dominated by a division
of Becton Dickinson and Company.
In cotton swabs, cotton balls, puffs, cotton cosmetic pads,
pharmaceutical and beauty coils and foot care products, we compete on the basis
of producing a complete line of high-quality private label and value brand
products as well as quality, price and customer service. The market for these
products is highly competitive, often attracting large national-brand
manufacturers seeking to add incremental private label business. Companies such
as Chesebrough-Pond's, Johnson & Johnson and Dr. Scholl's invest significant
resources in their premium brands, partly in an attempt to reclaim market share
lost to private label and value brand products. Kimberly-Clark, in particular,
has become very active in the private label pocket tissue category.
The custom bar soap market is very fragmented with numerous
participants, some of which have greater resources than we do. Competition in
the custom bar soap market is based primarily on quality, price and customer
service.
Other Factors Affecting Our Business
Intellectual Property
We own a large number of U.S. and foreign trademarks used in connection
with our blade, cotton and foot care and soap businesses. Such trademarks
include "Personna(R)", "MBC(TM)", "GEM(R)", "Flicker(R)", "PFB(R)", "Burma
Shave(R)", "Acti-Flexx(TM)", "Tri-Flexxx(TM)", "Megas(R)", "ACCO(R)",
"Cottonettes(R)", "Crystal(R)", "Omnibus(R)", "Centurion(R)", and
"Kensington(R)". Many of our trademarks are registered in the United States
Patent and Trademark Office or the corresponding trademark agencies in other
countries. We consider our trademarks, in the aggregate, to be material to our
business.
In addition, we own or are licensed to use various U.S. and foreign
patents covering the design and manufacture of certain of our products. We
consider our portfolio of owned and licensed patents, in the aggregate, to be
material to our business. In particular, the "MBC(TM)" patent is considered
material to our business.
We consider many of the processes which we use to manufacture our
products to be proprietary. We have not, however, applied for patent protection
for any of these processes. We instead rely on non-disclosure and non-compete
agreements with employees to protect our proprietary rights in these processes.
There can be no guarantee that these agreements will provide sufficient
protection in this regard, or that such employees will not breach them.
We take actions and devote resources to protect our intellectual
property rights, including trademarks, patents, and proprietary processes. There
can be no assurance that such actions and resources will be adequate to protect
such rights, or that such rights will not be successfully challenged by third
parties or government authorities. Moreover, no assurance can be given that
others will not assert rights in, or ownership of, our intellectual property or
that we will be able to resolve such conflicts successfully.
In addition, the laws of certain foreign countries may not protect
intellectual property to the same extent as do the laws of the United States. As
for U.S. law, patent protection is temporary, and once a patent expires,
competitors can make, have made, use or sell products or processes that are
identical or similar to those once covered by the expired patent.
Employees and Labor Relations
As of December 31, 1998, we employed 2,483 people worldwide, including
2,003 hourly employees and 480 salaried employees.
Four collective-bargaining agreements cover certain of our employees:
the first, at the Verona, Virginia plant, covers 369 employees and expires on
September 25, 2000; the second, at our Dayton, Ohio plant, covers 187 employees
and expires on April 19, 1999; the third, at our St. Louis plant, covers 168
employees and expires on September 1, 1999 and the fourth at our Nazareth Illit,
Israel plant, covers 151 employees and expires on December 31, 1999.
Negotiations at our Dayton, Ohio plant have commenced to renew the collective
bargaining agreement at this plant. In addition to the foregoing employees, we
employ an aggregate of 1,128 hourly employees at our Knoxville, Tennessee;
Cleveland, Ohio; Dayville, Connecticut; Nogales, Mexico; Canavanas, Puerto Rico;
Nottingham, England; Obregon, Mexico; and San Juan, Puerto Rico facilities, none
of whose employees
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are covered by a collective-bargaining agreement. We consider our relations with
our employees to be satisfactory.
Environmental Matters
We are subject to various federal, state and local environmental laws
and regulations and the environmental laws and regulations of the various
foreign jurisdictions in which we do business. We anticipate that such laws and
regulations will become increasingly stringent in the future.
In October 1996, our review of safety and environmental compliance at
our razor blade manufacturing facility in Verona, Virginia revealed possible
violations of federal and state air regulations. The Verona facility uses a
halogenated solvent, trichloroethylene ("TCE"), in the blade cleaning machines
attached to its blade grinders. In December 1994, pursuant to the federal Clean
Air Act ("CAA"), the U.S. Environmental Protection Agency ("EPA") had adopted a
rule which regulates the emissions from halogenated solvent cleaning machines
(the "HSC Rule"). The HSC Rule included a facility notification requirement,
emission standards and compliance deadlines. Our October 1996, compliance review
discovered that we had not submitted the notice that the Verona facility uses
halogenated solvent cleaning machines to the EPA and that two of the Verona
facility's twenty-four blade cleaners had been installed in 1994 without the
requisite new machine air emission controls. We promptly reported the findings
of the compliance review to the EPA and to the Virginia Department of
Environmental Quality ("VDEQ"). Our report to the agencies enclosed the federal
notices for the blade cleaners and proposed to install a facility-wide solvent
vapor recovery system designed to reduce TCE emissions to well below that
required by the HSC Rule. By November 1997, we had installed the solvent vapor
recovery system. In June 1997, EPA Region III filed an administrative complaint
seeking $147,000 in penalties. We contested the penalty and, in April 1998,
settled the matter with the EPA for a penalty payment of $6,250.
In June 1997, the VDEQ issued us a notice of violation of state air
permitting requirements for the construction of a number of our blade-cleaning
machines without a permit to construct at the Verona facility. The notice of
violation was resolved by a consent order requiring the application for a
facility-wide state air operating permit. We submitted the application in
September 1997, and received the permit in March 1998. We also filed a
major-source air operating permit application in March 1998, to comply with the
new air operating permit program adopted by Virginia pursuant to Title V of the
CAA. Once issued, the major source permit will supersede the state operating
permit.
In December 1986, we entered into a Special Order with the predecessor
agency of the VDEQ pursuant to which we agreed to investigate and clean up
groundwater contamination at our 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, we built and
currently operate a groundwater treatment facility to treat the contaminated
groundwater. We regularly monitor the level of contamination in the groundwater.
We are not presently aware of any additional contamination that is required to
be remediated at this time at the Verona site.
When we purchased the Maplewood, New Jersey, facility as part of the
Ardell acquisition, we 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") obligating the previous owners
of Ardell 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, Federal Insurance Company assumed primary financial
and oversight responsibility for the remediation. The costs to complete the
remediation 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. We continue to hold as
security $0.7 million with 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. We have incurred only limited costs to date regarding this
matter and do not expect to incur any material future costs.
The Valley Park, Missouri, plant facility of our 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 TCE and trichloroethane ("TCA"). The contaminated aquifer had been the
source of municipal water supply wells. The results of a remedial investigation
completed for
7
<PAGE>
EPA and the State of Missouri in January 1988 indicate that the source
of the TCE contamination was located to the 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 remedial investigation
concluded was originating west southwest of the Megas facility. 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. We have
reviewed the EPA limited remediation investigation report and performed limited
soil gas analysis on site. The results of the testing showed no contamination
that could have contributed to the underlying plume. Based on our investigation
to date, results of the soil gas analyses performed on site, and discussions
held with the Missouri Attorney General's office, we believe 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 we are identified as a
potentially responsible party, the sellers of Megas have agreed to indemnify us,
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.
We, after consultation with our advisors, do not believe that any of
these matters will have a material effect on our consolidated financial position
or results of operations, regardless of any claims to indemnification.
8
<PAGE>
ITEM 2 - Properties
As of March 17, 1999, we owned or leased the following facilities:
<TABLE>
<CAPTION>
Lease
Approximate Owned or Termination
Products Location Type of Facility Square Feet Leased Date
- -------- -------- ---------------- ------------ ------ -----------
<S> <C> <C> <C> <C> <C>
Shaving razors and Verona, Virginia Manufacturing, packaging, 307,000 Owned
blades, blades and distribution, sales,
bladed hand tools and and corporate offices
specialty industrial
and medical blades
Knoxville, Tennessee Manufacturing, packaging 125,000 Owned
and distribution
Obregon, Mexico Manufacturing and packaging 94,000 Leased April 2006
Nazareth Illit, Israel Manufacturing, packaging 65,000 Leased July 2002
distribution and sales
Nottinghamshire, Packaging, distribution 36,000 Leased July 2012
United Kingdom and sales
Rio Grande, Packaging, distribution 26,000 Leased June 2000
Puerto Rico and sales
Cotton and foot care Cleveland, Ohio Manufacturing, packaging, 250,000 Leased April 2013
distribution and sales
Valley Park, Missouri Manufacturing and packaging 107,000 Owned
Fenton, Missouri Distribution 41,000 Leased June 1999
Nogales, Mexico Manufacturing, packaging 84,000 Leased March 2000
and distribution (excluding our
unilateral
indefinite
renewal rights)
Dayville, Connecticut Manufacturing and packaging 43,000 Leased September 2002
Pomfret, Connecticut Manufacturing 14,000 Leased Month to Month
Canavanas, Puerto Rico Manufacturing, packaging 22,000 Leased December 2008
and distribution
Soap Dayton, Ohio Manufacturing, packaging, 270,000 Owned
distribution and sales
Columbus, Indiana Manufacturing, packaging, 20,000 Leased September 2005
distribution and sales
</TABLE>
We supplement our distribution capabilities through public warehouse
facilities. In addition, we use contract packagers in selected domestic and
international markets. We believe that the variety of domestic and international
locations gives us operating flexibility.
We consider all of our facilities to be in good operating condition and
adequate for our present purposes. Our production facilities are capable of
being utilized at a higher capacity to support increased demand, if necessary.
9
<PAGE>
ITEM 3 - Legal Proceedings
During 1998 the Company purchased bleached cotton from an outside
supplier for use in its pharmaceutical coil business. The Company converted this
cotton from incoming bales into a coil, which was shipped to its pharmaceutical
customers to be used as filler in bottles of oral dosage forms of pharmaceutical
products to prevent breakage. During the period from March through November of
1998, the process by which the Company's supplier bleached this cotton was
changed by introducing an expanded hydrogen peroxide treatment. Subsequent
testing indicated varying levels of residual hydrogen peroxide in the cotton
processed during this time period and the supplier in November 1998 reduced the
levels of hydrogen peroxide in its bleaching process. The Company, to date, has
received complaints from approximately 10 customers alleging defects in the
cotton supplied them during the period and asserting these defects may have led
to changes in their products pharmaceutical appearance, and with respect to a
limited number of products, potency. As of March 26, 1999, the Company has
received notice of 2 claims for damages in the aggregate amount of approximately
$1.7 million which the Company believes primarily relates to alleged lost sales
and merchandise damage, and it is possible that additional damage claims might
be forthcoming. On March 2, 1999, at the request of the Food and Drug
Administration, the Company notified all (numbering approximately 85) of its
pharmaceutical cotton coil customers that it was withdrawing from the market
those lots of cotton coil which may contain elevated levels of hydrogen
peroxide.
The Company has notified its supplier that, in the Company's view, the
supplier is primarily responsible for damages, if any, that may arise out of
this matter. At this time, the Company's supplier has agreed to be responsible
for the cost of fiber, bleaching and freight of returned product, but has not
agreed to be responsible for any other damages and has expressed an intention to
assert defenses to our claims. The Company's insurance carriers have been timely
notified of the existence of the claim and have agreed to provide defense in a
reservation of rights letter, but are continuing to evaluate whether coverage
would apply to all aspects of the claims.
The Company has been advised by its general counsel that it has a
number of valid defenses to potential customer claims as well as a third party
claim against the supplier for damages, if any, incurred by the Company.
However, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome relating to this
overall issue, and accordingly, there can be no assurance that our exposure from
this matter might not exceed the combination of our insurance coverage, if any,
and our recourse to suppliers. It is therefore possible that the Company's
results of operations or cash flows in a particular quarterly or annual period
or its financial position could be significantly and adversely affected by an
ultimate unfavorable outcome of this matter.
Weston Properties Investments III, Ltd. has filed a claim against the
Company for damages relating to delays in cost overruns attendant to the
Company's facility expansion in Cleveland, Ohio in the amount of $649,000.
Management believes that the outcome of this matter will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
We are involved in various other legal proceedings from time to time
incidental to the conduct of our business. We believe that any ultimate
liability arising out of such proceedings will not have a material adverse
effect on our 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 our stockholders during the fourth
quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5 - Market for Registrant's Common Equity and Related Stockholder Matters
Our 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 our Form S-1 registration
statement relating to the initial public offering of our Common Stock became
effective on June 8, 1993. Information with respect to market prices of our
Common Stock for each of the quarters in 1997 and 1998 is presented under Item 8
of this Report.
As of March 17, 1999, our shares of Common Stock were held by
approximately 3,100 shareholders of record (including brokers, dealers, banks
and other nominees participating in The Depository Trust Company).
We have not paid and do 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 our dividend policy. Any payment of dividends will
be at the discretion of the Board of Directors and will be dependent on our
earnings and financial requirements and other factors, including the
restrictions
10
<PAGE>
imposed by the General Corporation Law of the State of Delaware on the payment
of dividends and covenants in our 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.
ITEM 6 - Selected Financial Data
The following data (in thousands, except per share data) should be
read in conjunction with our consolidated financial statements 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>
<CAPTION>
Year ended December 31,
Statement of Income Data: 1998 1997(1) 1996(2) 1995(3) 1994(4)
----- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net sales $297,488 $296,607 $260,636 $230,453 $192,573
Costs and expenses
Cost of sales 201,978 196,991 169,949 149,994 119,192
Selling, general and administrative expenses 63,516 60,206 54,867 48,487 43,366
Amortization of intangible assets 2,543 2,501 2,503 2,341 3,219
Special charges (5) 3,003 - - 947 -
--------- ---------- ---------- --------- ----------
Operating income 26,448 36,909 33,317 28,684 26,796
Interest expense 12,270 12,270 11,719 10,582 7,580
--------- -------- -------- -------- --------
Income before income taxes and
extraordinary item 14,178 24,639 21,598 18,102 19,216
Income taxes 4,076 9,570 8,425 7,241 7,895
--------- -------- --------- --------- ---------
Income before extraordinary item 10,102 15,069 13,173 10,861 11,321
Extraordinary item, net of income tax benefit(6) - - - (980) -
---------- ---------- ---------- --------- ----------
Net income $ 10,102 $ 15,069 $ 13,173 $ 9,881 $ 11,321
======== ======== ======== ======== ========
Basic earnings per share:
Income before extraordinary item $0.83 $1.25 $1.09 $0.90 $0.94
Extraordinary item - - - (0.08) -
------- -------- -------- ----- --------
Net income $0.83 $1.25 $1.09 $0.82 $0.94
===== ===== ===== ===== =====
Weighted average number of shares outstanding 12,107 12,094 12,093 12,093 12,093
====== ====== ====== ====== ======
Diluted earnings per share:
Income before extraordinary item $0.83 $1.23 $1.09 $0.90 $0.93
Extraordinary item - - - (0.08) -
------- -------- -------- ----- --------
Net income $0.83 $1.23 $1.09 $0.82 $0.93
===== ===== ===== ===== =====
Weighted average number of shares outstanding 12,223 12,255 12,139 12,135 12,125
====== ====== ====== ====== ======
December 31,
Balance Sheet Data: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total assets $262,897 $254,081 $229,997 $208,263 $180,000
Long-term obligations, including
current portion 127,333 123,612 112,181 109,789 99,577
Stockholders' equity 69,554 59,439 44,523 30,898 21,139
</TABLE>
11
<PAGE>
(1) Our results of operations include results for the Cotton Division of
American White Cross, Inc. ("AWC") since its April 22, 1997, acquisition
date. Results for the period ended December 31, 1997, include net sales of
AWC of $21.1 million.
(2) Our 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.
(3) Our 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.
(4) Our 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.
(5) See Note 13 to our Consolidated Financial Statements relating to the
special charges in 1998. Special charges in 1995 relate to a litigation
settlement and related expenses.
(6) Extraordinary item relates to the early extinguishment of debt in 1995.
ITEM 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 our Company and notes thereto included under Item 8 of
this Report.
Forward-Looking Statements.
Management's discussion and analysis of financial condition and results
of operations and other sections of this Report contain forward-looking
statements relating to future results of our Company. Such forward-looking
statements are identified by use of forward-looking words such as "anticipates,"
"believes," "plans," "estimates," "expects," and "intends" or words or phrases
of similar expression. These forward-looking statements are subject to various
assumptions, risks and uncertainties, including but not limited to, changes in
political and economic conditions, demand for our products, acceptance of new
products, technology developments affecting our products and to those discussed
in our filings with the Securities and Exchange Commission. Accordingly, actual
results could differ materially from those contemplated by the forward-looking
statements.
Results of Operations
American Safety Razor Company is a leading manufacturer of high-quality
private label and value brand consumer products. As of December 31, 1998, we
adopted Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("FAS 131"). Under the
provisions of FAS 131 we have three reportable segments, organized primarily on
the basis of differences in products, which consist of Razor and Blades, Cotton
and Foot Care and Custom Bar Soap. The razors and blades segment includes three
product lines, consumer shaving razors and blades, both store and value brand,
blades and bladed hand tools, and specialty industrial and medical blades. The
cotton and foot care segment includes cotton swabs, cotton balls and puffs,
cosmetic pads, tissues, pharmaceutical and beauty coil, and foot care products.
The custom bar soap segment includes cosmetic/skin care, bath, pharmaceutical
and specialty custom bar soaps. We distribute our products to the retail and
professional trades in the United States and in selected international markets.
The following table sets forth information with respect to our business
segments:
Year Ended December 31,
------------------------------------------------
1996 1997 1998
---- ---- ----
(dollars in millions)
Net Sales:
Razors and blades (1) $171.6 65.9% $182.6 61.6% $184.0 61.9%
Cotton and foot care (2) 55.8 21.4 80.4 27.1 87.3 29.3
Custom bar soap 33.2 12.7 33.6 11.3 26.2 8.8
------- ----- ------- ----- ------- -----
Total $260.6 100.0% $296.6 100.0% $297.5 100.0%
====== ===== ====== ===== ====== =====
Operating Income:
Razors and blades $ 26.4 15.4% $ 26.5 14.5% $ 21.0 11.4%
Cotton and foot care 4.1 7.3 6.3 7.8 4.1 4.7
Custom bar soap 2.8 8.4 4.1 12.3 1.3 5.0
------ ---- ------ ----- ------ -----
Total $ 33.3 12.8% $ 36.9 12.4% $ 26.4 8.9%
====== ===== ====== ===== ====== =====
(1) Fiscal 1996 includes net sales of Bond of $11.2 million since its
acquisition on March 29, 1996.
(2) Fiscal 1997 includes net sales of AWC of $21.1 million since its
acquisition on April 22, 1997.
12
<PAGE>
Overview
Net sales are gross sales net of returns and cash discounts.
Gross profit is net sales less cost of sales, which includes the costs
necessary to make our products, including the costs of materials, production,
warehousing and procurement, and the costs to ship our products to our
customers, including freight and distribution. The principal elements of our
cost to make our products are raw materials and packaging supplies, labor and
manufacturing overhead. Raw materials, among other things, consist of steel
(both carbon and stainless), cotton fiber, coconut oil, fatty acids and plastic
resins the overall costs of which have remained relatively stable during the
periods discussed below, despite susceptibility to significant price
fluctuations. Labor costs consist primarily of hourly wages plus employee fringe
benefits. Manufacturing overhead generally includes indirect labor, plant costs,
depreciation and manufacturing supplies.
Selling, general and administrative expenses include discounts from our
published list prices, the costs incurred to support the sale and marketing of
our products and the general and administrative costs of managing the business,
including salaries and related benefits, commissions, advertising and promotion
expenses, bad debts, travel and insurance.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Net sales for 1998 and 1997 were essentially unchanged at
$297.5 million and $296.6 million, respectively. We did not experience any
significant price increases in 1998 across our three business segments.
Razors and Blades. Net sales of our razors and blades segment for 1998
and 1997 were $184.0 million and $182.6 million, respectively, an increase of
$1.4 million or 0.8%.
Net sales of shaving razors and blades for 1998 and 1997 were $119.0
million and $120.8 million, respectively, a decrease of $1.8 million or 1.5%.
Net sales of domestic value branded shaving products in 1998 declined 9.6%
compared to 1997 and net sales of domestic private label shaving products
decreased 5.8% over the same period. In 1997, net sales of domestic value
branded shaving products were favorably affected by the launch of the Revlon
Perfect Finish(TM) shaving system. 1998 sales of the Revlon Perfect Finish(TM)
shaving system were significantly below 1997 levels and at the end of 1998, due
to a lack of demand, we discontinued the sale of this product. Excluding sales
of this product, domestic value branded sales were essentially flat during the
period. Net sales of domestic private label shaving products were down due
primarily to heavy promotional activity by Gillette and reduced promotional
support by certain customers in advance of and during the introduction of the
Gillette Mach3(TM) shaving system. Net sales of shaving products in
international markets increased 8.2% (net of a 3% negative impact of unfavorable
exchange rates) reflecting stronger sales in certain markets.
Net sales of blades and bladed hand tools for 1998 and 1997 were $48.9
million and $45.4 million, respectively, an increase of $3.5 million or 7.7%.
This growth primarily reflects increased sales of our Personna(R), Ardell(TM)
and American Line(TM) brands of products as a result of distribution gains and
new product introductions in the Personna(R) line of products.
Net sales of specialty industrial and medical blades for 1998 and 1997
were $16.1 million and $16.4 million, respectively, a decrease of $0.3 million,
or 1.8%. Sales of specialty industrial products decreased 5.0% due primarily to
cyclical usage and purchasing patterns by certain customers and mix shifts to
lower priced blade products. Additionally, certain of our distributors
experienced increased competition in their serviced niche markets. Sales of
medical products increased 1.6% due primarily to increased distribution of
products.
Cotton and Foot Care. Net sales of cotton and foot care products for
1998 and 1997 were $87.3 million and $80.4 million, respectively, an increase of
$6.9 million, or 8.6%. This increase primarily reflects a full year of sales
resulting from the April 1997 acquisition of the cotton division of American
White Cross ("AWC").
Custom Bar Soap. Net sales of our custom bar soap products for 1998 and
1997 were $26.2 million and $33.6 million, respectively, a decrease of $7.4
million, or 22.0%. This decrease results primarily from lower sales to certain
of our pharmaceutical/skin care customers due to weakness in certain Asian
markets and to a lesser extent, reductions in inventory levels by key customers
and delays in product purchases by customers prior to the introduction of
reformulated products.
13
<PAGE>
Gross Profit. Gross profit decreased $4.1 million to $95.5 million for
1998 from $99.6 million for 1997. As a percentage of net sales, gross profit was
32.1% for 1998 and 33.6% for 1997.
A modest 0.3% of net sales increase in razors and blades gross margins
due to lower manufacturing overhead was more than offset by costs incurred in
the continuing integration of the cotton operations of AWC with those of the
Company, and the related reorganization of our cotton operations. During fiscal
1998, we opened a new cotton production facility in Nogales, Mexico, closed our
Sparks, Nevada facility and expanded the operations of our Cleveland, Ohio
facility. The process of integrating the product lines, equipment and facilities
acquired in the AWC transaction and executing our reorganization plan has been
more difficult than we originally anticipated. As a result, we have experienced,
and will continue to experience in fiscal 1999, production inefficiencies that
have resulted in higher manufacturing, distribution, and freight costs. These
difficulties have also resulted in reduced levels of customer service. We expect
that the reorganization of our cotton operations will be completed in 1999 and
that cost improvements will be realized in fiscal 2000 when we realize the
benefits from the actions currently being taken. In addition to the
reorganization of our cotton operations, gross margins in our soap business were
negatively impacted by higher absorption of manufacturing overhead and
depreciation over a lower sales base.
Operating and Other Expenses. Selling, general and administrative
expenses were 21.4% of net sales for 1998, compared to 20.3% for 1997. This
increase primarily reflects an increase in promotional support for our shaving
blade products, increased spending on new product development activities,
primarily with respect to Tri-Flexxx(TM), and absorption of soap operating
expenses over a smaller sales base. Amortization of goodwill and other
intangible assets was unchanged at $2.5 million for 1998 and 1997. Interest
expense was unchanged at $12.3 million for 1998 and 1997.
During 1998, we recorded special charges aggregating $3.0 million,
which were comprised of approximately $1.0 million related to our decision to
discontinue the Revlon Perfect Finish(TM) shaving system, approximately $1.8
million for certain severance and employee benefits related to the termination
of certain employees, and approximately $0.2 million related to the shutdown of
our cotton operations in Sparks, Nevada. Employee terminations have resulted
primarily from the consolidation of our sales forces and the termination of
certain other management employees. As of December 31, 1998 approximately $1.6
million remained as an accrued expense on our balance sheet, which is expected
to be substantially paid or utilized for asset impairment during 1999.
Our effective income tax rate for 1998 and 1997 was 28.7% and 38.8%,
respectively, and varies from the United States statutory rate due primarily to
nondeductible goodwill amortization, state income taxes, net of the federal tax
benefit, and in 1998 due to a tax benefit relating to the settlement of tax
issues. (See Note 8 to our consolidated financial statements).
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Sales. Net sales for 1997 and 1996 were $296.6 million and $260.6
million, respectively, an increase of $36.0 million, or 13.8%. Sales by AWC,
since its April 22, 1997 acquisition date, contributed $21.1 million to the net
sales increase and sales by Bond, since its March 29, 1996 acquisition date,
contributed $1.9 million to the net sales increase. The impact of increases in
unit volume and new product offerings within our other operating units accounted
for substantially all of the remaining $13.0 million increase in net sales.
Razors and Blades. Net sales of our razors and blades segment for 1997
and 1996 were $182.6 million and $171.6 million, respectively, an increase of
$11.0 million or 6.4%.
Net sales of our shaving razors and blades for 1997 and 1996 were
$120.8 million and $114.4 million, respectively, an increase of $6.4 million or
5.6%. Net sales of domestic private label shaving products increased 8.2%
primarily benefitting from continued growth in sales of our MBC(TM) products and
increased promotional support of products by major customers. Net sales of
international shaving products increased 5.1% reflecting stronger sales,
primarily in Canada, Latin America, Mexico, the United Kingdom, Russia and Asia.
International net sales were negatively impacted approximately 4% by unfavorable
exchange rates. Net sales of domestic value branded shaving products were up
marginally for the year.
Net sales of blades and bladed hand tools for 1997 and 1996 were $45.4
million and $40.7 million, respectively, an increase of $4.7 million or 11.6%.
This strong growth primarily reflects increased sales of our American Line(TM)
and Personna(R) brands of products as a result of new distribution gains and
product-line extensions.
14
<PAGE>
Net sales of specialty industrial and medical blades for 1997 and 1996
were $16.4 million and $16.5 million, respectively, a decrease of $0.1 million,
or 0.8%. Sales of specialty industrial products decreased 5.6% due primarily to
cyclical usage and purchasing patterns by certain customers and mix shifts to
lower-priced blade products. Sales of medical products increased 4.6% due to an
expanding customer base and new product offerings.
Cotton and Foot Care. Net sales of cotton and foot care products,
excluding AWC, for 1997 and 1996 were $59.3 million and $55.8 million,
respectively, an increase of $3.5 million, or 6.1%. Cotton and foot care
experienced sales growth across most of its product lines due primarily to
increased distribution of products.
Custom Bar Soap. Net sales of our custom bar soap products for 1997 and
1996 were $33.6 million and $33.2 million, respectively, an increase of $0.4
million, or 1.4%. This increase primarily reflects the continued growth in sales
of our pharmaceutical/skin care products.
Gross Profit. Gross profit increased $8.9 million to $99.6 million for
1997 from $90.7 million for 1996. As a percentage of net sales, gross profit was
33.6% for 1997 and 34.8% for 1996. This decrease was primarily due to the lower
margins earned in the newly acquired AWC cotton operations and the negative
impact of unfavorable exchange rates. This decrease was somewhat offset by lower
production costs in the shaving blades and synthetic soap operations and lower
material costs in the cotton operations.
Operating and Other Expenses. Selling, general and administrative
expenses were 20.3% of net sales for 1997, compared to 21.1% for 1996. 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 unchanged at $2.5 million for 1997 and 1996. Interest expense increased in
1997 to $12.3 million from $11.7 million in 1996 primarily reflecting increased
borrowings to finance the AWC acquisition.
Our effective income tax rate for 1997 and 1996 was 38.8% and 39.0%,
respectively. (See Note 8 to the consolidated financial statements.)
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow from operations and
borrowings under our revolving credit facility. For the years ended December 31,
1998, 1997 and 1996, net cash provided by operating activities amounted to $12.5
million, $12.0 million and $25.5 million, respectively.
The increase in net cash provided by operating activities for 1998
compared to 1997 primarily reflects a decrease in trade receivables of $1.2
million reflecting the timing of customer payments as compared to an increase of
$7.7 million in 1997, offset by a decline in net income and a decline in
accounts payable.
The decrease of $13.5 million in net cash provided by operating
activities for 1997 as compared to 1996 was due primarily to an increase in
trade accounts receivable for our newly acquired AWC operations, the timing of
customer payments, strong year-end sales which increased trade accounts
receivable, an increase in inventories to improve customer service and the
payment of certain tax liabilities.
For the years ended December 31, 1998, 1997 and 1996, net cash used in
investing activities amounted to $12.6 million, $24.0 million and $27.9 million,
respectively. Net cash used in investing activities for 1998 related primarily
to capital expenditures of $11.4 million and the purchase of Wolco for $0.6
million.
For the years ended December 31, 1998, 1997 and 1996, net cash provided
by financing activities was $2.1 million, $11.4 million and $2.2 million,
respectively. Net cash provided by financing activities for 1998 resulted from
net borrowings of $2.0 million.
At December 31, 1998, long-term indebtedness amounted to $127.3 million
(including the current portion of $3.9 million), and we had approximately $28.7
million available for future borrowings and letters of credit under our
revolving credit facility. The weighted-average interest rate incurred by us
with respect to our debt obligations in 1998 was approximately 9.3%.
15
<PAGE>
Our 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 1998 totaled $11.4 million, as compared to $13.7 million in 1997
and $11.3 million in 1996. We expect our capital expenditures to increase to
approximately $13.0 million in 1999. It is anticipated that these expenditures
will fund purchases of equipment to support production capacity for new and
existing products as well as routine on-going requirements.
We believe that our cash on hand, anticipated funds from operations and
the amounts available to us under our revolving credit facility will be
sufficient to cover our working capital, capital expenditures, debt service
requirements and tax obligations as well as our growth-oriented strategy for our
existing business for at least the next 12 months.
Market Risk
The Company is exposed to various market risk factors such as
fluctuating interest rates and changes in foreign currency rates. These risk
factors can impact our results of operations, cash flows and financial position.
We manage these risks through regular operating and financing activities and
periodically use derivative financial instruments such as foreign exchange
option and forward contracts. These derivative instruments are placed with major
financial institutions and are not for speculative or trading purposes.
The following analysis presents the effect on the Company's earnings,
cash flows and financial position as if the hypothetical changes in market risk
factors occurred on December 31, 1998. Only the potential impacts of our
hypothetical assumptions are analyzed. The analysis does not consider other
possible effects that could impact our business.
Interest Rate Risk
At December 31, 1998, the Company carried $127.3 million of outstanding
debt on its books, with $20.6 million of that total held at variable interest
rates. Holding all other variables constant, if interest rates hypothetically
increased or decreased by 10%, the impact on earnings, cash flow and financial
position would not be material. In addition, if interest rates hypothetically
increased or decreased by 10%, with all other variables held constant, the fair
market value of our $100.0 million 9 7/8% Series B Senior Notes would increase
or decrease by approximately $5.0 million.
Foreign Currency Risk
The Company sells to customers in foreign markets through our foreign
operations and through export sales from our plants in the U.S. These
transactions are often denominated in currencies other than the U.S. dollar. Our
primary currency exposures are the Euro, British Pound Sterling, Canadian Dollar
and Mexican Peso.
The Company limits its foreign currency risk by operational means,
mostly by locating its manufacturing operations in those locations where it has
significant exposures in major currencies. The Company in 1998 entered into
currency option contracts to minimize the risk of foreign currency fluctuations.
The value of these contracts at December 31, 1998 was not material to the
Company's earnings, cash flow and financial position.
Recent Developments
On February 12, 1999, RSA Holdings Corporation and RSA Acquisition
Corporation, which are affiliates of J.W. Childs Equity Partners II, L.P. ("J.W.
Childs"), entered into a merger agreement with the Company. Pursuant to the
merger agreement, RSA Acquisition has made an offer to purchase all of the
outstanding shares of common stock of the Company at a purchase price of $14.125
per share, upon the terms and subject to the conditions set forth in the offer
to purchase ("the Stock Tender Offer"). The aggregate purchase price, excluding
transaction costs, to be paid for the common stock purchased in the Stock Tender
Offer, assuming all of the common stock (on a fully diluted basis) is tendered,
including the redemption of stock options, is approximately $172.6 million. The
Stock Tender Offer is conditioned upon, among other conditions, there being
validly tendered and not withdrawn, prior to the expiration date of the Stock
Tender Offer, a number of shares of common stock which constitutes more than 50%
of the voting power (determined on a fully diluted basis) of all the equity
securities of the Company and regulatory
16
<PAGE>
approval. The Stock Tender Offer expires on April 2, 1999.
The merger agreement provides that, following the completion of the
Stock Tender Offer, RSA Acquisition will be merged with and into the Company
(the "Merger"). Following the Merger, the Company will continue as the surviving
corporation and will become a direct, wholly owned subsidiary of RSA Holdings,
which will be wholly owned by J.W. Childs, its affiliates and Company
management. Closing for the Merger is expected to occur in April 1999.
In connection with the Merger, the Company has made an offer to
purchase (the "Note Tender Offer") all $100.0 million aggregate principal amount
of its 9 7/8% Series B Senior Notes due August 1, 2005 (the "Existing Notes").
In conjunction with the Note Tender Offer, the Company has also solicited
consents to eliminate substantially all of the covenants contained in the
indenture relating to the Existing Notes. Any tender of Existing Notes pursuant
to the Note Tender Offer will also be a grant of consent with respect to such
Existing Notes. The Note Tender Offer expires on April 6, 1999.
Upon completion of the above transactions, as currently contemplated,
the Company expects it would have had approximately $226.2 million of
indebtedness outstanding as of December 31, 1998 as compared to historical
indebtedness outstanding of $127.3 million. The Company also expects that as a
result of the application of purchase accounting the Company's depreciation
expense and amortization of intangible assets will increase. In addition,
certain fees and expenses to be incurred relating to the above transactions will
be reflected either as components of the cost of the transactions or as an
expense in the period in which the transactions are completed.
During 1998 the Company purchased bleached cotton from an outside
supplier for use in its pharmaceutical coil business. The Company converted this
cotton from incoming bales into a coil, which was shipped to its pharmaceutical
customers to be used as filler in bottles of oral dosage forms of pharmaceutical
products to prevent breakage. During the period from March through November of
1998, the process by which the Company's supplier bleached this cotton was
changed by introducing an expanded hydrogen peroxide treatment. Subsequent
testing indicated varying levels of residual hydrogen peroxide in the cotton
processed during this time period and the supplier in November 1998 reduced the
levels of hydrogen peroxide in its bleaching process. The Company, to date, has
received complaints from approximately 10 customers alleging defects in the
cotton supplied them during the period and asserting these defects may have led
to changes in their products pharmaceutical appearance, and with respect to a
limited number of products, potency. As of March 26, 1999, the Company has
received notice of 2 claims for damages in the aggregate amount of approximately
$1.7 million which the Company believes primarily relates to alleged lost sales
and merchandise damage, and it is possible that additional damage claims might
be forthcoming. On March 2, 1999, at the request of the Food and Drug
Administration, the Company notified all (numbering approximately 85) of its
pharmaceutical cotton coil customers that it was withdrawing from the market
those lots of cotton coil which may contain elevated levels of hydrogen
peroxide.
The Company has notified its supplier that, in the Company's view, the
supplier is primarily responsible for damages, if any, that may arise out of
this matter. At this time, the Company's supplier has agreed to be responsible
for the cost of fiber, bleaching and freight of returned product, but has not
agreed to be responsible for any other damages and has expressed an intention to
assert defenses to our claims. The Company's insurance carriers have been timely
notified of the existence of the claim and have agreed to provide defense in a
reservation of rights letter, but are continuing to evaluate whether coverage
would apply to all aspects of the claims.
The Company has been advised by its general counsel that it has a
number of valid defenses to potential customer claims as well as a third party
claim against the supplier for damages, if any, incurred by the Company.
However, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome relating to this
overall issue, and accordingly, there can be no assurance that our exposure from
this matter might not exceed the combination of our insurance coverage, if any,
and our recourse to suppliers. It is therefore possible that the Company's
results of operations or cash flows in a particular quarterly or annual period
or its financial position could be significantly and adversely affected by an
ultimate unfavorable outcome of this matter.
Weston Properties Investments III, Ltd. has filed a claim against the
Company for damages relating to delays in cost overruns attendant to the
Company's facility expansion in Cleveland, Ohio in the amount of $649,000.
Management believes that the outcome of this matter will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes standards
for accounting and disclosure of derivative instruments. This new standard is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
implementation of this new standard is not expected to have a material effect on
our consolidated results of operations or financial position.
17
<PAGE>
Year 2000 Computer Issues
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year, as well as
hardware designed with similar constraints. Some of our computer programs and
hardware that have date sensitive functions may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions in operations including, among other
things, a temporary inability to process transactions, receive invoices, make
payments or engage in normal business transactions.
We are taking action to resolve those Year 2000 issues that are under
our control. The overall effort encompasses our razors and blades, cotton and
foot care and custom bar soap business segments and covers international as well
as domestic sites. We are centrally monitoring and controlling the effort;
however, there are designated representatives at each affiliate and subsidiary
location with responsibility for resolving site-specific Year 2000 issues.
Following is a description of the six-phase approach we are using:
(1) Assessment - Identify and inventory all information technology and
non-information technology system components that are possible sources
of Year 2000 issues and assess the criticality of non-compliant
systems in order to establish priorities for replacement or repair.
(2) Strategy - Determine the nature and extent of Year 2000 issues and
select a remediation strategy (i.e., renovate by modifying existing
system, upgrade to a later version of the system, replace with a new
system, or retire the affected component). After the strategy has been
selected, develop project plans to address non-compliant systems,
beginning with the most critical systems.
(3) Remediation - Execute project plans to resolve issues with
non-compliant systems.
(4) Testing - Perform testing to evaluate effectiveness of the corrective
actions taken or to confirm compliance of systems that have been
certified by third parties.
(5) Implementation - Implement the renovated, upgraded, and replaced system
components into the production environment.
(6) Contingency Planning - Continue monitoring readiness and complete
necessary contingency plans.
We have completed the Assessment and Strategy phases for substantially
all of our information technology and non- information technology system
components.
Our most mission-critical system is the "Corporate ERP" system, which
is a widely available software package that we have moderately customized.
Eleven of our fifteen manufacturing, packaging and distribution sites utilize
the Corporate ERP system to process orders, control manufacturing
planning/work-order processing, distribute products, manage financial activities
and report financial results. The eleven sites using the Corporate ERP system
include corporate headquarters, U.S. and Mexican razors and blades sites, all
cotton and foot care facilities, and all custom bar soap facilities. The third
party vendor has responded that all of its software modules in use at American
Safety Razor and our subsidiaries are Year 2000 ready. In addition, the most
frequently utilized system functions have been tested by our users, including
the internally developed system customizations.
We are currently linked with 138 customers for exchange of documents
using the Corporate EDI (electronic data interchange) system. Our EDI software
has been upgraded to a Year 2000 compliant version that is now capable of
supporting ANSI standard version 4010, which provides for a 4 digit year and is
the version which many of our EDI customers are adopting prior to the Year 2000.
EDI transactions with a 2 digit year have also been tested and will continue to
be supported for those customers who elect not to convert to a 4 digit year.
Approximately 18% of the 138 EDI customers have now been implemented on 4010.
Testing with EDI customers will continue through the remainder of 1999.
All personal computers are being analyzed and tested to determine
whether any remediation is required. We expect that the analysis and testing
process will be complete by June 1999 and that all personal computers will be
Year 2000 ready by December 31, 1999.
Our U.S. and U.K. payroll systems are Year 2000 compliant and we expect
all of our remaining international payroll systems will be compliant by the end
of 1999.
18
<PAGE>
We are also assessing the Year 2000 readiness of non-information
technology systems and equipment which may include embedded technology such as
micro-controllers. Our manufacturing, assembly, and packaging machines,
operating in each of our razors and blades, cotton and foot care and custom bar
soap segments, are scheduled to be Year 2000 compliant by the end of the second
quarter of 1999.
Our "worst-case" scenario at the present time is the disruption of
business operations as the result of supplier Year 2000 related failures, which
would impair their ability to adequately provide us with products or services.
Our business processes depend on our material suppliers as well as our
infrastructure suppliers in areas such as electricity, water, gas,
communications and transportation. Year 2000 related failures by suppliers could
adversely affect business operations including payroll, manufacturing processes,
product distribution, material ordering, customer-order processing and other
support functions dependent on the affected supplier. While we have a limited
ability to test and control our suppliers' and other third parties' Year 2000
readiness, we are contacting major suppliers and other critical third parties to
obtain information as to their Year 2000 readiness. Razors and blades and cotton
and foot care suppliers were surveyed regarding Year 2000 issues and all key
suppliers have indicated they plan to be compliant during 1999. The custom bar
soap business is scheduling a meeting with its top twenty suppliers during the
first half of 1999 for a Year 2000 readiness review.
Considering the number of internal and external systems which we
directly or indirectly use, it is likely that there will be instances of failure
that could cause disruptions in business processes. The likelihood of failures
in infrastructure systems and in the supply chain cannot be estimated and
therefore the impact of these failures on business operations is uncertain. If
we or any critical third party supplier does not complete necessary upgrades as
planned, the Year 2000 issue may have a material impact on us.
Necessary contingency plans are scheduled to be developed, beginning in
July 1999, for any internal systems that are not compliant by the end of June
1999. Also, contingency plans will be developed by December 1999, as needed, to
address the risk of business disruption due to supplier Year 2000 issues. As
part of contingency planning, we will consider a number of options to mitigate
risk, including building additional inventory prior to year 2000, establishing
manual backup processes and arranging for alternate suppliers.
Since most of our Year 2000 issues are being addressed through normal
planned upgrades, incremental external Year 2000 costs are expected to be
minimal, approximating $115,000. Approximately $35,000 was spent during the
fourth quarter of 1998 and $80,000 (approximately 3.5% of our information
technology budget) is planned to be spent during the first half of 1999.
Readers are cautioned that forward-looking statements contained in this
discussion of Year 2000 issues should be read in conjunction with our
disclosures under the heading "Forward-Looking Statements" above.
Inflation
Inflation has not been material to our operations within the periods
presented.
19
<PAGE>
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 31. Information related to
"Quarterly Data (Unaudited)" is summarized below:
1998
-----------------------------------------------------
First Second Third Fourth
----- ------ ----- -------
(In thousands, except per share and market price data)
Net sales $66,511 $73,751 $80,171 $77,055
Gross profit 19,508 23,800 26,902 25,300
Special charges (2) 1,003 - - 2,000
Net income 789 2,094 3,702 3,517 (1)
Earnings per share
Basic .07 .17 .31 .29 (1)
Diluted .06 .17 .30 .29 (1)
Market price
High 23.25 18.38 14.75 12.63
Low 17.50 11.00 8.63 8.13
(1) Includes a tax benefit of $1,546 or $.13 per share relating to the
settlement of tax issues (See Note 8 to consolidated financial statements).
(2) See Note 13 to consolidated financial statements.
1998
----------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(In thousands, except per share and market price data)
Net sales $63,103 $75,683 $79,061 $78,760
Gross profit 21,678 24,272 26,588 27,078
Net income 2,554 3,385 4,438 4,692
Earnings per share
Basic .21 .28 .37 .39
Diluted .21 .28 .36 .38
Market price
High 15.75 18.13 19.38 20.75
Low 12.88 13.38 16.00 16.25
ITEM 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
20
<PAGE>
PART III
ITEM 10 - Directors and Executive Officers of the Registrant
The Current Members of the Board
The Company's Board currently consists of nine members. The name of the
current Directors, their ages as of March 17, 1999 and certain other information
about them are set forth below.
Business Experience During
Name Age the Past Five Years and Other Information
- ---- --- -----------------------------------------
Each for a Three-Year Term Expiring at the
1999 Annual Meeting of Stockholders
William C. Weathersby 57 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
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.
William C. Ballard 58 Mr. Ballard became a member of the Board of
Directors on June 15, 1993 in connection
with the Company's initial public offering
(the "Initial Public Offering"). Mr. Ballard
has been of counsel to the law firm of
Greenebaum, Doll & McDonald in Louisville,
Kentucky since May 1992. From 1970 to April
1992, Mr. Ballard held various positions
with Humana Inc., an investor-owned hospital
company, including most recently as its
Executive Vice President and as a member of
its Board of Directors. Mr. Ballard is a
director of Atria Communities, Inc., Health
Care REIT, Health Care Recoveries, Inc.,
Jordan Telecommunication Products, Inc.,
LG&E Energy Corp., Mid-America Bancorp,
Vencor, Inc. and United Healthcare Corp.
Jonathan F. Boucher 42 Mr. Boucher became a member of the Board of
Directors and the Company's Vice President
in April 1989 in connection with the
acquisitions by the Company of its
predecessor and Ardell Industries, Inc.
(collectively, the "Acquisitions"). Since
June 1983, Mr. Boucher has been a managing
director of The Jordan Company. Mr. Boucher
is a director and officer of Jordan
Industries, Inc., Jackson Products, Inc.,
Motors and Gears, Inc. and Jordan
Telecommunication Products, Inc.
Each for a Three-Year Term Expiring at the
2000 Annual Meeting of Stockholders
Thomas H. Quinn 51 Mr. Quinn became Chairman of the Board of
Directors of the Company in April 1989 in
connection with the Acquisitions. Since
1988, Mr. Quinn has been President, Chief
Operating Officer and a director of Jordan
Industries, Inc. and Chairman of the Board
and Chief Executive Officer of Welcome Home,
Inc. and a director of AmeriKing, Inc.,
Motors and Gears, Inc. and Jordan
Telecommunication Products, Inc. On January
22, 1997, Welcome Home, Inc. filed a Chapter
11 petition in the United States Bankruptcy
Court for the Southern District of New York.
John W. Jordan II 50 Mr. Jordan became a member of the Board of
Directors in April 1989 in connection with
the Acquisitions. Mr. Jordan is the managing
director of The Jordan Company, which he
founded in February 1982. Mr. Jordan is also
a director of Jordan Industries, Inc.,
AmeriKing, Inc., Carmike Cinemas, Inc.,
Motors and Gears, Inc., Welcome Home, Inc.,
Apparel Ventures, Inc., Jackson Products,
Inc., GFSI, Inc., GFSI Holdings, Inc.,
Jordan Telecommunication Products, Inc. and
Rockshox, Inc.
21
<PAGE>
Business Experience During
Name Age the Past Five Years and Other Information
- ---- --- -----------------------------------------
D. Patrick Curran 50 Mr. Curran became a member of the Board of
Directors on June 15, 1993 in connection
with the Initial Public Offering. Mr. Curran
is President and Chairman of Curran
Companies, a manufacturer and supplier of
specialty chemicals, which he has been
associated with since 1968. He has also
served as Chairman of Cook Composites and
Polymers, Inc. since 1990. Mr. Curran also
serves on the Board of Directors of
Applebee's International, Inc., Sealright
Co., Inc. and UNITOG Company.
Each for a Three-Year Term Expiring at the
2001 Annual Meeting of Stockholders
David W. Zalaznick 45 Mr. Zalaznick became a member of the Board
of Directors in April 1989 in connection
with the Acquisitions. Since 1982, Mr.
Zalaznick has been a managing director of
The Jordan Company. Mr. Zalaznick is also a
director of Jordan Industries, Inc.,
AmeriKing, Inc., Carmike Cinemas, Inc.,
Marisa Christina, Inc., Motors and Gears,
Inc., Apparel Ventures, Inc., Jackson
Products, Inc., GFSI, Inc., GFSI Holdings,
Inc. and Jordan Telecommunication Products,
Inc.
John R. Lowden 42 Mr. Lowden became a member of the Board of
Directors in April 1989 in connection with
the Acquisitions. Mr. Lowden has been a
managing director of The Jordan Company
since March 1985 and is also an officer and
a director of Apparel Ventures, Inc.
Paul D. Rhines 55 Mr. Rhines became a member of the Board of
Directors in April 1989 in connection with
the Acquisitions. Since 1980, Mr. Rhines has
been a founding general managing director of
R. W. Allsop & Associates L.P. and R.W.
Allsop & Associates II, Limited Partnership
and is also a founding general partner of
the general partner of the Allsop Venture
Partners III, L.P., all of which are engaged
in financing growth-oriented private
companies and acquisitions.
Executive Officers
Set forth below are our executive officers as of March 17, 1999, their
ages, positions, and a description of their business experiences for the last
five years. Except for Mr. Casner and Mr. Tonnesen, all of the below named
executive officers have been our employees for more than the last five years.
Name Age Position with Company
- ---- --- ---------------------
Thomas H. Quinn 51 Chairman of the Board, Chief Executive Officer
William C. Weathersby 57 President, Chief Operating Officer
Thomas G. Kasvin 51 Senior Vice President - Chief Financial Officer
J. Michael Casner 54 Vice President - International
John R. Lupton 57 Vice President - Operations, Cotton and
Foot Care
John W. Paterson 56 Vice President - Medical
Michael J. Piron 58 Vice President - Technical and Logistics
Operations
Gary R. Moorhead 50 Vice President - General Manager, Custom
Bar Soap
Gary S. Wade 50 Vice President - Industrial/Specialty
Paul W. Tonnesen 34 Vice President - Consumer Products
Mr. Quinn - for biographical information with respect to Mr. Quinn, see
The Current Members of the Board above.
Mr. Weathersby - for biographical information with respect to Mr.
Weathersby, see The Current Members of the Board above.
22
<PAGE>
Mr. Kasvin joined the Company in August 1991, and served as Vice
President - Chief Financial Officer 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. Casner joined the Company in June 1997, and has served as Vice
President - International since that time. Prior to joining the Company, Mr.
Casner held various international marketing positions with Helene Curtis,
Gillette and Johnson & Johnson.
Mr. Lupton has been employed in various positions with the Company
since 1982. Currently, Mr. Lupton serves as Vice President - Operations, Cotton
and Foot Care. Prior to joining the Company, Mr. Lupton spent eighteen years in
various production and engineering positions with General Electric.
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. 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. Moorhead joined the Company in 1980, in connection with the
acquisition of the Hewitt Soap Company and held various sales and marketing
positions until April 1997, when he became Vice President - General Manager,
Custom Bar Soap.
Mr. Wade has been employed in various sales, management and marketing
positions in the Company's industrial blade division since 1978. In 1990, Mr.
Wade was appointed Vice President - Industrial/Specialty. Prior to joining the
Company, Mr. Wade was employed in various sales and sales management positions
with the General Products Division of Philip Morris U.S.A.
Mr. Tonnesen joined the Company in October 1998 and has served as Vice
President - Consumer Products since that time. Prior to joining the Company, Mr.
Tonnesen was National Sales Manager for the Personal Care Group. From 1994 to
1996, Mr. Tonnesen was Eastern Zone Sales Manager at H. J. Heinz, Inc./Kraft
General Foods. From 1991 to 1994, Mr. Tonnesen held various positions at Kraft
General Foods.
ITEM 11 - Executive Compensation
The following table sets forth a summary of certain information
regarding compensation paid or accrued by the Company for services rendered to
the Company for the fiscal year ended December 31, 1998, and the two prior
fiscal years, paid or awarded to those persons who were, at December 31, 1998:
(i) the Company's chief executive officer, (ii) the Company's four most highly
compensated executive officers other than the chief executive officer whose
total annual salary and bonus exceeded $100,000 during such period
(collectively, the "Named Executive Officers") and (iii) an additional
individual for whom disclosure would have been provided but for the fact that
the individual was not serving as an executive officer of the Company as of
December 31, 1998.
23
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------
Other Annual Securities Underlying
Name and Principal Position Year Salary(1) Bonus(2) Compensation(3) Options
- --------------------------- ---- --------- -------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Thomas H. Quinn 1998 125,000 0 0 0
Chairman and Chief 1997 125,000 0 0 0
Executive Officer 1996 125,000 0 0 0
William C. Weathersby 1998 292,000 0 0 0
President, Chief Operating 1997 292,000 250,000 0 15,000
Officer and Director 1996 288,333 245,000 0 20,000
Thomas G. Kasvin 1998 190,832 0 0 0
Senior Vice President-- 1997 174,667 117,447 0 15,000
Chief Financial Officer 1996 159,333 110,169 0 20,000
Michael J. Piron 1998 161,152 0 0 0
Vice President -- Technical 1997 161,152 84,883 0 7,500
and Logistics Operations 1996 161,152 84,294 10,034 (4) 15,000
James V. Heim 1998 197,087 0 322,500 (5) 0
1997 206,667 136,815 0 15,000
1996 113,750 117,000 19,358 (6) 20,000
Gary S. Wade 1998 134,678 64,300 0 0
Vice President -- Industrial/ 1997 124,785 45,010 0 7,500
Specialty 1996 119,822 39,771 0 10,000
</TABLE>
- ----------------------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) The Company provides bonus compensation based on an individual's
achievement of certain specified objectives, with additional rewards if
certain operating objectives, including, among others, earnings per share,
are met. Employees are eligible to receive from 10% to 100% of their annual
compensation as a bonus under this program. The bonus plan is administered
by the Company's Compensation Committee.
(3) Except as indicated, no executive named in the table received any other
annual compensation in an amount in excess of the lesser of either $50,000
or 10% of the total of annual salary and loans reported for him in the two
preceding columns for the periods covered by this table.
(4) Represents the amount paid by the Company to Mr. Piron for certain
relocation expenses incurred in connection with the commencement of his
employment with the Company.
(5) Payment pursuant to a Separation and Release Agreement dated as of
November 9, 1998 between the Company and Mr. Heim.
(6) Represents the amount paid by the Company to Mr. Heim for certain
relocation expenses incurred in connection with the commencement of his
employment with the Company.
The following table shows stock options exercised by each of the Named Executive
Officers during the fiscal year ended December 31, 1998, including the aggregate
value of gains on the date of exercise. In addition, this table includes the
number of shares covered by both exercisable and non-exercisable stock options
as of fiscal year-end, and the values for unexercised options based on the
year-end price of the Common Stock. Except as listed in the table, no other
Named Executive Officer exercised any Company stock options or beneficially
owned unexercised Company stock options.
24
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Shares Options at December 31, 1998 December 31, 1998(1)
Acquired Value ------------------------------ ----------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Weathersby 0 0 28,000 32,000 $75,500 $28,875
Thomas G. Kasvin 0 0 35,000 30,000 99,125 22,125
Michael J. Piron 0 0 26,000 21,500 73,500 25,875
James V. Heim 0 0 8,000 27,000 8,000 12,000
Gary S. Wade 0 0 22,000 15,500 64,750 12,750
</TABLE>
- ---------------
(1) Based on the difference between the closing market price on December 31,
1998, for the Common Stock, which was $12.00 per share, and the option
exercise price.
Employment Agreements
On March 3, 1995, Sterile Products Holdings, Inc., a wholly-owned
subsidiary of the Company ("Holdings") and Sterile Products Corporation, d.b.a.
Absorbent Cotton Company, Inc., a wholly-owned subsidiary of Holdings ("ACCO"),
entered into an employment agreement with Mr. C. C. Van Noy (the "Van Noy
Employment Agreement"). Pursuant to the terms of the Van Noy Employment
Agreement, Mr. Van Noy served as the President of ACCO for two years and agreed
not to compete with Holdings or ACCO or disclose any confidential information
during the period in which the Annual Retirement Payments (as hereinafter
defined) are being paid to him. In exchange for his services and agreements not
to compete or disclose certain information, Mr. Van Noy, who has retired and no
longer performs services for the Company, is entitled to receive an annual
payment of $75,000 (the "Annual Retirement Payments") for a ten year period. The
Van Noy Employment Agreement provides that the Annual Retirement Payments shall
be made to the beneficiary of Mr. Van Noy upon his death, subject to certain
adjustments.
On December 8, 1997, the Company entered into Employment Protection
Agreements (the "Protection Agreements") with each of Messrs. Weathersby and
Kasvin (the "Executive"). The Protection Agreement provides that, in the event
of a Change of Control (as defined therein), the Company will pay the Executive
a lump sum in cash (the "Change of Control Payment") equal to: (i) one year's
base salary (six months in the case of Mr. Weathersby) and (ii) an amount equal
to 100% of Executive's target bonus (50% in the case of Mr. Weathersby) for the
fiscal year in which the Change of Control occurs. If, after a Change of
Control, Executive's employment is terminated or is otherwise materially and
adversely affected, Executive will be entitled to an additional lump sum payment
equal to the Change of Control Payment. In addition, all stock options
previously granted to the Executive, whether or not vested, shall become
immediately exercisable. Executive shall have one year from such date to
exercise the options.
On July 15, 1998, the Company entered into a Letter Agreement with Mr.
Kasvin, in which the Company agreed to pay Mr. Kasvin $300,000 on September 1,
1999 (above and beyond salary and other benefits which he is receiving) if he
remained employed by the Company until that date (or was terminated by the
Company without cause prior to that date). Under the Letter Agreement, Mr.
Kasvin must give six months' notice if he intends to leave the Company and in
the event that Mr. Kasvin gives such notice to the Company, Mr. Kasvin will
remain on the payroll at full salary and benefits until the earlier of either
the date Mr. Kasvin finds other employment or December 31, 1999.
On November 9, 1998, the Company entered into a Separation and Release
Agreement (the "Release Agreement") with Mr. James V. Heim, Senior Vice
President of Consumer and Personal Products. Pursuant to the terms of the
Release Agreement, Mr. Heim's employment with the Company ceased on November 30,
1998. In satisfaction of all Mr. Heim's claims for compensation, Mr. Heim
received a lump sum payment from the Company of $322,500. Mr. Heim may exercise
his stock options in the Company's stock until November 30, 1999. In furtherance
of the Employee Patent and Confidential Information Agreement executed by Mr.
Heim on June 3, 1996, Mr. Heim agrees that he will keep secret all confidential
financial and proprietary matters of the Company and will not take with him any
documents relating to the Company.
On February 5, 1999, the Company entered into a Letter Agreement with
Thomas H. Quinn. Pursuant to the Letter
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<PAGE>
Agreement, Mr. Quinn's employment with the Company will cease upon a change of
control of the Company. In recognition of his service and dedication to the
Company, Mr. Quinn is entitled to receive a lump sum payment, upon consummation
of a change of control, from the Company of $374,000.
ITEM 12 - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 1998 (except as
otherwise noted) certain information with respect to the number of shares of
Common Stock beneficially owned by (i) each director of the Company who
beneficially owned Common Stock, (ii) each executive officer of the Company as
of December 31, 1998, named in the table under "Executive Compensation" under
Item 11 of this Report, who beneficially owned Common Stock, (iii) all directors
and executive officers of the Company as a group and (iv) based on information
available to the Company and a review of statements filed with the SEC pursuant
to Section 13(d) and 13(g) of the Securities Act of 1934, as amended (the
"Exchange Act"), each person or entity that beneficially owned (directly or
together with affiliates) more than 5% of the Common Stock. The Company believes
that each individual or entity named has sole investment and voting power with
respect to shares of Common Stock indicated as beneficially owned by them,
except as otherwise noted.
Common
Stock
Beneficially Percentage
Name Owned(1) Ownership(1)
- ---- ------------ ------------
Directors and Executive Officers:
Jonathan F. Boucher (2) 360,639 2.9%
John W. Jordan II (3) 332,140 2.7
David W. Zalaznick (4) 303,140 2.5
William C. Weathersby (5) 197,000 1.6
John R. Lowden (6) 184,860 1.5
Thomas H. Quinn (7) 175,200 1.4
Thomas G. Kasvin (8) 62,600 *
William C. Ballard (9) 21,000 *
Michael J. Piron (10) 26,000 *
D. Patrick Curran (11) 15,000 *
Gary S. Wade (12) 36,300 *
Paul D. Rhines 10,343 *
All directors and executive
officers as a group (16
persons) (2)(3)(4)(5)(6)
(7)(8)(9)(10)(11)(12) 1,768,822 14.6%
Other Principal Stockholders:
Sanford C. Bernstein & Co. Inc. (13) 1,222,650 10.1%
FMR Corp. (14) 1,065,400 8.8%
T. Rowe Price Associates, Inc. (15) 994,900 8.2%
1838 Investment Advisors, Inc. (16) 697,963 5.8%
- ---------------------------
* Indicates beneficial ownership of less than 1% of shares of Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but not deemed outstanding for the
purpose of calculating the percentage owned by each other person
listed.
(2) Includes 2,000 share of Common Stock held by Thomas C. Boucher, 2,000
shares of Common Stock held by Peter C. Boucher, 2,000 shares of Common
Stock held by Hayden W. Boucher, each under the Uniform Gifts to Minors
Act and for each of which Mr. Boucher disclaims beneficial ownership,
6,500 shares of Common Stock held by the Jonathan F. Boucher Profit
Sharing Plan, of which Mr. Boucher is trustee, and 3,000 shares are
owned by the Jonathan F. Boucher
26
<PAGE>
Money Purchase Plan of which Mr. Boucher is a Trustee. Mr. Boucher is a
managing director of The Jordan Company, an entity with which Messrs.
Jordan, Zalaznick, Quinn and Lowden are also affiliated. Mr. Boucher's
address is c/o The Jordan Company, 767 Fifth Avenue, 48th Floor, New
York, New York 10153.
(3) Includes 332,140 shares of Common Stock held by John W. Jordan II
Revocable Trust, of which Mr. Jordan is trustee. Mr. Jordan is a
managing director of The Jordan Company, an entity with which Messrs.
Boucher, Quinn, Zalaznick and Lowden are also affiliated. Mr. Jordan's
address is c/o The Jordan Company, 767 Fifth Avenue, 48th Floor, New
York, New York 10153.
(4) Includes 7,000 shares of Common Stock held by Amy Y. Zalaznick 1995
Irrevocable Trust, 7,000 shares of Common Stock held by Jeffrey C.
Zalaznick 1995 Irrevocable Trust and 7,000 shares of Common Stock held
by Samantha M. Zalaznick 1995 Irrevocable Trust, for each of which Mr.
Zalaznick's wife is trustee and for each of which Mr. Zalaznick
disclaims beneficial ownership. Mr. Zalaznick is a managing director of
The Jordan Company, an entity with which Messrs. Boucher, Jordan, Quinn
and Lowden are also affiliated. Mr. Zalaznick's address is c/o The
Jordan Company, 767 Fifth Avenue, 48th Floor, New York, New York 10153.
(5) Includes 7,632 shares of Common Stock held by the William C. Weathersby
Irrevocable Trust F/B/O Marcus D. Weathersby, 7,632 shares of Common
Stock held by the William C. Weathersby Irrevocable Trust F/B/O William
C. Weathersby, Jr., and immediately exercisable options to purchase
28,000 shares of Common Stock. Mr. Weathersby's address is c/o American
Safety Razor Company, P. O. Box 500, Staunton, Virginia 24402.
(6) Includes 2,500 shares of Common Stock held by the Trust F/B/O John R.
Lowden, of which Mr. Lowden is co-trustee. Mr. Lowden is a managing
director of The Jordan Company, an entity with which Messrs. Boucher,
Jordan, Quinn and Zalaznick are also affiliated. Mr. Lowden's address
is c/o The Jordan Company, 767 Fifth Avenue, 48th Floor, New York, New
York 10153.
(7) Mr. Quinn is President and Chief Operating Officer of Jordan
Industries, Inc., a company affiliated with The Jordan Company, an
entity with which Messrs. Boucher, Jordan, Zalaznick and Lowden are
also affiliated. Mr. Quinn's address is c/o Jordan Industries, Inc.,
1751 Lake Cook Road, Suite 550, Deerfield, Illinois 60015.
(8) Includes 800 shares of Common Stock owned by Mr. Kasvin's wife, which
shares Mr. Kasvin is deemed to beneficially own, and immediately
exercisable options to purchase 35,000 shares of Common Stock. Mr.
Kasvin's address is c/o American Safety Razor Company, P. O. Box 500,
Staunton, Virginia 24402.
(9) Includes 4,000 shares of Common Stock held by the Charitable Remainder
Trust F/B/O Julie W. Ballard, 2,000 shares of Common Stock held by the
Charitable Remainder Trust F/B/O of Elizabeth Ballard Lebhor and 2,000
shares of Common Stock held by the Charitable Remainder Trust F/B/O
William C. Ballard, III, for each of which Mr. Ballard is trustee, and
immediately exercisable options to purchase 10,000 shares of Common
Stock. Mr. Ballard's address is 3300 National City Tower, 101 South 5th
Street, Louisville, Kentucky 40202.
(10) Includes immediately exercisable options to purchase 26,000 shares of
Common Stock. Mr. Piron's address is c/o American Safety Razor Company,
P. O. Box 500, Staunton, Virginia 24402.
(11) Includes immediately exercisable options to purchase 10,000 shares of
Common Stock. Mr. Curran's address is P. O. Box 419389, Kansas City,
Missouri 64141-6389.
(12) Includes immediately exercisable options to purchase 22,000 shares of
Common Stock. Mr. Wade's address is c/o American Safety Razor Company,
P. O. Box 500, Staunton, Virginia 24402.
(13) As of January 8, 1999, Sanford C. Bernstein & Co. Inc. Investment
Research and Management ("Bernstein"), an investment advisor registered
under Section 203 of the Investment Advisers Act of 1940, beneficially
owned 1,222,650 shares of Common Stock. Bernstein has sole voting power
with respect to 1,008,000 shares of Common Stock and shared voting
power with respect of 25,295 shares of Common Stock. Voting power is
shared with Bernstein clients who have appointed an independent voting
agent with instructions to vote shares in the same manner as Bernstein.
Bernstein has sole dispositive power with respect to 1,222,650 shares
of Common Stock. The address of Bernstein is One State Street Plaza,
New York, New York 10004-1545.
27
<PAGE>
(14) As of February 1, 1999, Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. ("FMR"),
beneficially owned 1,065,400 shares of Common Stock as a result of
acting as investment adviser to various investment companies registered
under Section 8 of the Investment Company Act of 1940. FMR, through its
control of Fidelity, has sole dispositive power with respect to
1,065,400 shares of Common Stock and no voting power with respect to
1,065,400 shares of Common Stock. Such voting power resides with the
Boards of Trustees of the funds. FMR carries out the voting of the
shares under written guidelines established by the funds' Boards of
Trustees. The 1,065,400 shares of Common Stock are also beneficially
owned by Fidelity Low-Priced Stock Fund ("Stock Fund"). The address of
Fidelity, FMR and Stock Fund is 82 Devonshire Street, Boston,
Massachusetts 02109.
(15) As of February 12, 1999, T. Rowe Price Associates, Inc. ("Price"), an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, beneficially owned 994,900 shares of Common
Stock. Included in the 994,900 shares are 700,000 shares of Common
Stock which are beneficially owned by T. Rowe Price Small Cap Value
Fund ("Small Cap"), an investment company registered under Section 8 of
the Investment Company Act of 1940 as to which Price serves as advisor.
As to the 994,900 shares of Common Stock: (i) Price has sole voting
power with respect to 274,200 shares of Common Stock and Small Cap has
sole voting power with respect to 700,000 shares of Common Stock and
(ii) Price has sole dispositive power with respect to 994,900 shares of
Common Stock. The shares of Common Stock are owned by various
individual and institutional investors, which Price serves as
investment adviser with the power to direct investments and/or sole
power to vote the securities. For purposes of the Exchange Act, Price
is deemed to be the beneficial owner of such securities, however Price
expressly disclaims beneficial ownership of such securities. The
address of Price and Small Cap is 100 E. Pratt Street, Baltimore,
Maryland 21202.
(16) As of February 3, 1999, 1838 Investment Advisors, Inc. ("1838"), an
investment advisor registered under Section 203 of the Investment
Advisers Act of 1940, beneficially owned 697,963 shares of Common
Stock. As to the 697,963 shares of Common Stock 1838 has: (i) sole
voting power with respect to 434,311 shares of Common Stock and (ii)
sole dispositive power with respect to 697,963 shares of Common Stock.
The shares of Common Stock are owned by various individual and
institutional investors, which 1838 serves as investment advisor with
the power to direct investment and/or sole power to vote the
securities. The address of 1838 is 5 Radnor Corp. Center, Suite 320,
Radnor, Pennsylvania 19087.
ITEM 13 - Certain Relationships and Related Transactions
The Jordan Company. On July 12, 1995, the Company and TJC Management
Corporation, an affiliate of The Jordan Company, entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides for the
payment by the Company to TJC Management Corporation of (a) up to 2% of the
aggregate consideration paid by the Company and/or its subsidiaries in
connection with acquisitions or paid to the Company in connection with a sale of
the Company and/or its subsidiaries and (b) up to 1% of the amount obtained
pursuant to any debt, equity or other refinancing. In accordance with Company
policy, the Advisory Agreement was (i) approved by a majority of the members of
the Company's Board and by a majority of the disinterested members of the
Company's Board and (ii) deemed by the Company's Board to be subject to terms
and conditions no less favorable to the Company than could be obtained from
unaffiliated third parties.
Pursuant to the terms of the Advisory Agreement, on May 28, 1997, the
Company paid to TJC Management Corporation $196,000 as compensation for
providing investment banking and other consulting services rendered in
connection with the acquisition by a subsidiary of the Company of certain assets
of AWC. Messrs. Jordan, Zalaznick, Boucher and Lowden are directors of the
Company and partners of The Jordan Company.
During the fiscal year 1998, the Company paid to The Jordan Company an
aggregate of $60,000 as compensation for Messrs. Jordan, Zalaznick, Boucher and
Lowden serving as members of the Company's Board.
On February 12, 1999, the Company and TJC Management Corporation
amended and restated the Advisory Agreement (the "Amended Advisory Agreement").
The Company's Board unanimously approved the Amended Advisory Agreement.
Pursuant to the Amended Advisory Agreement, the Company and TJC Management
Corporation agreed upon a flat $2,500,000 fee for financial advisory services
payable at closing of the Stock Tender Offer which represents .8% of the Stock
Tender Offer. The financial advisory fee in the Amended Advisory Agreement
represents a reduction from the base fee of up to 2% which would otherwise have
been paid in connection with the Stock Tender Offer. In accordance with Company
policy, the Amended Advisory Agreement was (i) approved by a majority of the
members of the Company's Board and a majority of the disinterested members of
the Company's Board and (ii) deemed by the Company's Board to be subject to
terms and conditions no less favorable to the
28
<PAGE>
Company than could be obtained from unaffiliated third parties.
Indemnification Agreements. The Company is party to indemnification
agreements with each of the members of the Company's Board pursuant to which the
Company has agreed to indemnify and hold harmless each director from liabilities
incurred as a result of such director's status as a director of the Company,
subject to certain limitations.
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 31.
(b) Reports on Form 8-K filed in the fourth quarter of 1998.
None
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this Report starting on page 61.
(d) Financial Statement Schedule--The response to this portion of Item 14 is
submitted as a separate section of this Report on page 60.
29
<PAGE>
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 26th day of
March 1999.
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 26th day of March 1999.
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.
30
<PAGE>
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, 1998
AMERICAN SAFETY RAZOR COMPANY
STAUNTON, VIRGINIA
31
<PAGE>
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, 1998 and 1997
Consolidated Statements of Income--Years ended December 31, 1998, 1997
and 1996
Consolidated Statements of Comprehensive Income--Years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows--Years ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements--December 31, 1998
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.
32
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
1998 1997
---- ----
Assets
Current assets:
Cash and cash equivalents $3,453 $1,434
Trade receivables, less allowances
of $2,957 in 1998, and $3,461 in 1997 44,498 45,277
Inventories 54,029 51,488
Income taxes receivable 989 896
Deferred income taxes 5,108 2,803
Prepaid expenses 2,340 1,410
--------- --------
Total current assets 110,417 103,308
Property and equipment, net 74,665 72,943
Intangible assets, net:
Goodwill 68,446 68,978
Other 3,365 4,258
--------- --------
71,811 73,236
Prepaid pension cost and other 6,004 4,594
--------- --------
Total assets $262,897 $254,081
========= ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $14,269 $15,704
Accrued expenses 12,009 10,772
Payroll and related liabilities 3,727 5,720
Accrued interest 4,232 4,269
Current maturities of long-term obligations 3,852 2,107
--------- --------
Total current liabilities 38,089 38,572
Long-term obligations 123,481 121,505
Retiree health and insurance benefits 23,802 22,966
Pension and other liabilities 1,361 2,017
Deferred income taxes 6,610 9,582
--------- --------
Total liabilities 193,343 194,642
--------- --------
Contingent liabilities and commitments
Stockholders' equity:
Common stock, $.01 par value, 25,000,000
shares authorized; 12,110,049 shares issued and
outstanding in 1998, 12,098,049 in 1997 121 121
Additional paid-in capital 65,905 65,801
Retained earnings (accumulated deficit) 4,457 (5,645)
Accumulated other comprehensive loss (929) (838)
-------- --------
69,554 59,439
Total liabilities and stockholders' equity $262,897 $254,081
======== ========
See accompanying notes.
33
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year ended December 31,
1998 1997 1996
---------- ---------- ----------
Net sales $297,488 $296,607 $260,636
Cost of sales 201,978 196,991 169,949
--------- --------- ---------
Gross profit 95,510 99,616 90,687
Selling, general and
administrative expenses 63,516 60,206 54,867
Amortization of intangible assets 2,543 2,501 2,503
Special charges 3,003 - -
---------- ----------- ------------
Operating income 26,448 36,909 33,317
Interest expense 12,270 12,270 11,719
--------- --------- ---------
Income before income taxes 14,178 24,639 21,598
Income taxes 4,076 9,570 8,425
--------- --------- ----------
Net income $ 10,102 $ 15,069 $ 13,173
======== ======== =========
Basic earnings per share:
Net income $0.83 $1.25 $1.09
===== ===== =====
Weighted average number
of shares outstanding 12,107 12,094 12,093
====== ====== ======
Diluted earnings per share:
Net income $0.83 $1.23 $1.09
===== ===== =====
Weighted average number
of shares outstanding 12,223 12,255 12,139
====== ====== ======
See accompanying notes.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year ended December 31,
1998 1997 1996
---------- ---------- ----------
Net income $10,102 $15,069 $13,173
Other comprehensive income:
Foreign currency
translation adjustments (91) (198) 452
--------- --------- --------
Comprehensive income $10,011 $14,871 $13,625
======= ======= =======
See accompanying notes.
34
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
1998 1997 1996
-------- -------- --------
Operating activities
Net income $10,102 $15,069 $13,173
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 9,634 8,624 8,081
Amortization 2,543 2,501 2,503
Interest and financing costs 553 540 727
Deferred income taxes (381) 1,834 273
Retiree health and insurance benefits 836 674 684
Pension and other (2,126) (2,023) 254
Changes in operating assets
and liabilities
net of effects of acquisitions:
Trade receivables 1,186 (7,685) (1,213)
Inventories (2,186) (3,619) (171)
Income taxes receivable (93) (896) -
Prepaid expenses (927) 423 (119)
Accounts payable (1,671) 1,492 666
Accrued and other expenses (1,328) (70) 998
Income taxes payable (3,601) (4,827) (343)
------- ------- --------
Net cash provided by operating activities 12,541 12,037 25,513
------- ------- -------
Investing activities
Capital expenditures (11,375) (13,714) (11,269)
Acquisitions, net of cash acquired (571) (10,300) (16,673)
Other, net (663) (3) 62
-------- --------- ---------
Net cash used in investing activities (12,609) (24,017) (27,880)
------- ------- -------
Financing activities
Repayment of long-term obligations (1,397) (553) (11,225)
Proceeds from borrowings 3,380 11,943 13,424
Proceeds from exercise of stock options 104 45 -
--------- -------- ----------
Net cash provided from financing activities 2,087 11,435 2,199
-------- ------- --------
Net increase (decrease) in
cash and cash equivalents 2,019 (545) (168)
Cash and cash equivalents,
beginning of period 1,434 1,979 2,147
-------- -------- --------
Cash and cash equivalents, end of period $ 3,453 $ 1,434 $ 1,979
======= ======= =======
See accompanying notes.
35
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
American Safety Razor Company and its subsidiaries (the "Company") is a leading
manufacturer of high-quality private label and value brand consumer products.
The Company's principal products consist of consumer shaving razors and blades,
blades and bladed hand tools, specialty industrial and medical blades, cotton
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.
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
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 The Cotton
Division of American White Cross, Inc., ("AWC"), Bond-America Israel Blades,
Ltd., and its wholly owned U.S. subsidiary, A.I. Blades, Inc. (collectively,
"Bond") and Wolco Holland B.V. ("Wolco") since their acquisition dates (See Note
12). 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 59
percent and 61 percent of inventories for 1998 and 1997, 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.
Long-Lived Assets
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 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 its long-lived assets to assess recoverability or impairment based on
expectations of undiscounted cash flows and the assets' carrying amount. 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 $912,000 in 1998,
$2,318,000 in 1997, and $732,000 in 1996.
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 accumulated other comprehensive loss. The
Company does not provide income taxes on such gains and losses because income
taxes are not provided on the undistributed earnings of foreign subsidiaries as
it is the intent of the Company to support these subsidiaries with such
earnings. Gains and losses from foreign currency
36
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transactions are included in net earnings and are not significant in amount. The
effect of exchange rate changes on cash flows is not material.
Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts
receivable, accounts payable, debt obligations, foreign currency forward
contracts and foreign currency options. Because of their short maturity, the
carrying amount of cash and cash equivalents, accounts receivable and accounts
payable approximates fair value. Fair value of debt obligations is based on
quoted market prices for the same or similar issues. Fair value of foreign
currency forward contracts and foreign currency options are based on quoted
market prices.
The Company periodically hedges certain foreign currency exposures through the
use of foreign currency forward contracts and foreign currency options. Certain
of these contracts, although intended and economically effective as a hedge of
certain of the Company's foreign currency exposures, do not qualify for hedge
accounting. Gains and losses on contracts qualifying for hedge accounting
treatment are deferred and offset against foreign exchange gains or losses on
the underlying transaction. Gains and losses on contracts not qualifying for
hedge accounting treatment are included in current income. Premiums paid are
amortized on a straight-line basis over the term of the related contract.
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
Basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share includes the dilutive effects
of options, warrants and convertible securities. 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.
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 $9,994,000 in 1998, $13,516,000 in 1997, and $8,750,000 in 1996.
The Company paid interest of $11,802,000 in 1998, $11,706,000 in 1997, and
$11,123,000 in 1996.
Supplemental non-cash investing and financing activities related to the Wolco
acquisition consist of (in thousands):
Fair value of assets acquired, net of cash $2,626
Liabilities assumed (877)
Seller financing (1,178)
-------
Cash paid $ (571)
=======
Liabilities assumed include acquired debt of $506,000.
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).
Retirement Plans and Other Postretirement Benefits
FAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" was issued in 1998 as an amendment
37
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to FAS Nos. 87, 88 and 106. The Company has conformed its pension and other
postretirement disclosures to comply with FAS No. 132.
Income Taxes
Income taxes are determined based on FAS No. 109, "Accounting for Income Taxes."
Deferred tax liabilities and assets are recognized for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred tax liabilities and assets are determined based on
differences between financial statement carrying amounts and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Segment Reporting
The Company provides segment disclosures pursuant to FAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" (See Note 10).
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 establishes standards for accounting and disclosure of derivative
instruments. This new standard is effective for fiscal quarters of fiscal years
beginning after June 15, 1999. The implementation of this new standard is not
expected to have a material effect on the Company's results of operations or
financial position.
2. INVENTORIES
Inventories consisted of:
December 31,
1998 1997
---- ----
(In thousands)
Raw materials $18,797 $20,352
Work in process 6,612 5,596
Finished goods 25,070 23,128
Operating supplies 3,475 3,107
-------- --------
53,954 52,183
Excess of current cost over
(under) LIFO inventory value (75) 695
--------- --------
$54,029 $51,488
========= ========
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of:
December 31,
1998 1997
---- ----
(In thousands)
Land and land improvements $ 1,872 $ 1,872
Buildings and improvements 10,235 9,959
Machinery and equipment 104,334 92,965
Construction in progress 8,373 9,853
-------- --------
124,814 114,649
Less accumulated depreciation (50,149) (41,706)
------- -------
$74,665 $72,943
========= ========
38
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INTANGIBLE ASSETS
Intangible assets consisted of:
December 31,
1998 1997
---- ----
(In thousands)
Goodwill $86,013 $84,396
Noncompete agreements 2,522 2,522
Deferred loan costs and other 4,256 4,256
------- -------
92,791 91,174
Less accumulated amortization (20,980) (17,938)
------- -------
$71,811 $73,236
======= =======
5. LONG-TERM OBLIGATIONS
Long-term obligations consist
of the following:
December 31,
1998 1997
---- ----
(In thousands)
Revolving loans, due August 2000 $ 20,600 $ 17,300
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:
3% Virginia Small Business Financing
Authority Note, due March 30, 2002 1,448 1,767
Other obligations 2,785 2,045
--------- ---------
127,333 123,612
Less current maturities 3,852 2,107
--------- ---------
$123,481 $121,505
======== ========
The Company's revolving credit facility requires payment of an annual commitment
fee of .31% on the average daily unborrowed amounts under the facility. Interest
is based on the bank's prime rate or the London Interbank Offered Rate plus
1.25%. The weighted-average interest rate on the Company's outstanding revolving
loans was approximately 6.9% at December 31, 1998. Borrowings under this
facility mature on August 3, 2000. At December 31, 1998, the Company had
approximately $28,700,000 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 9.3% and
9.5% during the years ended December 31, 1998 and 1997, respectively.
The 9 7/8% Series B Senior Notes require semi-annual interest payments on August
1 and February 1 of each year 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 9% subordinated note was issued in connection with an acquisition and is due
in equal installments on June 10, 1999 and June 10, 2000.
The Virginia Small Business Financing 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 several of the
Company's subsidiaries.
Maturities of long-term obligations subsequent to December 31, 1998, approximate
$3,852,000 in 1999, $22,702,000 in 2000, $350,000 in 2001, $429,000 in 2002, $0
in 2003 and $100,000,000 thereafter.
39
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's trade receivables, inventories and property and equipment are
pledged as collateral for the Virginia Small Business Financing 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.
6. FINANCIAL INSTRUMENTS
At December 31, 1998 and 1997, the carrying value of the Company's financial
instruments, excluding foreign currency options, approximate their fair values
except for the 9 7/8% Series B Senior Notes which had a fair value of
approximately $102,000,000 and $108,000,000 at December 31, 1998 and 1997,
respectively.
At December 31, 1998 and 1997, there were no foreign exchange forward contracts
outstanding. At December 31, 1998, the Company held put options with a notional
amount of 36,000,000 French Francs, which expire in equal quarterly amounts
during 1999. At December 31, 1998, the carrying value of these contracts
approximated their fair value.
7. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
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.
The Company also 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.
40
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables reconcile the changes in benefit obligations and plan
assets in 1998 and 1997, and reconcile the funded status to prepaid or accrued
cost at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Other Post-
Pension Benefits Retirement Benefits
---------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of year $ 96,685 $ 91,874 $ 24,815 $ 21,389
Service cost 2,585 2,238 548 548
Interest cost 6,794 6,662 1,714 1,739
Employee contributions - - 71 71
Effect of discount rate change 3,231 2,678 590 594
Effect of rate of compensation change (3,015) - (76) -
Effect of health care cost trend rate change - - (313) -
Actuarial (gain) loss 1,934 (1,373) (1,977) 1,673
Benefits paid (5,535) (5,394) (1,078) (1,199)
--------- --------- --------- ---------
Benefit obligation, end of year $102,679 $ 96,685 $ 24,294 $ 24,815
======== ======== ======== ========
Change in plan assets:
Plan assets at fair value, beginning of year $117,777 $102,059 n/a n/a
Actual return on plan assets 9,944 20,977 n/a n/a
Employer contributions 36 135 n/a n/a
Benefits paid (5,535) (5,394) n/a n/a
--------- ---------
Plan assets at fair value, end of year $122,222 $117,777 n/a n/a
======== ========
Reconciliation of prepaid (accrued) cost:
Funded status of the plans $ 19,543 $ 21,092 $(24,294) $(24,815)
Unrecognized net transition
(asset) obligation (2) (3) - -
Unrecognized prior service cost 580 685 (882) (1,368)
Unrecognized net (gain) loss (15,023) (18,660) 1,374 3,217
--------- --------- --------- ---------
Prepaid (accrued) cost, end of year $ 5,098 $ 3,114 $(23,802) $(22,966)
========= ========= ======== ========
</TABLE>
Assumptions used for financial reporting purposes to compute benefit obligations
and net benefit income or cost, and the components of net periodic benefit
income or cost, are as follows (in thousands, except percentages):
<TABLE>
<CAPTION>
Other Post-
Pension Benefits Retirement Benefits
---------------- -------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions for benefit obligations:
Discount rate 7.00% 7.25% 7.50% 7.00% 7.25% 7.50%
Rate of compensation increases 4.00% 5.00% 5.00% 4.00% 5.00% 5.00%
Expected return on plan assets 11.00% 11.00% 11.00% n/a n/a n/a
Weighted-average assumptions for net benefit income or cost:
Discount rate 7.25% 7.50% 7.50% 7.25% 7.50% 7.50%
Rate of compensation increases 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Expected return on plan assets 11.00% 11.00% 11.00% n/a n/a n/a
Rate of increase in per capita cost
of covered health care benefits n/a n/a n/a 7.50% 7.50% 8.00%
</TABLE>
41
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Other Post-
Pension Benefits Retirement Benefits
---------------- -------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit income (cost):
Service cost $(2,585) $(2,238) $(2,285) $ (548) $ (548) $ (617)
Interest cost (6,794) (6,662) (6,309) (1,714) (1,739) (1,533)
Expected return on plan assets 11,383 10,421 8,854 - - -
Net amortization and deferral (94) (114) (133) 419 486 419
-------- -------- -------- -------- -------- --------
Net periodic benefit income (cost) $ 1,910 $ 1,407 $ 127 $(1,843) $(1,801) $(1,731)
======= ======= ======= ======= ======= =======
</TABLE>
Net benefit income or cost is determined using assumptions at the beginning of
each year. Funded status is determined using assumptions at the end of each
year. Changes in assumptions for 1998 relating to the discount rate, rate of
compensation increase and the health care cost trend rate will reduce 1999 net
benefit cost by approximately $410,000.
The rates for the per-capita cost of covered health care benefits were assumed
to decrease gradually to 5.25% in year 2002, and remain at that level
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, 1998, by $1,180,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1998 by $125,000.
The net pension asset is comprised of a prepaid pension asset of $5,483,000 in
1998 and $4,034,000 in 1997 and an accrued pension liability of $385,000 in 1998
and $920,000 in 1997. 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.
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 $136,000 in 1998, $173,000 in 1997 and $159,000 in
1996.
8. TAXES ON INCOME
The provision for taxes on income is comprised of the following:
Year Ended December 31,
1998 1997 1996
-------- -------- --------
(In thousands)
Current:
Federal $4,541 $6,869 $6,784
State and local 319 493 393
Foreign (403) 374 975
------- ------- -------
Total current 4,457 7,736 8,152
------- ------- -------
Deferred:
Federal (557) 1,708 277
State and local (34) 233 26
Foreign 210 (107) (30)
------- ------- -------
Total deferred (381) 1,834 273
------- ------- -------
Total provision for income taxes $4,076 $9,570 $8,425
====== ====== ======
The Company has not provided taxes of approximately $1,141,000 on the
undistributed pre-tax earnings of $9,962,000 of foreign subsidiaries as it is
the intent of the Company to support these subsidiaries with such earnings.
Income before income taxes attributable to foreign operations for 1998, 1997 and
1996 was approximately $265,000, $1,134,000 and $2,818,000, respectively.
42
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's effective income tax rate varies from the United States statutory
rate as follows:
Year Ended December 31,
1998 1997 1996
---- ---- ----
United States rate 35% 35% 35%
Foreign taxes in excess of (less than) U.S. rate (2) - 3
State income taxes, net of federal tax benefit 2 2 4
Goodwill amortization 5 3 3
Interest on tax basis adjustments - - 11
Tax liability adjustments (11) - -
Employee benefits and other provisions - - 4
Reduction of valuation allowance - - (23)
Other--net - (1) 2
--- --- ---
Effective income tax rate 29% 39% 39%
=== === ===
At December 31, 1998 and 1997, 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, 1998 and 1997 are as
follows:
December 31,
1998 1997
---- ----
(In thousands)
Deferred tax liabilities:
Property and equipment $9,436 $7,636
Employee benefits 2,420 1,967
Other 4,544 9,720
------ ------
Total deferred tax liabilities 16,400 19,323
Deferred tax assets:
Employee benefits 10,286 10,143
Selling and promotion costs 825 513
Inventories 1,303 1,284
Restructuring costs 684 134
Net operating loss carryforward 53 216
Interest 1,442 -
Other 305 254
------- -------
Total deferred tax assets 14,898 12,544
------ ------
Net deferred tax liabilities $1,502 $6,779
====== ======
The deferred tax liabilities and assets are disclosed in the consolidated
balance sheets at December 31, 1998 and 1997 as follows:
December 31,
1998 1997
---- ----
(In thousands)
Noncurrent deferred income tax liabilities $6,610 $9,582
Current deferred income tax assets 5,108 2,803
------ ------
Net deferred tax liabilities $1,502 $6,779
====== ======
During 1996, management determined, based on the Company's recent history of
earnings and its expectations for future earnings, that operating income would
more likely than not be sufficient to fully recognize the Company's deferred tax
assets. Accordingly, in 1996 the Company 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 other
tax issues.
43
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's federal income tax returns for 1989 through 1994 have been
examined by the IRS and the federal income tax return for 1996 is currently
under examination by the IRS. During 1996, the Company provided additional taxes
related to its IRS examinations. 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 disagreed with the
IRS's disallowances and in September 1997, petitioned the U.S. Tax Court to
review and redetermine such disallowances. In January 1999, the Company reached
agreement with the IRS and signed a stipulation which was filed with the U.S.
Tax Court as final resolution of all outstanding issues. The Company recognized
a $1,546,000 reduction in its provision for income taxes as a result of settling
these issues. The settlement of these issues did 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 750,000 shares of
common stock. Grants of options for 10,000 shares of common stock for each of
two new directors issued in June 1993 became 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 the grant date and the exercise date. At December 31, 1998, 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.
Pro forma information regarding net income and earnings per share is required by
FAS 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 1997 and 1996 are as follows:
1997 1996
---- ----
Risk-free interest rate 6.9% 6.6%
Expected life of the option 7.9 years 8.0 years
Expected volatility of stock .268 .261
Expected dividend yield 0% 0%
44
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
1998 1997 1996
-------- -------- --------
Net income
As reported $10,102 $15,069 $13,173
Pro forma 9,600 14,608 12,955
Earnings per share
As reported
Basic $0.83 $1.25 $1.09
Diluted 0.83 1.23 1.09
Pro forma
Basic $0.79 1.21 1.07
Diluted $0.79 1.19 1.07
Stock options granted during 1997 and 1996 (net of forfeitures and including
stock options issued prior to 1996 which were repriced on February 22, 1996),
aggregated 120,500 and 361,400 shares, respectively, and their weighted-average
estimated fair value at the date of grant is $7.47 and $4.54 per share,
respectively. There were no stock options granted during 1998.
Stock option plan activity is summarized below:
Exercise Price Per Share
------------------------
Number of Weighted
Shares Range Average
------ ----- -------
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
Granted in 1997 121,500 15.38 15.38
Exercised in 1997 (5,200) 8.63 8.63
Cancelled in 1997 (1,600) 8.63-11.00 10.11
-------- ------------- -------
Outstanding at 12-31-97 482,200 8.63-15.38 11.03
Granted in 1998 -
Exercised in 1998 (12,000) 8.63 8.63
Cancelled in 1998 (5,500) 8.63-15.38 10.93
-------- ------------- -------
Outstanding at 12-31-98 464,700 $ 8.63-$15.38 $ 11.09
======== ============= =======
Stock options outstanding at December 31, 1998, aggregated 464,700 shares and
have a weighted-average remaining contractual life of 6.9 years and a
weighted-average exercise price of $11.09 per share. Stock options exercisable
at December 31, 1998, 1997 and 1996 totaled 232,600, 142,460 and 103,400 shares,
respectively. Stock options exercisable at December 31, 1998, have a
weighted-average exercise price of $9.20 per share. Stock options reserved for
future grant at December 31, 1998 and 1997 totaled 268,100 and 262,600 shares,
respectively.
45
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the components of stockholders' equity are as follows:
<TABLE>
<CAPTION>
Common Stock Retained Accumulated
------------ Earnings Other
Par Additional (Accumulated Comprehensive
Shares Value Capital Deficit) Loss Total
------ ----- ------- -------- ---- -----
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 12,092,849 $121 $65,756 $(33,887) $(1,092) $30,898
Foreign currency translation - - - - 452 452
Net income - - - 13,173 - 13,173
----------- ------ ------- -------- ------- --------
Balance at December 31, 1996 12,092,849 121 65,756 (20,714) (640) 44,523
Exercise of stock options 5,200 - 45 - - 45
Foreign currency translation - - - - (198) (198)
Net income - - - 15,069 - 15,069
----------- ------ ------- -------- ------- --------
Balance at December 31, 1997 12,098,049 121 65,801 (5,645) (838) 59,439
Exercise of stock options 12,000 - 104 - - 104
Foreign currency translation - - - - (91) (91)
Net income - - - 10,102 - 10,102
----------- ------ ------- -------- ------- --------
Balance at December 31, 1998 12,110,049 $121 $65,905 $ 4,457 $ (929) $69,554
=========== ====== ======= ======== ======= ========
</TABLE>
Accumulated other comprehensive loss consists entirely of foreign currency
translation adjustments at December 31, 1998 and 1997. These amounts have not
been tax effected.
10. SEGMENT INFORMATION
The Company has three reportable segments, organized primarily on the basis of
differences in products, which consist of Razors and Blades, Cotton and Foot
Care and Custom Bar Soap. The razors and blades segment includes three product
lines, consumer shaving razors and blades, both store and value brand, blades
and bladed hand tools, and specialty industrial and medical blades. The cotton
and foot care segment includes cotton swabs, cotton balls and puffs, cosmetic
pads, tissues, pharmaceutical and beauty coil, and foot care products. The
custom bar soap segment includes cosmetic/skin care, bath, pharmaceutical and
specialty custom bar soaps.
The Company evaluates performance and allocates resources to its segments based
on operating income. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (See Note 1).
<TABLE>
<CAPTION>
Net Sales Operating Income Year-End Assets
--------- ---------------- ---------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Razors and Blades $183,979 $182,615 $171,611 $20,969 $26,506 $26,474 $186,328 $178,331 $167,468
Cotton and Foot Care 87,339 80,350 55,856 4,111 6,278 4,074 50,940 49,366 36,126
Custom Bar Soap 26,170 33,642 33,169 1,368 4,125 2,769 25,629 26,384 26,403
-------- -------- -------- ------- ------- ------- -------- -------- --------
$297,488 $296,607 $260,636 26,448 36,909 33,317 $262,897 $254,081 $229,997
======== ======== ======== ======== ======== ========
Interest expense 12,270 12,270 11,719
------- ------- -------
Income before income taxes $14,178 $24,639 $21,598
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Additions to Depreciation
Long-Lived Assets and Amortization
----------------- ----------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Razors and Blades $ 8,362 $11,467 $20,098 $ 8,162 $ 7,415 $ 7,503
Cotton and Foot Care 3,700 9,311 972 2,876 2,625 1,985
Custom Bar Soap 964 957 999 1,139 1,085 1,096
-------- -------- -------- -------- -------- -------
$13,026 $21,735 $22,069 $12,177 $11,125 $10,584
======== ======= ======= ======= ======= =======
</TABLE>
46
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating income for 1998 for Razor and Blades and Cotton and Foot Care includes
special charges of $2,819,000 and $184,000, respectively.
The table below reports net sales and long-lived assets (including intangible
assets) by geographic area. Transfers between geographic areas are made at
arms-length pricing. With the exception of the United States, no country
exceeded 10% of net sales or long-lived assets in any year. Revenues were
allocated to geographic areas based on the location to which the product was
shipped.
Geographic Areas
(In thousands)
1998 1997 1996
---------- ---------- ----------
Net sales:
United States $243,660 $249,438 $218,688
Foreign 53,828 47,169 41,948
--------- --------- ---------
Total $297,488 $296,607 $260,636
======== ======== ========
Long-lived assets
United States $134,996 $135,382 $128,118
Foreign 11,480 10,797 8,637
--------- --------- ---------
Total $146,476 $146,179 $136,755
======== ======== ========
The Company's foreign operations are located principally in Canada, Mexico, the
United Kingdom, Europe, Israel, and the Caribbean.
Export sales from the Company's United States operations aggregated $5,793,000
in 1998, $6,798,000 in 1997 and $4,816,000 in 1996. Sales to one of the
Company's customers in the Razors and Blades and Cotton and Foot Care segments
in 1998 and 1997 amounted to approximately 11% and 10% of consolidated net
sales, respectively.
11. COMMITMENTS, CONTINGENCIES AND OTHER
Cotton Matters:
- --------------
During 1998 the Company purchased bleached cotton from an outside supplier for
use in its pharmaceutical coil business. The Company converted this cotton from
incoming bales into a coil, which was shipped to its pharmaceutical customers to
be used as filler in bottles of oral dosage forms of pharmaceutical products to
prevent breakage. During the period from March through November of 1998, the
process by which the Company's supplier bleached this cotton was changed by
introducing an expanded hydrogen peroxide treatment. Subsequent testing
indicated varying levels of residual hydrogen peroxide in the cotton processed
during this time period and the supplier in November 1998 reduced the levels of
hydrogen peroxide in its bleaching process. The Company, to date, has received
complaints from approximately 10 customers alleging defects in the cotton
supplied them during the period and asserting these defects may have led to
changes in their products pharmaceutical appearance, and with respect to a
limited number of products, potency. As of March 26, 1999, the Company has
received notice of 2 claims for damages in the aggregate amount of approximately
$1.7 million which the Company believes primarily relates to alleged lost sales
and merchandise damage, and it is possible that additional damage claims might
be forthcoming. On March 2, 1999, at the request of the Food and Drug
Administration, the Company notified all (numbering approximately 85) of its
pharmaceutical cotton coil customers that it was withdrawing from the market
those lots of cotton coil which may contain elevated levels of hydrogen
peroxide.
The Company has notified its supplier that, in the Company's view, the supplier
is primarily responsible for damages, if any, that may arise out of this matter.
At this time, the Company's supplier has agreed to be responsible for the cost
of fiber, bleaching and freight of returned product, but has not agreed to be
responsible for any other damages and has expressed an intention to assert
defenses to our claims. The Company's insurance carriers have been timely
notified of the existence of the claim and have agreed to provide defense in a
reservation of rights letter, but are continuing to evaluate whether coverage
would apply to all aspects of
47
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the claims.
The Company has been advised by its general counsel that it has a number of
valid defenses to potential customer claims as well as a third party claim
against the supplier for damages, if any, incurred by the Company. However,
management is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome relating to this overall
issue, and accordingly, there can be no assurance that our exposure from this
matter might not exceed the combination of our insurance coverage, if any, and
our recourse to suppliers. It is therefore possible that the Company's results
of operations or cash flows in a particular quarterly or annual period or its
financial position could be significantly and adversely affected by an ultimate
unfavorable outcome of this matter.
Weston Properties Investments III, Ltd. has filed a claim against the Company
for damages relating to delays in cost overruns attendant to the Company's
facility expansion in Cleveland, Ohio in the amount of $649,000. Management
believes that the outcome of this matter will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
Other Matters:
- -------------
The Company is subject to other 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 materially
adverse effect on the consolidated financial position or results of operations
of the Company.
Upon the occurrence of a change in control and in certain circumstances,
termination of employment, certain executives of the Company will be entitled to
receive payments of up to $1.875 million.
The Company leases buildings, office space and equipment under operating lease
agreements which expire on various dates through 2013. Certain leases contain
renewal or purchase options which may be exercised by the Company. Rent for
leases amounted to approximately $3,918,000 in 1998, $3,336,000 in 1997 and
$2,697,000 in 1996. Future minimum rental commitments under all noncancellable
operating leases at December 31, 1998 approximate $3,214,000 in 1999, $2,802,000
in 2000, $2,487,000 in 2001, $2,220,000 in 2002 and $1,823,000 in 2003.
At December 31, 1998 and 1997, outstanding checks less amounts on deposit
amounted to $2,388,000 and $1,690,000, respectively, which is included in
accounts payable in the accompanying consolidated balance sheets. In addition,
at December 31, 1998 and 1997, incurred but not reported health insurance claims
amounted to $600,000, which is included in accrued expenses in the accompanying
consolidated balance sheets.
12. ACQUISITIONS
On September 18, 1998, the Company purchased all of the capital stock of Wolco
Holland B.V. ("Wolco") for an aggregate purchase price of approximately
$2,626,000 net of cash acquired, including assumed liabilities of $877,000 and
acquisition related expenses. Wolco is a packager and distributor of razor
products to private label accounts in certain European markets. The acquisition
was financed by borrowings under the Company's revolving credit facility,
internally generated funds and seller financing of $1,178,000 and has been
accounted for under the purchase method of accounting. Goodwill resulting from
the acquisition of $1,847,000 is being amortized on a straight-line basis over a
forty-year period.
On April 22, 1997, the Company purchased certain assets of The Cotton Division
of American White Cross, Inc. ("AWC") for net consideration of approximately
$10,300,000, including acquisition related expenses. AWC is a manufacturer and
distributor of store- brand and value-brand cotton swabs, cotton rounds and
squares, cotton balls and puffs, pharmaceutical coil and cotton rolls. The
acquisition was financed by borrowings of $9,800,000 under the Company's
revolving credit facility and has been accounted for under the purchase method
of accounting. No goodwill was recorded relating to this acquisition.
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 store-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 $2,786,000 is being amortized on a straight-line basis
over a forty-year period.
48
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wolco's, AWC's and Bond's results of operations have been included in the
consolidated statement of income since their respective dates of acquisition.
Pro forma results of operations for the years ended December 31, 1998, 1997 and
1996, as if the Wolco, AWC, and Bond acquisitions occurred as of the beginning
of the respective periods, are not presented as the effects are not material.
13. SPECIAL CHARGES
During 1998, the Company recorded an aggregate charge of approximately
$3,003,000, which was comprised of approximately $1,000,000 related to the
Company's decision to discontinue one of its product lines, approximately
$1,803,000 for certain severance and employee benefits related to the
termination of certain employees, and approximately $200,000 related to the
shutdown of the Company's cotton operations in Sparks, Nevada. Employee
terminations have resulted primarily from the consolidation of the Company's
sales forces and the termination of certain other management employees. The
following table provides information as to the components of the charge:
Remaining
Balance at
Original Charges to December 31,
Balance Date 1998
------- ---- ----
Discontinuation of product line:
Contract termination $ 500,000 $ - $ 500,000
Excess inventory and deferred charges 500,000 - 500,000
Severance and employee benefits 1,803,000 1,200,000 603,000
Sparks, Nevada shutdown 200,000 200,000 -
---------- ---------- ----------
$3,003,000 $1,400,000 $1,603,000
========== ========== ==========
Amounts remaining at December 31, 1998 are included in accrued expenses in the
accompanying consolidated balance sheets. Substantially all of the remaining
payments and asset impairments are expected to occur during 1999.
14. SUBSEQUENT EVENT
On February 12, 1999, RSA Holdings Corporation and RSA Acquisition Corporation,
which are affiliates of J.W. Childs Equity Partners II, L.P. ("J.W. Childs"),
entered into a merger agreement with the Company. Pursuant to the merger
agreement, RSA Acquisition has made an offer to purchase all of the outstanding
shares of common stock of the Company at a purchase price of $14.125 per share,
upon the terms and subject to the conditions set forth in the offer to purchase
("the Stock Tender Offer"). The aggregate purchase price, excluding transaction
costs, to be paid for the common stock purchased in the Stock Tender Offer,
assuming all of the common stock (on a fully diluted basis) is tendered,
including the redemption of stock options, is approximately $172.6 million. The
Stock Tender Offer is conditioned upon, among other conditions, there being
validly tendered and not withdrawn, prior to the expiration date of the Stock
Tender Offer, a number of shares of common stock which constitutes more than 50%
of the voting power (determined on a fully diluted basis) of all the equity
securities of the Company and regulatory approval. The Stock Tender Offer
expires on April 2, 1999.
The merger agreement provides that, following the completion of the Stock Tender
Offer, RSA Acquisition will be merged with and into the Company (the "Merger").
Following the Merger, the Company will continue as the surviving corporation and
will become a direct, wholly owned subsidiary of RSA Holdings, which will be
wholly owned by J.W. Childs, its affiliates and Company management. Closing for
the Merger is expected to occur in April 1999.
In connection with the Merger, the Company has made an offer to purchase (the
"Note Tender Offer") all $100.0 million aggregate principal amount of its 9 7/8%
Series B Senior Notes due August 1, 2005 (the "Existing Notes"). In conjunction
with the Note Tender Offer, the Company has also solicited consents to eliminate
substantially all of the covenants contained in the indenture relating to the
Existing Notes. Any tender of Existing Notes pursuant to the Note Tender Offer
will also be a grant of consent with respect to such Existing Notes. The Note
Tender Offer expires on April 6, 1999.
49
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Upon completion of the above transactions, as currently contemplated, the
Company expects it would have had approximately $226.2 million of indebtedness
outstanding as of December 31, 1998 as compared to historical indebtedness
outstanding of $127.3 million. The Company also expects that as a result of the
application of purchase accounting the Company's depreciation expense and
amortization of intangible assets will increase. In addition, certain fees and
expenses to be incurred relating to the above transactions will be reflected
either as components of the cost of the transactions or as an expense in the
period in which the transactions are completed.
Upon consummation of the Merger, The Jordan Company, as advisor to the
transaction, will receive a fee of $2.5 million.
15. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $100,000,000 of 9 7/8% 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 condensed
consolidating financial statements as of December 31, 1998 and 1997, and for the
years ended December 31, 1998, 1997 and 1996, of American Safety Razor Company -
the parent company, the guarantor subsidiaries (on a combined basis), the
non-guarantor subsidiaries (on a combined basis), and elimination entries
necessary to present such entities on a consolidated basis.
During 1997, Ardell Industries, Inc., a non-guarantor subsidiary, was merged
into American Safety Razor Company - the parent company.
50
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheets
December 31, 1998
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ (17) $ 106 $ 3,364 $ - $ 3,453
Trade receivables, net 18,717 12,315 13,704 (238) 44,498
Advances receivable--subsidiaries 38,994 - 4,346 (43,340) -
Inventories 30,108 13,349 11,604 (1,032) 54,029
Income taxes and prepaid expenses 6,216 1,578 643 - 8,437
--------- -------- -------- ----------- ---------
Total current assets 94,018 27,348 33,661 (44,610) 110,417
Property and equipment, net 41,656 24,068 8,941 - 74,665
Intangible assets, net 49,027 20,601 2,183 - 71,811
Prepaid pension cost and other 1,133 4,850 21 - 6,004
Investment in subsidiaries 39,458 - 4,218 (43,676) -
--------- ---------- -------- -------- -----------
Total assets $225,292 $76,867 $49,024 $(88,286) $262,897
======== ======= ======= ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued expenses
and other $ 20,058 $ 9,611 $ 4,568 $ - $ 34,237
Advances payable--subsidiaries - 43,283 - (43,283) -
Current maturities of long-term obligations 1,030 1,380 1,442 - 3,852
--------- -------- -------- ----------- ---------
Total current liabilities 21,088 54,274 6,010 (43,283) 38,089
Long-term obligations 121,718 1,377 386 - 123,481
Retiree health and insurance benefits and other 15,169 9,994 - - 25,163
Deferred income taxes 3,468 3,040 102 - 6,610
--------- -------- -------- ----------- ---------
Total liabilities 161,443 68,685 6,498 (43,283) 193,343
-------- -------- -------- -------- --------
Stockholders' equity
Common Stock 121 485 87 (572) 121
Additional capital 65,905 15,662 27,173 (42,835) 65,905
Retained earnings (accumulated deficit) (5,092) (7,965) 19,107 (1,593) 4,457
Dividends 2,877 - (2,877) - -
Accumulated other comprehensive loss 38 - (964) (3) (929)
---------- ---------- --------- ----------- ----------
63,849 8,182 42,526 (45,003) 69,554
--------- -------- -------- --------- ---------
Total liabilities and stockholders' equity $225,292 $76,867 $49,024 $(88,286) $262,897
======== ======= ======= ======== ========
</TABLE>
51
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheets
December 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<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 34,757 - 4,038 (38,795) -
--------- ---------- -------- -------- -----------
Total assets $215,067 $74,334 $42,319 $(77,639) $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
Retained earnings (accumulated deficit) (14,676) (8,392) 17,285 138 (5,645)
Dividends 2,452 - (2,452) - -
Accumulated other comprehensive loss 38 - (873) (3) (838)
----------- ---------- --------- ----------- ----------
53,736 7,755 37,739 (39,791) 59,439
--------- -------- -------- --------- ---------
Total liabilities and stockholders' equity $215,067 $74,334 $42,319 $(77,639) $254,081
======== ======= ======= ======== ========
</TABLE>
52
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statements of Income
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $150,691 $114,126 $55,141 $(22,470) $297,488
Cost of sales 85,002 96,508 42,607 (22,139) 201,978
-------- --------- -------- -------- --------
Gross profit 65,689 17,618 12,534 (331) 95,510
Selling, general and administrative expenses 40,840 11,822 10,854 - 63,516
Amortization of intangible assets 1,477 984 82 - 2,543
Special charges 2,725 184 94 - 3,003
-------- ---------- --------- ---------- ---------
Operating income 20,647 4,628 1,504 (331) 26,448
Other income (expense):
Equity in earnings of affiliates 1,645 - 180 (1,825) -
Interest expense (8,270) (4,193) 193 - (12,270)
-------- --------- -------- ---------- ---------
Income before income taxes 14,022 435 1,877 (2,156) 14,178
Income taxes 3,589 8 479 - 4,076
-------- ----------- -------- ---------- ---------
Net income $ 10,433 $ 427 $ 1,398 $ (2,156) $ 10,102
======== ========= ======= ======== ========
</TABLE>
Condensed Consolidating Statements of Income
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $152,784 $114,365 $48,467 $(19,009) $296,607
Cost of sales 87,037 91,503 36,988 (18,537) 196,991
--------- --------- ------- -------- --------
Gross profit 65,747 22,862 11,479 (472) 99,616
Selling, general and administrative expenses 37,853 12,269 10,084 - 60,206
Amortization of intangible assets 1,456 990 55 - 2,501
--------- ---------- --------- ----------- ---------
Operating income 26,438 9,603 1,340 (472) 36,909
Other income (expense):
Equity in earnings of affiliates 4,880 - 1,680 (6,560) -
Interest expense (9,387) (3,923) 1,040 - (12,270)
--------- --------- -------- ---------- --------
Income before income taxes 21,931 5,680 4,060 (7,032) 24,639
Income taxes 6,390 2,158 1,022 - 9,570
--------- --------- -------- ---------- ---------
Net income $ 15,541 $ 3,522 $ 3,038 $ (7,032) $ 15,069
======== ========= ======= ======== ========
</TABLE>
53
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statements of Income
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $138,685 $89,025 $52,710 $(19,784) $260,636
Cost of sales 79,920 70,313 39,309 (19,593) 169,949
--------- ------- ------- -------- --------
Gross profit 58,765 18,712 13,401 (191) 90,687
Selling, general and administrative expenses 33,153 11,447 10,267 - 54,867
Amortization of intangible assets 1,481 980 42 - 2,503
--------- -------- --------- ----------- ---------
Operating income 24,131 6,285 3,092 (191) 33,317
Other income (expense):
Equity in earnings of affiliates 3,799 - 745 (4,544) -
Interest expense (8,477) (3,622) 380 - (11,719)
--------- -------- ------- ----------- ---------
Income before income taxes 19,453 2,663 4,217 (4,735) 21,598
Income taxes 6,089 1,105 1,231 - 8,425
--------- -------- ------- ----------- ---------
Net income $ 13,364 $ 1,558 $ 2,986 $ (4,735) $ 13,173
======== ======= ======= ======== ========
</TABLE>
54
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statements of Comprehensive Income
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income $10,433 $427 $1,398 $(2,156) $10,102
Other comprehensive income:
Foreign currency translation adjustments - - (91) - (91)
-------- ------ ------- --------- --------
Comprehensive income $10,433 $427 $1,307 $(2,156) $10,011
======== ====== ======= ======== =======
</TABLE>
Condensed Consolidating Statements of Comprehensive Income
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income $15,541 $3,522 $3,038 $(7,032) $15,069
Other comprehensive income:
Foreign currency translation adjustments - - (198) - (198)
---------- -------- ------- --------- --------
Comprehensive income $15,541 $3,522 $2,840 $(7,032) $14,871
======= ====== ====== ======= =======
</TABLE>
Condensed Consolidating Statements of Comprehensive Income
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income $13,364 $1,558 $2,986 $(4,735) $13,173
Other comprehensive income:
Foreign currency translation adjustments - - 453 (1) 452
-------- -------- ------- --------- --------
Comprehensive income $13,364 $1,558 $3,439 $(4,736) $13,625
======= ====== ====== ======= =======
</TABLE>
55
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Net cash (used in) provided by operating activities $13,760 $(1,593) $ 383 $ (9) $12,541
------- ------- ------ ------- -------
Investing activities
Capital expenditures (7,205) (3,976) (194) - (11,375)
Purchase of Wolco, net of cash acquired - - (571) - (571)
Other (719) - 56 - (663)
Investment in subsidiaries (3,481) - 3,481 - -
Advances from (to) subsidiaries (5,812) - - 5,812 -
-------- --------- -------- ------ ---------
Net cash (used in) provided from investing activities (17,217) (3,976) 2,772 5,812 (12,609)
------- ------- ------ ------ -------
Financing activities
Repayment of long-term obligations (320) (192) (885) - (1,397)
Proceeds from borrowings 3,300 - 80 - 3,380
Proceeds for exercise of stock options 104 - - - 104
Advances from (to) subsidiaries - 5,434 377 (5,811) -
---------- ------- ------- ------ ---------
Net cash provided from (used in) financing activities 3,084 5,242 (428) (5,811) 2,087
-------- ------- ------- ------ -------
Net increase (decrease) in cash and cash
equivalents (373) (327) 2,727 (8) 2,019
Cash and cash equivalents, beginning of
period 356 433 637 8 1,434
-------- -------- ------- ------- -------
Cash and cash equivalents, end of
period $ (17) $ 106 $3,364 $ - $ 3,453
======== ======= ====== ======= =======
</TABLE>
56
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Net cash (used in) provided by operating activities $ (199) $ 9,941 $2,308 $ (13) $12,037
-------- ------- ------ ------ -------
Investing activities
Capital expenditures (8,115) (2,724) (2,875) - (13,714)
Purchase of AWC, net of cash acquired - (10,300) - - (10,300)
Other - (3) - - (3)
Investment in subsidiaries (9,445) - 9,445 - -
Advances from (to) subsidiaries 6,979 - - (6,979) -
-------- --------- -------- ------ ----------
Net cash (used in) provided from investing activities (10,581) (13,027) 6,570 (6,979) (24,017)
------- ------- ------ ------ -------
Financing activities
Repayment of long-term obligations (310) (243) - - (553)
Proceeds from borrowings 11,200 - 743 - 11,943
Proceeds for exercise of stock options 45 - - - 45
Advances from (to) subsidiaries - 3,750 (10,750) 7,000 -
--------- -------- ------- ----- ----------
Net cash provided from (used in) financing activities 10,935 3,507 (10,007) 7,000 11,435
------- -------- ------- ----- -------
Net increase (decrease) in cash and cash
equivalents 155 421 (1,129) 8 (545)
Cash and cash equivalents, beginning of
period 201 12 1,766 - 1,979
-------- -------- ------ ------- -------
Cash and cash equivalents, end of
period $ 356 $ 433 $ 637 $ 8 $ 1,434
======= ======= ====== ====== =======
</TABLE>
57
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Non-
Guarantor guarantor
ASR Subsidiaries Subsidiaries Eliminations Consolidated
--- ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Net cash (used in) provided by
operating activities $18,172 $7,822 $ (483) $ 2 $25,513
------- ------ ------ -------- -------
Investing activities
Capital expenditures (8,711) (1,912) (646) - (11,269)
Purchase of Bond, net of cash acquired (16,673) - - - (16,673)
Other 62 - - - 62
Investment in subsidiaries (2,301) - - 2,301 -
Advances from (to) subsidiaries 7,037 - - (7,037) -
-------- -------- -------- ------- ----------
Net cash used in investing activities (20,586) (1,912) (646) (4,736) (27,880)
------- ------ ------ ------ -------
Financing activities
Repayment of long-term obligations (10,949) (276) - - (11,225)
Proceeds from borrowings 13,218 - 206 - 13,424
Advances from (to) subsidiaries - (5,672) 938 4,734 -
--------- ------ ------ ------- ----------
Net cash provided from (used in)
financing activities 2,269 (5,948) 1,144 4,734 2,199
-------- ------ ------ ------- --------
Net increase (decrease) in cash and cash
equivalents (145) (38) 15 - (168)
Cash and cash equivalents, beginning of
period 346 50 1,751 - 2,147
-------- ------- ------ --------- --------
Cash and cash equivalents, end of
period $ 201 $ 12 $1,766 $ - $ 1,979
======= ====== ====== ======== =======
</TABLE>
58
<PAGE>
Report of Independent Accountants
To the Board of Directors
of American Safety Razor Company
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 32 present fairly, in all material
respects, the financial position of American Safety Razor Company and its
subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of
their operations, and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule listed
in the index appearing under Item 14(a)(2) on page 32 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Richmond, Virginia
February 12, 1999, except as to the information entitled
"Cotton Matters" presented in Note 11, for which the
date is March 26, 1999
59
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
AMERICAN SAFETY RAZOR COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
---------
Balance Charged to Charged Balance
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
- ----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended 12-31-98
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $1,363 $ 212 $ - $ 609 (2) $ 966
Allowance for discounts and other deductions 2,098 5,209 - 5,316 (3) 1,991
------- ------- ------- ------- ------
$3,461 $5,421 $ - $5,925 $2,957
====== ====== ====== ====== ======
Year ended 12-31-97
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $1,252 $ 595 $ - $ 484 (2) $1,363
Allowance for discounts and other deductions 1,306 4,820 - 4,028 (3) 2,098
------- ------- ------ ------ ------
$2,558 $5,415 $ - $4,512 $3,461
====== ====== ===== ====== ======
Year ended 12-31-96
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $1,026 $ 593 $ 3 (1) $ 370 (2) $1,252
Allowance for discounts and other deductions 986 3,223 32 (1) 2,935 (3) 1,306
------- ------- ---- ------- -------
$2,012 $3,816 $35 $3,305 $2,558
====== ====== === ====== ======
</TABLE>
(1) Allowance balance of subsidiary at acquisition date
(2) Accounts written off, net of recoveries
(3) Discounts taken by customers
60
<PAGE>
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)...................................................... *******
61
<PAGE>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
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")........................... *******
2.10 Agreement and Plan of Merger, dated as of February
12, 1999 by and among American Safety Razor Company,
RSA Acquisition Corp. and RSA Holdings Corp. of
Delaware.(1)............................................. *********
2.11 Offer to Purchase for Cash all Outstanding Shares of
Common Stock of American Safety Razor Company, dated
February 22, 1999........................................ *********
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(a) Stockholders Agreement, dated April 14, 1989, between
the Registrant and its Stockholders...................... **
4.8(b) Shareholder's Agreement, dated February 12, 1999,
among the Parent, Purchaser, and Principal
Holders.................................................. **********
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............................................. **
62
<PAGE>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
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................................................. *****
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)........ *
63
<PAGE>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
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).......... *
10.2(i) Indemnification Agreement, dated June 15, 1993,
between the Registrant and William C. Ballard, Jr.(2).... *
10.3(a) Financial Advisory Agreement, dated July 12, 1995,
between the Registrant and TJC Management Corp........... ******
10.3(b) Amended and Restated Financial Advisory Agreement,
dated February 12, 1999, between the Registrant and
TJC Management Corp.
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(a) Employment Agreement, dated March 3, 1995, by and
between Sterile Products Holdings, and Sterile
Products Corporation and C.C. Van Noy(2)................. ****
10.6(b) Employment Protection Agreement, dated December 8,
1997, by and between the Registrant and William C.
Weathersby(2)............................................ ********
10.6(c) Employment Protection Agreement, dated December 8, 1997,
by and between the Registrant and James V. Heim (2)...... ********
10.6(d) Employment Protection Agreement, dated December 8,
1997, by and between the Registrant and Thomas G.
Kasvin(2)................................................ ********
10.7 The American Safety Razor Company Stock Option Plan...... *
10.8 Confidentiality Agreement dated as of December 4,
1997 between PaineWebber Incorporated and J. W.
Childs Associates, L.P................................... **********
64
<PAGE>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
10.9 Confidentiality Agreement dated as of January 12,
1999 between PaineWebber Incorporated and J. W.
Childs Associates, L.P................................... **********
16 Letter re Change in Certifying Accountant................ ****
21 List of Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
- -------------
* 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.
******** Incorporated by reference to the exhibits filed with the
Registrant's Form 10-K/A for the fiscal year ended December 31,
1997.
********* Incorporated by reference to the exhibits filed with the
Registrant's Form 8-K, dated February 22, 1999.
********** Incorporated by reference to the exhibits filed with the
Registrant's Schedule 14D-9, dated February 22, 1999.
(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.
65
Exhibit 10.3(b)
AMENDED AND RESTATED FINANCIAL ADVISORY AGREEMENT
THIS AMENDED AND RESTATED FINANCIAL ADVISORY AGREEMENT ("Agreement"),
dated as of the 12th day of February, 1999, is by and between TJC MANAGEMENT
CORPORATION, a Delaware corporation (the "Consultant"), and American Safety
Razor Company, a Delaware corporation (the "Company"), and amends and restates
the Financial Advisory Agreement, dated as of July 12, 1995, between Consultant
and the Company (the "Prior Agreement", and as amended and restated hereby, the
"Agreement").
W I T N E S E T H:
WHEREAS, the Consultant has and/or has access to personnel who are
highly skilled in the field of rendering advice to businesses and financial
advice to the Company;
WHEREAS, the Board of Directors of the Company has been made fully
aware of the relationships of certain members of the Company's Board of
Directors to the Consultant;
WHEREAS, the Company has determined to enter into an Agreement and Plan
of Merger, dated as of February 12, 1999, (the "Merger Agreement") by and among
the Company, RSA Holdings Corp. of Delaware and RSA Acquisition Corp. (such
agreement, together with all exhibits and schedules thereto, and all agreements,
payments and transactions contemplated thereby, is collectively referred to as
the "Company Sale");
WHEREAS, the Company's Board of Directors has reviewed in detail and
discussed the terms and provisions of this Agreement and the fairness of this
Agreement and whether more favorable agreements for the Company could be
obtained from unaffiliated third parties; and
WHEREAS, the Company's Board of Directors has reviewed in detail and
discussed the Company Sale Fee referenced in this Agreement, and in connection
therewith, considered the surveys and advice of PaineWebber Incorporated and
other market precedents, and considered the fairness of this Agreement and
whether more favorable agreements for the Company could be obtained from
unaffiliated third parties.
WHEREAS, on the basis of its review of this Agreement, the Board of
Directors of the Company deemed it advisable and in the best interests of the
Company and necessary to the conduct, promotion, and attainment of the business
objectives of the Company that the Company retain Consultant to provide business
and financial advice to the Company.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto do hereby agree as
follows:
1. The Company hereby retains the Consultant, through the Consultant's
own personnel or through personnel available to the Consultant, to render
consulting services from time to time to the Company and its subsidiaries
(whether now existing or hereafter acquired), in connection with their financial
and business affairs, their relationships with their lenders, stockholders and
other third-party associates or affiliates, and the expansion of their
businesses. The term of this Agreement shall commence the date hereof and
continue until July 31, 2005, unless extended, or sooner terminated, as provided
in paragraph 5 below. The Consultant's personnel shall be reasonably available
to the Company's managers, auditors and other personnel for consultation and
advice, subject to Consultant's reasonable convenience and scheduling. Services
may be rendered at the Consultant's offices or at such other locations selected
by the Consultant as the Company and the Consultant shall from time to time
agree.
2. (a) The Company shall pay to the Consultant, (i) an investment
banking and sponsorship fee of up to two percent (2%) of the aggregate
consideration paid (including non-competition, earnout, contingent purchase
price, incentive arrangements and similar payments) (A) by the Company and/or
its subsidiaries in connection with the acquisition by the Company and/or its
subsidiaries of all or substantially all of the outstanding capital stock,
warrants, options or other rights to acquire or sell capital stock, or all or
substantially all of the business or assets of another individual, corporation,
partnership or other business entity or (B) to the Company in connection with
the sale by the Company of all or substantially all of the Company's and/or its
subsidiaries' outstanding capital stock, warrants, options, or other rights to
acquire or sell stock, or all or substantially all of the business or assets of
the Company and/or its subsidiaries (each of the transactions described in
clauses (A) and (B), a "Transaction"), including, but not limited to, any
Transaction negotiated for the Company involving any affiliate of the Company or
the Consultant, including, but not limited to, any Transaction involving, The
Jordan Company, The Jordan Company LLC, MCIT PLC (now, JZ Equity Partners PLC),
Jordan/Zalaznick Capital Company, Leucadia National Corporation or any
affiliates of any of the foregoing (collectively, with the Consultant, the
"Jordan Affiliates"); and (ii) a financial consulting fee of up to one percent
(1%) of the amount obtained or made available pursuant to any debt, equity or
other financing (including without limitation, any refinancing) by the Company
and/or its subsidiaries with the assistance of Consultant, including, but not
limited to, any financing obtained for the Company and/or its subsidiaries from
one or more of the Jordan Affiliates. However, the amount of such fees payable
in each such Transaction will be no less favorable to the Company than those
that could be obtained from comparable, unaffiliated third parties, and will be
subject to separate discussion and approval, in connection with each such
Transaction, by each of a majority of the Board of Directors and a majority of
the directors who are disinterested directors in relation to Consultant and its
affiliates. Notwithstanding and in addition to the foregoing, if the Consultant
renders services to the Company outside the ordinary course of business, the
Company shall pay an additional amount equal to the value of such extraordinary
services
-2-
<PAGE>
rendered by the Consultant as may be separately agreed to between the Consultant
and the Company.
(b) In recognition of Consultant's services in connection with the
Company Sale, including preparing marketing materials, negotiating and working
with investment bankers, negotiating certain terms of the Company Sale and
advising the Company in connection therewith, the Company will pay to
Consultant, upon the closing of the Offer (as defined in the Merger Agreement),
a fee of $2.5 million and no further fees in connection with the Company Sale
pursuant to this Agreement (the "Company Sale Fee"). The Company Sale Fee will
be paid unconditionally at that time, and will not be subject to set-off,
counterclaim or any other reduction. Subject to the closing of the Company Sale,
no further fees or expenses will be payable to the Consultant pursuant to
Section 2 or Section 3.
3. The Company shall reimburse Consultant for out-of-pocket expenses
(including, without limitation, an allocable amount of the Consultant's overhead
expenses, as determined by the Consultant in its sole discretion) incurred by
the Consultant and its personnel in performing services hereunder to the Company
and its subsidiaries upon the Consultant's rendering of a statement therefor,
together with supporting data as the Company shall reasonably require.
4. Notwithstanding the foregoing, the Company shall not be required to
pay the fees under Section 2(a), (i) if and to the extent expressly prohibited
by the provisions of any credit, stock, financing or other agreements or
instruments binding upon the Company, its subsidiaries or properties, including,
but not limited to, the Credit Agreement, (ii) if the Company has not paid
interest on any interest payment date or has postponed or not made any principal
payments with respect to any of their indebtedness on any scheduled payment
dates, or (iii) if the Company has not paid dividends on any dividend payment
date as set forth in its certificate of incorporation or as declared by its
Board of Directors, or has postponed or not made any redemptions on any
redemption date as set forth in its certificate of incorporation or any
certificate of designation with respect to its preferred stock, if any. Any
payments otherwise owed hereunder, which are not made for any of the
above-mentioned reasons, shall not be canceled but rather shall accrue, and
shall be payable by the Company promptly when, and to the extent, that the
Company is no longer prohibited from making such payments and when the Company
has become current with respect to such principal or interest payments, has
become current with respect to such dividends and has made such redemptions with
respect to such preferred stock, if any. Any payment required hereunder which is
not paid when due shall bear interest at the rate of ten percent (10%) per
annum. This Section 4 will not, in any event, restrict or limit the Company's
obligations under Sections 2(b), 3, 8 and 9, which will be absolute and not
subject to set-off, counterclaim or any other reduction.
5. (a) This Agreement shall be automatically renewed for successive
one-year terms starting July 31, 2005 unless either party hereto, within sixty
(60) days prior to the scheduled renewal date, notifies the other party as to
its election to terminate this Agreement.
-3-
<PAGE>
(b) Upon the closing of the Company Sale and the payment in full of the
Company Sale Fee and any other amounts owed to Consultant hereunder, Sections 1,
2, 3, 4 and 5 hereof will automatically terminate; provided, that the other
Sections will survive any termination or expiration hereof.
6. (a) The Consultant shall have no liability to the Company on account
of (i) any advice which it renders to the Company, provided the Consultant
believed in good faith that such advice was useful or beneficial to the Company
at the time it was rendered, or (ii) the Consultant's inability to obtain
financing or achieve other results desired by the Company or Consultant's
failure to render services to the Company at any particular time or from time to
time, or (iii) the failure of any transaction to meet the financial, operating
or other expectations of the Company.
(b) By virtue of this Agreement, the Consultant shall not be considered
to be a fiduciary or agent of the Company or its stockholders. The Consultant's
services and advice under this Agreement shall be solely to the Company's Board
of Directors, chief executive officer and chief financial officer, and not
directed to, or for the benefit of, any other persons, including the Company's
stockholders and creditors.
(c) Except to the extent that the Jordan Affiliates are shown in a
final unappealable determination by the courts of competent jurisdiction to have
engaged in criminal, fraudulent or intentionally improper conduct, the Company
hereby irrevocably and unconditionally releases, acquits and forever discharges
on behalf of itself and any person acting by, through, or under or in concert
with the Company thereof, or any of them, each of the Jordan Affiliates from any
and all charges, complaints, claims, suits, judgments, demands, actions,
obligations or liabilities, damages, causes of action, rights, costs, loans,
debts and expenses (including attorneys' fees and costs actually incurred) of
any nature whatsoever known or unknown, emanating from, arising out of, or in
any way whatsoever arising in connection with the Company Sale, including the
Company Sale Fee, and the Company agrees that neither it, nor any person acting
by, through, or under, the Company shall institute, pursue, encourage or assist
any action or actions, cause or causes of action (in law or in equity), suits,
or claims in state or federal court against or adverse to the Jordan Affiliates
arising from or attributable to the Jordan Affiliates in connection with the
foregoing.
7. Notwithstanding anything contained in this Agreement to the
contrary, the Company agrees and acknowledges that the Consultant, the Jordan
Affiliates and their shareholders, employees, directors and affiliates intend to
engage and participate in acquisitions and business transactions outside of the
scope of the relationship created by this Agreement and neither the Consultant,
any of the Jordan Affiliates nor any of their shareholders, employees, directors
or affiliates shall be under any obligation whatsoever to make such
acquisitions, business transactions or other opportunities through the Company
or offer such acquisitions, business transactions or other opportunities to the
Company.
-4-
<PAGE>
8. (a) The Company will, and will cause each of its direct and indirect
subsidiaries to, indemnify and hold harmless to the fullest extent permitted by
applicable law, the Consultant and each of the other Jordan Affiliates, and each
of the respective stockholders, members, partners, officers, directors,
employees, representatives and agents of each of the foregoing, from and against
any charges, complaints, claims, suits, judgments, demands, actions, obligations
or liabilities, damages, causes of action, rights, costs, loans, debts and
expenses (including attorneys' fees and costs actually incurred) arising as a
result or in connection with this Agreement, the Consultant's services
hereunder, the Company Sale or the Company Sale Fee.
(b) The foregoing indemnified parties shall give the Company prompt
written notice of any claim which they believe will give rise to such
indemnification; provided, however, that the failure to give such notice, shall
not affect the liability of the Company hereunder unless and to the extent the
failure to give such notice adversely affects the ability of the Company to
defend itself or to mitigate the damages sought in such claim. Except as
hereinafter provided, the Company shall have the right to defend and to direct
the defense against any such claim in its name or in the name of any indemnified
party at the Company's expense and with counsel selected by agreement of the
indemnified parties; provided, however, that the Company will not, without the
indemnified parties' written consent, settle or compromise any claim or consent
to any entry of judgement which does not include as an unconditional term
thereof the giving the claimant or the plaintiff to the indemnified parties a
release from all liability in respect of such claim. The indemnified parties
shall cooperate in the defense of any such claim. If the Company, within a
reasonable time after notice of a claim, fails to defend the indemnified
parties, or if the Company is presented with different or conflicting defenses
than the indemnified parties, then the indemnified parties shall be entitled to
undertake the defense, compromise or settlement of such claim at the expense of
(subject to the limitations set forth herein) and for the account and risk of
the Company, provided, however, that the Company shall not be liable for the
reasonable fees and expenses of more than one separate firm of attorneys.
9. Any payments paid by the Company under this Agreement shall not be
subject to set-off and shall be increased by the amount, if any, of any taxes
(other than income taxes) or other governmental charges levied in respect of
such payments, so that the Consultant is made whole for such taxes or charges.
10. (a) This Agreement sets forth the entire understanding of the
parties with respect to the Consultant's rendering of services to the Company.
This Agreement may not be modified, waived, terminated or amended except
expressly by an instrument in writing signed by the Consultant and the Company.
(b) This Agreement may be assigned by either party hereto without the
consent of the other party, provided, however, such assignment shall not relieve
such party from its obligations hereunder. Any assignment of this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
-5-
<PAGE>
(c) In the event that any provision of this Agreement shall be held to
be void or unenforceable in whole or in part, the remaining provisions of this
Agreement and the remaining portion of any provision held void or unenforceable
in part shall continue in full force and effect.
(d) Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if delivered personally or sent by
registered or certified mail to the address of the party for whom intended at
the principal executive offices of such party, or at such other address as such
party may hereinafter specify by written notice to the other party.
(e) Each subsidiary of the Company shall be jointly and severally
liable and obligated hereunder with respect to each obligation, responsibility
and liability of the Company, as if a direct obligation of such subsidiary.
(f) No waiver by either party of any breach of any provision of this
Agreement shall be deemed a continuing waiver or a waiver of any preceding or
succeeding breach of such provision or of any other provision herein contained.
(g) The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
(h) This Agreement shall be governed by the internal laws (and not the
law of conflicts) of the State of New York.
(i) The Jordan Affiliates and any other persons entitled to the
benefits of Sections 6, 7, 8, 9 and 10, are intended third party beneficiaries
under this Agreement.
(j) The Company will reimburse the Jordan Affiliates and any such third
party beneficiaries for any fees, costs and expenses, including legal fees and
expenses and litigation costs, incurred in connection with enforcing their
rights and interests under this Agreement.
(k) Each of the parties hereto recognizes and acknowledges that a
breach by it of any covenants or agreements contained in this Agreement will
cause the other party to sustain damages for which it would not have an adequate
remedy at law for money damages, and therefore, each of the parties hereto
agrees that in the event of any such breach the aggrieved party shall be
entitled to the remedy of specific performance of such covenants and agreements
and injunctive and other equitable relief in addition to any other remedy to
which it may be entitled, at law or in equity.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TJC MANAGEMENT CORPORATION
By: /s/ David W. Zalaznick
----------------------
Name: David W. Zalaznick
Title: President
AMERICAN SAFETY RAZOR COMPANY
By: /s/ Jonathan F. Boucher
------------------------
Name: Jonathan F.Boucher
Title: Vice President
-7-
Exhibit 21
LIST OF SUBSIDIARIES OF THE REGISTRANT (1):
Subsidiary
- ----------
American Safety Razor Corporation
American Safety Razor of Canada Limited
ASR Holdings, Inc.
The Hewitt Soap Company, Inc.
Industrias Manufactureras ASR de Puerto Rico, Inc.
Megas Beauty Care, Inc.
Megas de Puerto Rico, Inc.
Personna International de Mexico, S.A. de C.V.
Personna International Limited
Personna International UK Limited
Personna International (Deutschland) GmbH
Personna International de Puerto Rico, Inc.
Personna Israel Ltd.
Valley Park Realty, Inc.
(1) Each subsidiary is 100% owned by the Company or certain of its subsidiaries.
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. 333-38779)
of our report dated February 12, 1999, except as to the information entitled
"Cotton Matters" presented in Note 11, for which the date is March 26, 1999, on
our audits of the consolidated financial statements and financial statement
schedule of American Safety Razor Company and subsidiaries as of December 31,
1998 and 1997, and for the years ended December 31, 1998, 1997, and 1996, which
report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Richmond, Virginia
March 26, 1999
<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, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000750339
<NAME> AMERICAN SAFETY RAZOR COMPANY
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3453
<SECURITIES> 0
<RECEIVABLES> 47455
<ALLOWANCES> 2957
<INVENTORY> 54029
<CURRENT-ASSETS> 110417
<PP&E> 124814
<DEPRECIATION> 50149
<TOTAL-ASSETS> 262897
<CURRENT-LIABILITIES> 38089
<BONDS> 123481
0
0
<COMMON> 121
<OTHER-SE> 69433
<TOTAL-LIABILITY-AND-EQUITY> 262897
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<CGS> 201978
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<OTHER-EXPENSES> 3003
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</TABLE>
