UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-21952
AMERICAN SAFETY RAZOR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 54-1050207
----------------------- -------------------------------
(State of incorporation) (I.R.S. Employer Identification
Number)
240 Cedar Knolls Road, Suite 401,
Cedar Knolls, New Jersey 07927 (973) 753-3000
--------------------------------- -------------------------------
(Address of principal executive (Registrant's telephone number)
offices, including zip code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 5, 2000.
Class Outstanding at May 5, 2000
----- --------------------------
Common Stock, $.01 Par Value 12,110,349
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 (Unaudited) and
December 31, 1999 (Company) 1
Condensed Consolidated Statements of
Operations (Unaudited) Three months ended
March 31, 2000 (Company) and March 31,
1999 (Predecessor) 3
Condensed Consolidated Statements of
Comprehensive Income (Unaudited)
Three months ended March 31, 2000
(Company) and March 31, 1999 (Predecessor) 4
Condensed Consolidated Statements of
Cash Flows (Unaudited) Three months ended
March 31, 2000 (Company) and March 31,
1999 (Predecessor) 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23
Part II. Other Information
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Company
--------------------------
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<C> <S> <S>
ASSETS
Current assets:
Cash and cash equivalents $ 6,188 $12,500
Accounts receivable, net 44,625 46,252
Inventories 57,790 54,404
Deferred income taxes 7,250 6,814
Prepaid expenses 1,987 1,882
-------- --------
Total current assets 117,840 121,852
Property and equipment 101,469 98,398
Less accumulated depreciation (11,661) (8,407)
-------- --------
89,808 89,991
Intangible assets, net:
Goodwill, trademarks and patents 158,584 159,675
Other 6,383 6,826
-------- --------
164,967 166,501
Prepaid pension cost and other 25,153 24,527
-------- --------
Total assets $397,768 $402,871
======== ========
</TABLE>
See accompanying notes.
1
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; except share data)
<TABLE>
<CAPTION>
Company
--------------------------
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<C> <S> <S>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $15,162 $13,711
Accrued expenses and other 18,985 23,131
Current maturities of
long-term obligations 10,099 10,508
-------- --------
Total current liabilities 44,246 47,350
Long-term obligations 173,057 175,108
Retiree benefits and other 27,638 27,333
Deferred income taxes 24,236 24,078
-------- --------
Total liabilities 269,177 273,869
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 25,000,000
shares authorized; 12,110,349 shares
issued and outstanding at March 31, 2000
and December 31, 1999 121 121
Additional paid-in capital 172,843 172,843
Advances to RSA Holdings Corporation, net (42,714) (42,714)
Accumulated deficit (1,361) (1,258)
Accumulated other comprehensive (loss)
income (298) 10
-------- --------
128,591 129,002
-------- --------
Total liabilities and stockholders' equity $397,768 $402,871
======== ========
</TABLE>
See accompanying notes.
2
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Company Predecessor
--------- -----------
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
-------- -----------
<C> <S> <S>
Net sales $77,209 $70,287
Cost of sales 51,801 46,829
-------- --------
Gross profit 25,408 23,458
Selling, general and administrative
expenses 19,700 16,507
Amortization of intangible assets 1,188 647
-------- --------
Operating income 4,520 6,304
Interest expense 4,714 3,030
-------- --------
(Loss) income before income taxes (194) 3,274
Income taxes (benefit) (91) 1,300
-------- --------
Net (loss) income $(103) $1,974
======== ========
Basic earnings per share:
Net (loss) income $(0.01) $0.16
======== ========
Weighted average number of shares
outstanding 12,110 12,110
======== ========
Diluted earnings per share:
Net (loss) income $(0.01) $0.16
======== ========
Weighted average number of shares
outstanding 12,110 12,189
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Company Predecessor
--------- -------------
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------- -------------
<C> <S> <S>
Net (loss) income $(103) $1,974
Other comprehensive loss:
Foreign currency translation adjustments (308) (433)
----- ------
Comprehensive (loss) income $(411) $1,541
===== ======
</TABLE>
See accompanying notes.
4
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Company Predecessor
--------- -----------
Three Three
Months Months
Ended Ended
March 31, March 31,
2000 1999
--------- -----------
<C> <S> <S>
Operating activities
Net (loss) income $(103) $1,974
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 4,451 3,206
Interest and financing costs 361 138
Retiree benefits and other (629) (936)
Deferred income taxes (278) 88
Changes in operating assets and
liabilities:
Accounts receivables 1,627 5,335
Inventories (3,386) (5,276)
Prepaid expenses (105) (202)
Accounts payable 1,451 1,884
Accrued and other expenses (4,146) (1,765)
------ ------
Net cash (used in) provided by
operating activities (757) 4,446
Investing activities
Capital expenditures (3,080) (2,650)
Other, net -- (28)
------ ------
Net cash used in investing activities (3,080) (2,678)
Financing activities
Repayment of long-term obligations (2,475) (7,072)
Proceeds from borrowings -- 3,437
Proceeds from exercise of stock options -- 2
------ ------
Net cash used in financing activities (2,475) (3,633)
------ ------
Net decrease in cash and cash equivalents (6,312) (1,865)
Cash and cash equivalents, beginning of
period 12,500 3,453
------ ------
Cash and cash equivalents, end of period $6,188 $1,588
====== ======
</TABLE>
See accompanying notes.
5
<PAGE>
AMERICAN SAFETY RAZOR COMPANY
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months period ended March 31,
2000, are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999.
As a result of the acquisition of the Company, effective April 23, 1999,
and new basis of accounting, the Company's financial statements for the
period subsequent to the acquisition are not comparable to the
Predecessor's financial statements for the period prior to the
acquisition.
NOTE B - INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
Company
---------------------------
March 31, December 31,
2000 1999
----------- ------------
(In thousands)
<C> <S> <S>
Raw materials $27,548 $27,928
Work-in-process 5,551 4,521
Finished goods 20,841 18,098
Operating supplies 3,850 3,857
------- -------
$57,790 $54,404
======= =======
</TABLE>
NOTE C - LONG TERM OBLIGATIONS
At March 31, 2000, the Company had approximately $25.0 million available
for future borrowings under its revolving credit facility.
NOTE D - EARNINGS PER SHARE
The difference between the weighted average number of shares outstanding
for computing basic earnings per share and diluted earnings per share
related to the Predecessor's employee stock options outstanding which
were assumed to be converted for the diluted earnings per share
calculation when the average market price of the Predecessor's common
stock for the period exceeded the exercise price of the employee stock
options which were outstanding.
6
<PAGE>
NOTE E - SEGMENT INFORMATION
<TABLE>
<CAPTION>
Company Predecessor
-------------------- --------------------
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------- --------------------
Operating Operating
Income Income
Net Sales (Loss) Net Sales (Loss)
--------- --------- --------- ---------
(In Thousands)
<C> <S> <S> <S> <S>
Razors and Blades $50,468 $4,584 $44,282 $5,966
Cotton and Foot Care 20,226 55 20,553 427
Custom Bar Soap 6,515 (119) 5,452 (89)
------- ------ ------- ------
$77,209 4,520 $70,287 6,304
======= =======
Interest expense 4,714 3,030
----- ------
(Loss) income before income $(194) $3,274
taxes ====== ======
Total
Assets
----------
March 31,
2000
----------
Razors and Blades $310,503
Cotton and Foot Care 58,195
Custom Bar Soap 29,070
--------
$397,768
========
</TABLE>
NOTE F - CONTINGENCIES
Cotton Matter:
- -------------
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 residual hydrogen peroxide in its bleaching process. The
Company, to date, has received complaints from a number of 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. No lawsuits have been filed by any of these customers.
The Company has received written notice of claims for damages in the
aggregate amount of approximately $117.0 million. To date, no claim has
been substantiated. In addition, $113.0 million of this amount is for
alleged lost profits from two customers, which lost profits have not been
substantiated. 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.
7
<PAGE>
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 the Company's 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 is advised
by outside counsel that it has strong legal arguments that the aggregate
amount of insurance available for these claims would be sufficient to
cover the magnitude of the claims currently expressed.
The Company also 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 its suppliers for damages, if any, incurred by the
Company. However, management cannot at this time 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 the Company's exposure from this matter
might not potentially exceed the combination of its insurance coverages
and recourse to its 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 or
adversely affected by an ultimate unfavorable outcome of this matter.
Other Matters:
- -------------
In June 1999, the Company received notice of the filing of a lawsuit by
The Gillette Company ("Gillette") asserting claims for damages and
injunctive relief for alleged patent infringement, misappropriation of
trade dress, false advertising and breach of contract in connection with
the marketing of the Company's two-bladed and three-bladed shaving
cartridge systems (the MBC (Trademark) introduced in 1994 and the Tri-
Flexxx (Trademark) introduced in 1999). In August 1999, the Company filed
an answer and counterclaims in which it denied Gillette's allegations,
sought a declaration that Gillette's patents are not infringed, are
invalid and unenforceable, and asserted counterclaims against Gillette
for damages and injunctive relief for, among other things, alleged
antitrust violations and false advertising. Gillette's time to respond to
the Company's answer and counterclaims has been postponed pending ongoing
settlement discussions. The Company believes that Gillette's claims are
without merit and intends to defend against them vigorously, as well as
to vigorously pursue the Company's counterclaims against Gillette. The
Company does not believe it has any material liability with respect to
Gillette's claims described above. However, management and counsel at
this time are unable to make a meaningful estimate of the amount or range
of loss that could result from an unfavorable outcome relating to this
matter. The Company will reassess this matter as new facts become
available.
NOTE G - SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company's $69.3 million 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.
8
<PAGE>
The following condensed consolidating financial information presents
condensed consolidating financial statements as of March 31, 2000 and
December 31, 1999 (the Company), and for the three months ended March 31,
2000 (the Company) and 1999 (Predecessor), 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 combine such entities on a consolidated
basis. Separate financial statements and other disclosures concerning the
guarantor subsidiaries are not presented because management has
determined that such information would not be material to the holders of
the 9 7/8% Series B Senior Notes.
9
<PAGE>
Condensed Consolidating Balance Sheets (Unaudited)
March 31, 2000
<TABLE>
<CAPTION>
Company
----------------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consoli-
ASR aries aries tions dated
--- --------- --------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,432 $ 1,408 $ 2,348 $ -- $ 6,188
Accounts receivable, net 20,836 10,664 13,457 (332) 44,625
Advances receivable--
subsidiaries 60,741 -- -- (60,741) --
Inventories 29,928 15,730 12,757 (625) 57,790
Income taxes and
prepared expenses 6,380 2,339 518 -- 9,237
-------- ------- -------- ------- -------
Total current assets 120,317 30,141 29,080 (61,698) 117,840
Property and equipment, net 58,394 24,403 7,011 -- 89,808
Intangible assets, net 137,160 22,744 5,063 -- 164,967
Prepaid pension cost and
other 16,677 8,456 20 -- 25,153
Investment in subsidiaries 32,798 -- 8,067 (40,865) --
------- ------- ------ ------- -------
Total assets $365,346 $85,744 $49,241 $(102,563) $397,768
======== ======= ======= ========= ========
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable,
Accrued expenses
and other $ 18,929 $ 10,728 $ 4,495 $ (5) $ 34,147
Advances payable--
subsidiaries -- 45,419 16,274 (61,693) --
Current maturities of
long-term obligations 8,419 1,383 297 -- 10,099
-------- ------- ------- ------- --------
Total current
liabilities 27,348 57,530 21,066 (61,698) 44,246
Long-term obligations 172,913 144 -- -- 173,057
Retiree benefits and other 16,965 10,673 -- -- 27,638
Deferred income taxes 19,529 4,379 328 -- 24,236
------- ------ ------ ----- -------
Total liabilities 236,755 72,726 21,394 (61,698) 269,177
------- ------ ------ ------ -------
10
<PAGE>
<CAPTION>
Company
----------------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consoli-
ASR aries aries tions dated
--- --------- --------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Stockholders' equity
Common stock 121 -- -- -- 121
Additional paid-in
capital 172,843 12,948 23,676 (36,624) 172,843
Advances to RSA Holdings
Corporation, net (42,714) -- -- -- (42,714)
(Accumulated deficit)
retained earnings (1,361) 70 4,469 (4,539) (1,361)
Accumulated other
comprehensive loss (298) -- (298) 298 (298)
------- -------- ------- -------- -------
128,591 13,018 27,847 (40,865) 128,591
------- -------- ------- -------- -------
Total liabilities
and stockholders'
equity $365,346 $ 85,744 $49,241 $(102,563) $397,768
======== ======== ======= ========= ========
</TABLE>
11
<PAGE>
Condensed Consolidating Balance Sheets
December 31, 1999
<TABLE>
Predecessor
-------------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consolida-
ASR aries aries tions ted
------- --------- --------- -------- ----------
(In Thousands)
<C> <S> <S> <S> <S> <S>
Assets
Current assets:
Cash and cash equivalents $ 6,221 $ 1,180 $ 5,081 $ 18 $ 12,500
Accounts receivable, net 19,927 12,906 13,751 (332) 46,252
Advances receivable--
subsidiaries 59,790 -- -- (59,790) --
Inventories 29,825 13,322 11,947 (690) 54,404
Income taxes and
prepaid expenses 6,511 1,912 273 -- 8,696
-------- -------- ------- --------- -------
Total current assets 122,274 29,320 31,052 (60,794) 121,852
Property and equipment, net 58,005 24,731 7,255 -- 89,991
Intangible assets, net 138,404 22,994 5,103 -- 166,501
Prepaid pension cost and
other 16,133 8,373 21 -- 24,527
Investment in subsidiaries 32,506 -- 8,587 (41,093) --
-------- ------- ------- --------- -------
Total assets $367,322 $85,418 $52,018 $(101,887) 402,871
======== ======= ======= ========= =======
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable, accrued
expenses and other $ 19,299 $10,830 $ 6,714 $ (1) $36,842
Advances payable--
subsidiaries -- 44,289 16,504 (60,793) --
Current maturities of
long-term obligations 7,964 1,417 1,127 -- 10,508
------- ------ ------ ------- -------
Total current
liabilities 27,263 56,536 24,345 (60,794) 47,350
Long-term obligations 174,954 154 -- -- 175,108
Retiree benefits and other 16,750 10,583 -- -- 27,333
Deferred income taxes 19,353 4,392 333 -- 24,078
------- ------ ----- ------ -------
Total liabilities 238,320 71,665 24,678 (60,794) 273,869
------- ------ ------ ------- -------
12
<PAGE>
Predecessor
-------------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consolida-
ASR aries aries tions ted
------- --------- --------- -------- ----------
(In Thousands)
<C> <S> <S> <S> <S> <S>
Stockholders' equity
Common stock 121 485 87 (572) 121
Additional paid-in
capital 172,843 12,463 23,391 (35,854) 172,843
Advances to RSA Holdings
Corporation, net (42,714) -- -- -- (42,714)
(Accumulated deficit)
retained earnings (1,258) 805 3,852 (4,657) (1,258)
Accumulated other
comprehensive income 10 -- 10 (10) 10
------- -------- -------- --------- --------
129,002 13,753 27,340 (41,093) 129,002
------- -------- -------- --------- --------
Total liabilities
and stockholders'
equity $367,322 $ 85,418 $ 52,018 $(101,887) $402,871
======== ======== ======== ========= ========
</TABLE>
13
<PAGE>
Condensed Consolidating Statements of Operations (Unaudited)
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Company
--------------------------------------------------
Non-
Guarantor Guarantor
Subsidi- Subsidi- Elimina
ASR aries aries tions Consolidated
--- --------- -------- ------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $40,590 $26,992 $15,957 $(6,330) $77,209
Cost of sales 23,343 22,994 11,794 (6,330) 51,801
------- ------- ------- ------- -------
Gross profit 17,247 3,998 4,163 -- 25,408
Selling, general and
administrative expenses 13,049 3,812 2,839 -- 19,700
Amortization of intangible
assets 898 250 40 -- 1,188
------ ------ ------- ------- -------
Operating income (loss) 3,300 (64) 1,284 -- 4,520
Other income (expense);
Equity in earnings
(losses)of affiliates 402 -- (520) 118 --
Interest expense (4,150) (1,090) 526 -- (4,714)
------ ------ ------- ------- -------
Income (loss) before
income taxes (448) (1,154) 1,290 118 (194)
Income taxes (benefit) (345) (419) 673 -- (91)
------ ------ ------- ------- -------
Net (loss) income $ (103) $ (735) $ 617 $ 118 $ (103)
====== ====== ======= ======= =======
</TABLE>
14
<PAGE>
Condensed Consolidating Statements of Income (Unaudited)
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Predecessor
------------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina-
ASR aries aries tions Consolidated
--- --------- -------- -------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales $37,918 $26,228 $14,005 $(7,864) $70,287
Cost of sales 21,581 22,633 10,479 (7,864) 46,829
------- ------- ------- ------- -------
Gross profit 16,337 3,595 3,526 -- 23,458
Selling, general and
administrative expenses 10,836 3,013 2,658 -- 16,507
Amortization of intangible
assets 365 246 36 -- 647
------- ------ ------ ----- ------
Operating income 5,136 336 832 -- 6,304
Other income (expense):
Equity in earnings
(losses)of affiliates 581 -- (130) (451) --
Interest expense (2,483) (1,002) 455 -- (3,030)
------- ------ ------ ------ ------
Income (loss) before
income taxes 3,234 (666) 1,157 (451) 3,274
Income taxes (benefit) 1,260 (356) 396 -- 1,300
------- ------ ------ ------ ------
Net income (loss) $ 1,974 $ (310) $ 761 $ (451) $ 1,974
======= ====== ====== ======= =======
</TABLE>
15
<PAGE>
Condensed Consolidating Statements of Comprehensive Income (Unaudited)
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Company
-----------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consoli-
ASR aries aries tions dated
--- --------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net (loss) income $(103) $(735) $617 $118 $(103)
Other comprehensive loss:
Foreign currency
translation adjustments (308) -- (308) 308 (308)
----- ---- ---- ---- ----
Comprehensive (loss) income $(411) $(735) $309 $426 $(411)
===== ===== ==== ==== =====
</TABLE>
Condensed Consolidating Statements of Comprehensive Income (Unaudited)
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Predecessor
-----------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consoli-
ASR aries aries tions dated
--- --------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net income (loss) $1,974 $(310) $761 $(451) $1,974
Other comprehensive loss:
Foreign currency
translation adjustments (2) -- (433) 2 (433)
------ ----- ---- ---- ------
Comprehensive income (loss) $1,972 $(310) $ 328 $(449) $1,541
====== ===== ===== ==== ======
</TABLE>
16
<PAGE>
Condensed Consolidating Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Company
------------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consoli-
ASR aries aries tions dated
--- --------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Net cash provided by (used
in) operating activities $1,274 $ (436) $(1,526) $ (69) $ (757)
Investing activities
Capital expenditures (2,526) (407) (147) -- (3,080)
Advances from (to)
subsidiaries (951) -- -- 951 --
------ ----- ----- ----- ------
Net cash used in investing (3,477) (407) (147) 951 (3,080)
activities
Financing activities
Repayment of long-term
obligations (1,586) (59) (830) -- (2,475)
Advances from (to)
subsidiaries -- 1,130 (230) (900) --
------ ----- ----- ---- -----
Net cash (used in)
provided by financing
activities (1,586) 1,071 (1,060) (900) (2,475)
Net (decrease) increase
in cash and cash
equivalent (3,789) 228 (2,733) (18) (6,312)
Cash and cash equivalents,
beginning of period 6,221 1,180 5,081 18 12,500
------ ----- ----- ---- ------
Cash and cash equivalents,
end of period $2,432 $1,408 $2,348 $ -- $ 6,188
====== ====== ====== ==== ======
</TABLE>
17
<PAGE>
Condensed Consolidating Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Predecessor
----------------------------------------------
Non-
Guarantor guarantor
Subsidi- Subsidi- Elimina- Consoli-
ASR aries aries tions dated
--- --------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating activities
Net cash provided by (used
in) operating activities $ 2,752 $ 1,258 $ (79) $ 515 $ 4,446
Investing activities
Capital expenditures (1,865) (652) (133) -- (2,650)
Other (79) -- 51 -- (28)
Advances from (to)
subsidiaries 2,477 -- (1,418) (1,059) --
------ ------ ------ ------ ------
Net cash provided by
(used in) investing
activities 533 (652) (1,500) (1,059) (2,678)
Financing activities
Repayment of long-term
obligations (6,564) (47) (461) -- (7,072)
Proceeds from borrowings 3,300 -- 137 -- 3,437
Proceeds from exercise of
stock options 2 -- -- -- 2
Advances from (to)
subsidiaries -- (544) -- 544 --
------ ------ ------ ------ ------
Net cash used in financing (3,262) (591) (324) 544 (3,633)
activities
Net increase (decrease) in
cash and cash equivalents 23 15 (1,903) -- (1,865)
Cash and cash equivalents,
beginning of period (17) 106 3,364 -- 3,453
------ ------ ------ ------ ------
Cash and cash equivalents,
end of period $ 6 $ 121 $1,461 $ -- $1,588
======= ======= ====== ====== ======
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis of financial condition and results
of operations is based upon and should be read in conjunction with the
consolidated financial statements of the Company and notes thereto
included in this Report and the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999.
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" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. We intend
for the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in these sections. All
statements regarding the Company's expected financial position, business
and financing plans are forward-looking statements. 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 the Company's products, acceptance of new
products, technology developments affecting the Company's products and to
those discussed in the Company's filings with the Securities and Exchange
Commission. Accordingly, actual results could differ materially from
those contemplated by the forward-looking statements.
Three Months Ended March 31, 2000 Compared to Three Months Ended March
31, 1999
Net Sales. Net sales for the three months ended March 31, 2000 and 1999,
- ---------
were $77.2 million and $70.3 million, respectively, an increase of $6.9
million, or 9.8%.
Razors and Blades. Net sales of our razors and blades segment for the
three months ended March 31, 2000 and 1999, were $50.5 million and $44.3
million, respectively, an increase of $6.2 million or 14.0%.
Net sales of shaving razors and blades for the three months ended March
31, 2000 and 1999, were $34.5 million and $29.1 million, respectively, an
increase of $5.4 million, or 18.4%. Net sales of domestic value branded
shaving products increased 5.6%, primarily reflecting sales gains
relating to the Tri-Flexxx shaving product. Net sales of domestic private
label shaving products increased 20.1% primarily reflecting sales gains
relating to the Tri-Flexxx and Premier Comfort shaving products. Net
sales of shaving products in international markets increased 28.4% (net
of a 5% negative impact of unfavorable exchange rates) reflecting
stronger sales in most of the Company's markets.
Net sales of blades and bladed hand tools for the three months ended
March 31, 2000 and 1999, were $12.1 million and $11.6 million,
respectively, an increase of $0.5 million, or 5.0%. The increase
primarily reflects increased sales of the Company's Personna (Registered
Trademark) brand of products as a result of distribution gains.
Net sales of specialty industrial and medical blades for the three months
ended March 31, 2000 and 1999, were $3.9 million and $3.6 million,
respectively, an increase of $0.3 million, or 7.4%. Sales of specialty
industrial products increased 21.4%, rebounding from weak sales in the
first quarter of 1999, reflecting distribution gains. Sales of medical
products were substantially unchanged.
19
<PAGE>
Cotton and Foot Care. Net sales of cotton and foot care products for the
three months ended March 31, 2000 and 1999, were $20.2 million and $20.6
million, respectively, a decrease of $0.4 million or 1.6%. The decrease
results primarily from issues related to the cotton coil matter. (See
Note F to the condensed consolidated financial statements).
Custom Bar Soap. Net sales of the Company's custom bar soap products for
the three months ended March 31, 2000 and 1999, were $6.5 million and
$5.5 million, respectively, an increase of $1.0 million or 19.5%. The
increase results primarily from increased sales volume to the Company's
skin care customers.
Gross Profit. Gross profit increased $1.9 million to $25.4 million during
- ------------
the three months ended March 31, 2000, from $23.5 million for the three
months ended March 31, 1999 due primarily to higher sales volume. As a
percentage of net sales, gross profit was 32.9% for the three months
ended March 31, 2000, and 33.4% for the three months ended March 31,
1999. Blade margins declined due primarily to product mix, higher
depreciation expense related to capacity expansion projects and the
acquisition and from the negative impact of unfavorable exchange rates,
primarily the Euro. The decline in blade margins was partially offset by
improved margins in the Company's cotton operations due primarily to
lower shipping and material costs.
Operating and Other Expenses. Selling, general and administrative
- ----------------------------
expenses were 25.5% of net sales for the three months ended March 31,
2000, compared to 23.5% for the three months ended March 31, 1999. The
increase primarily reflects an increase in legal fees arising from the
Gillette lawsuit and an increase in marketing and administrative overhead
associated with the new management team and the new corporate
headquarters. Amortization of intangible assets increased $0.6 million to
$1.2 million for the three months ended March 31, 2000, from $0.6 million
for the three months ended March 31, 1999, reflecting increased
amortization of intangible assets related to the acquisition. Interest
expense increased $1.7 million to $4.7 million for the three months ended
March 31, 2000, from $3.0 million for the three months ended March 31,
1999, due primarily to additional debt and amortization of deferred loan
fees incurred in connection with the acquisition and an increase in
interest rates. The increase was partially offset by lower interest
expense relating to the Company's $30.7 million purchase of a portion of
its 9 7/8% Series Senior B Notes in June 1999.
The Company's effective income tax rate was 46.9% for the three months
ended March 31, 2000, versus 39.7% for the three months ended March 31,
1999, and varies from the United States statutory rate due primarily to
nondeductible goodwill amortization and state income taxes, net of the
federal tax benefit.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flow from operations
and borrowings under its revolving credit facility. Net cash used in
operating activities amounted to $0.8 million for the three months ended
March 31, 2000 and net cash provided by operating activities amounted to
$4.4 million for the three months ended March 31, 1999. Net cash used in
operating activities for the three months ended March 31, 2000 primarily
reflects a decrease in net income and changes in working capital
accounts. Net cash used in investing activities related to capital
expenditures of $3.1 million for the three months ended March 31, 2000.
Net cash used in financing activities resulted from repayment of long-
term obligations of $2.5 million for the three months ended March 31,
2000.
At March 31, 2000, the Company had approximately $25 million available
for future borrowings under its revolving credit facility.
20
<PAGE>
Management believes that the Company's cash on hand, anticipated funds
from operations, and the amounts available to the Company under its
revolving credit facility will be sufficient to cover its working capital
needs, capital expenditures and debt service requirements as well as
support the Company's growth-oriented strategy for its existing business
for at least the next 12 months.
The Company's ability to fund operations, make capital expenditures and
make scheduled principal and interest payments or to refinance the
Company's indebtedness will depend upon future financial and operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, some of which are beyond the
Company's control.
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 results of operations, cash flows and financial position. The
Company manages these risks through regular operating and financing
activities and periodically uses derivative financial instruments such as
foreign exchange option and forward contracts and interest rate cap and
swap agreements. 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 March 31, 2000 and March 31, 1999. Only
the potential impacts of hypothetical assumptions are analyzed. The
analysis does not consider other possible effects that could impact the
business.
Interest Rate Risk
At March 31, 2000, the Company carried $183.2 million of outstanding debt
on its balance sheet, with $111.7 million of that total held at variable
interest rates. The Company has entered into an interest rate cap
agreement and an interest rate swap agreement with a bank covering $56.3
million of its variable rate debt outstanding to manage its interest rate
risk. Holding all other variables constant, if interest rates
hypothetically increased or decreased by 10%, for the three months ended
March 31, 2000 and 1999, the impact on earnings, cash flow and financial
position would not be material. In addition, if interest rates
hypothetically increased or decreased by 10% on March 31, 2000, with all
other variables held constant, the fair market value of our $69.3 million
9 7/8% Series B Senior Notes would increase or decrease by approximately
$3.6 million.
Foreign Currency Risk
The Company sells to customers in foreign markets through foreign
operations and through export sales from plants in the U.S. These
transactions are often denominated in currencies other than the U.S.
dollar. The 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 to major currencies. The Company periodically
enters into currency option contracts to partially offset the risk of
foreign currency fluctuations. There were no currency contracts
outstanding at March 31, 2000.
21
<PAGE>
Contingencies
Refer to Note F - Contingencies to the Notes to Condensed Consolidated
Financial Statements for a discussion of legal contingencies.
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, as amended by FAS 137, is effective for fiscal quarters of
fiscal years beginning after June 15, 2000. The implementation of this
new standard is not expected to have a material effect on consolidated
results of operations or financial position.
Inflation
Inflation has not been material to the Company's operations within the
periods presented.
22
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the captions
"Market Risk", "Interest Rate Risk" and "Foreign Currency Risk" under
Part I, Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations of this Report.
PART II, OTHER INFORMATION
Item 1. Legal Proceedings
The information called for by this item is provided in Note F
- Contingencies to Notes to Condensed Consolidated Financial
Statements under Part I, Item 1. - Financial Statements of
this Report.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K: No reports on Form 8-K have been
filed during the quarter ended March 31, 2000.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN SAFETY RAZOR COMPANY
May 9, 2000 By /s/ James D. Murphy
- ------------------ --------------------------------
Date James D. Murphy
President and Chief Executive Officer
May 9, 2000 By /s/ Alan R. Koss
- ------------------ ----------------------------------
Date Alan R. Koss
Senior Vice President
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Form 10-Q of American Safety Razor Company
for the three months ended March 31, 2000, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 6188
<SECURITIES> 0
<RECEIVABLES> 44625
<ALLOWANCES> 0
<INVENTORY> 57790
<CURRENT-ASSETS> 117840
<PP&E> 101469
<DEPRECIATION> 11661
<TOTAL-ASSETS> 397768
<CURRENT-LIABILITIES> 44246
<BONDS> 173057
0
0
<COMMON> 121
<OTHER-SE> 128470
<TOTAL-LIABILITY-AND-EQUITY> 397768
<SALES> 77209
<TOTAL-REVENUES> 77209
<CGS> 51801
<TOTAL-COSTS> 51801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4714
<INCOME-PRETAX> (194)
<INCOME-TAX> (91)
<INCOME-CONTINUING> (103)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
