-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mjs3RSTjmL1frHtxcTHofA4I7KY+Yy3oJsJKAIS2TRc9Tpxl2omlVcz7uHNI7qZO HhNS87s4cTUjIAM8yjdBzw== 0000731947-98-000009.txt : 19980810 0000731947-98-000009.hdr.sgml : 19980810 ACCESSION NUMBER: 0000731947-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SWISS ARMY BRANDS INC CENTRAL INDEX KEY: 0000731947 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-JEWELRY, WATCHES, PRECIOUS STONES & METALS [5094] IRS NUMBER: 132797726 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12823 FILM NUMBER: 98679220 BUSINESS ADDRESS: STREET 1: ONE RESEARCH DRIVE CITY: SHELTON STATE: CT ZIP: 06484-6226 BUSINESS PHONE: 2039296391 MAIL ADDRESS: STREET 1: ONE RESEARCH DRIVE CITY: SHELTON STATE: CT ZIP: 06484-6226 FORMER COMPANY: FORMER CONFORMED NAME: FORSCHNER GROUP INC DATE OF NAME CHANGE: 19920703 10-Q 1 QUARTERLY REPORT FOR SWISS ARMY BRANDS, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-1282-3 Swiss Army Brands, Inc. (Exact name of registrant as specified in its charter) Delaware 13-2797726 (State of incorporation) (I.R.S. Employer Identification No.) One Research Drive, Shelton, Connecticut 06484 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 929-6391 NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report.) 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 The number of shares of Issuer's Common Stock, $.10 par value, outstanding on August 5, 1998, was 8,219,110 shares. SWISS ARMY BRANDS, INC. AND SUBSIDIARIES INDEX
PART I: FINANCIAL INFORMATION Page No. Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997. 3 - 4 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1998 and 1997. 5 Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 1998 and 1997. 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997. 7 Notes to Consolidated Financial Statements 8 - 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 - 14 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14 Part II: OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16 Signatures 17 The Exhibit Index appears on page 16.
2 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) Assets
June 30, December 31, 1998 1997 (unaudited) Current assets: Cash and cash equivalents $2,151 $1,078 Accounts receivable, less allowance for doubtful accounts of $975, respectively 26,320 28,224 Inventories 30,527 27,438 Deferred income taxes 3,571 3,519 Prepaid and other 4,201 3,885 ---------- --------- Total current assets 66,770 64,144 ---------- --------- Deferred income taxes 2,329 2,407 Property, plant and equipment, net 3,661 3,751 Investments in preferred units, at cost 7,199 8,793 Investments in common stock 2,177 369 Foreign distribution rights, net of accumulated amortization of $3,526 and $3,193, respectively 3,213 3,551 Other assets, net of accumulated amortization of $1,547 and $1,223, respectively 11,226 11,036 -------- --------- Total Assets $96,575 $94,051 ======== =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 3 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except for share data) Liabilities and Stockholders' Equity
June 30, December 31, 1998 1997 (unaudited) Current liabilities: Accounts payable $11,619 $8,478 Accrued liabilities 8,563 9,865 -------- ------- Total current liabilities 20,182 18,343 Commitments and contingencies Stockholders' equity Preferred stock, par value $.10 per share: shares authorized -2,000,000; no shares issued - - Common stock, par value $.10 per share: shares authorized - 18,000,000; shares issued - 8,833,218 and 8,823,718, respectively 883 882 Additional paid-in capital 46,256 46,186 Foreign currency translation adjustment (342) (240) Unrealized gain on marketable securities 327 - Retained earnings 34,382 33,993 -------- -------- 81,506 80,821 Less-cost of common stock in treasury; 614,108 shares (5,113) (5,113) -------- -------- Total stockholders' equity 76,393 75,708 -------- -------- Total Liabilities and Stockholders' Equity $96,575 $94,051 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 4 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for share per data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 Net sales $30,187 $28,862 $54,797 $53,077 Cost of sales 18,550 18,554 33,925 33,749 -------- ------- ------- ------- Gross profit 11,637 10,308 20,872 19,328 Selling, general and administrative expenses 11,530 12,099 21,835 22,935 -------- ------- ------- ------- Operating income (loss) 107 (1,791) (963) (3,607) Interest income and other, net 66 57 116 110 Gain on sale of investments - 110 1,500 110 -------- ------- ------- ------- Total interest and other income, net 66 167 1,616 220 -------- ------- ------- ------- Income (loss) before income taxes 173 (1,624) 653 (3,387) Income tax provision (benefit) 70 (658) 264 (1,372) -------- ------- ------- ------- Net income (loss) $103 ($966) $389 ($2,015) ======== ======= ======= ======= Earnings per share: Basic $0.01 ($0.12) $0.05 ($0.25) Diluted $0.01 ($0.12) $0.05 ($0.25) Weighted average number of shares outstanding: Basic 8,219 8,196 8,216 8,210 Diluted 8,261 8,196 8,241 8,210
The accompanying notes to consolidated financial statements are an integral part of these statements 5 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (in thousands, except for share data)
Unrealized Foreign Common Stock Additional Gain on Currency Par Value $.10 Paid-In Marketable Translation Retained Treasury Shares Amount Capital Securities Adjustment Earnings Stock BALANCE December 31, 1996 8,822,968 $882 $46,182 $ - ($113) $38,018 ($5,113) Net loss for six months ended June 30, 1997 - - - - - (2,015) - Stock options exercised 750 - 4 - - - - Foreign currency translation adjustment - - - - (30) - - --------- ---- -------- ------- ------- --------- -------- BALANCE June 30, 1997 (unaudited) 8,823,718 $882 $46,186 $ - ($143) $36,003 ($5,113) ========= ===== ======== ======= ======== ========= ========= BALANCE December 31, 1997 8,823,718 $882 $46,186 $ - ($240) $33,993 ($5,113) Net income for six months ended June 30, 1998 - - - - - 389 - Unrealized gain on marketable securities - - - 327 - - - Stock options exercised 9,500 1 70 - - - - Foreign currency translation adjustment - - - - (102) - - ----------- ------- -------- --------- ---------- --------- -------- BALANCE June 30, 1998 (unaudited) 8,833,218 $883 $46,256 $327 ($342) $34,382 ($5,113) =========== ======= ======== ========= ========== ========= ========
The accompanying notes to consolidated financial statements are an integral part of these statements 6 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, 1998 1997 Cash flows from operating activities: Net income (loss) $389 ($2,015) Adjustments to reconcile net income (loss) to cash provided from operating activities: Depreciation and amortization 1,426 1,481 Gain on sale of investments (1,500) (110) Deferred income taxes 26 - Changes in other current assets and liabilities: Accounts receivable 1,837 10,169 Inventories (3,136) (4,207) Prepaid and other (328) (2,472) Accounts payable 3,174 763 Accrued liabilities (1,277) (492) -------- --------- Net cash provided from operating activities 611 3,117 -------- --------- Cash flows from investing activities: Capital expenditures (576) (538) Additions to other assets (620) (1,062) Distribution from investment in preferred units 1,613 - Proceeds from sale of investments - 110 -------- --------- Net cash provided from (used for) investing activities 417 (1,490) -------- --------- Cash flows from financing activities: Proceeds from exercise of stock options 71 - -------- --------- Net cash provided from financing activities 71 - -------- --------- Effect of exchange rate changes on cash (26) (21) Net increase in cash Cash and cash equivalents, beginning of period 1,073 1,606 Cash and cash equivalents, end of period 1,078 2,067 -------- --------- $ 2,151 $ 3,673 ======== ========= Cash paid during the period: Interest $ 5 $ 7 ======== ========= Income taxes $ 811 $ 453 ======== =========
The accompanying notes to consolidated financial statements are an integral part of these statements 7 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 and 1997 (unaudited) CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements included in this Form 10-Q have been prepared by Swiss Army Brands, Inc. ("Swiss Army", the "Company") without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's report on Form 10-K for the year ended December 31, 1997. In the opinion of management of the Company, the interim financial statements included herein reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the seasonal nature of the Company's business, the results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year. COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted Statement of Financial Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which establishes standards for the reporting and display of comprehensive income and its components. The components of comprehensive income (loss), net of tax, are as follows:
Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 Net income (loss) $103 ($966) $389 ($2,015) Other comprehensive income, net of tax: Foreign currency translation adjustment (61) (4) (61) (18) Unrealized gain on marketable securities 198 - 195 - ------ ------- ------- ------- Other comprehensive income 137 (4) 134 (18) ------ ------- ------- ------- Comprehensive income (loss) $ 240 ($970) $523 ($2,033) ====== ======= ======= =======
INVENTORIES Domestic inventories are stated at the lower of cost (determined by the last-in, first-out (LIFO) method) or market. Foreign inventories are valued at the lower of cost or market determined by the FIFO method. Inventories principally consist of finished goods. 8
INVESTMENTS Investments consist of the following: June 30,1998 December 31, 1997 (in thousands) Preferred units of Hudson River Capital LLC (A) $6,313 $7,907 Preferred units of Victory Ventures LLC (B) 886 886 ------ ------ Total investments in preferred units $7,199 $8,793 ====== ====== Common stock of Iron Mountain Incorporated (C) $1,879 $ - Common stock of Chaparral Resources Inc. (D) 148 219 Common stock of SWWT, Inc. (E) 150 150 ------ ------ Total investments in common stock $2,177 $369 ====== ======
(A) Hudson River Capital LLC ("Hudson River"), is a private equity firm specializing in middle market acquisitions, re-capitalization and expansion capital investments. In January 1998, Hudson River distributed to the Company $1,613,000 in cash and authorized to distribute 63,018 (effected for a three to two stock split which occurred in July 1998) shares of common stock (valued at $1,481,000) of Iron Mountain Incorporated. The Company received the common stock in June 1998. In the first quarter of 1998, the Company recognized a $1.5 million gain on the cash and common stock distribution which is included in gain on sale of investment in the accompanying financial statements. (B) Victory Ventures LLC is a private equity firm specializing in small venture capital investments. (C) Iron Mountain Incorporated ("Iron Mountain"), a publicly traded company, is a full service provider of records management and related services. At June 30, 1998, the Company owns 63,018 shares of Iron Mountain stock valued at $29.83. The Company accounts for this investment at fair value, with changes between cost and fair value reflected as a component of stockholders' equity. (D) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is an independent oil and gas exploration and production company. At June 30, 1998 the Company owns 87,634 shares of Chapparal common stock valued at $1.6875 per share. The Company accounts for this investment at fair value, with changes between cost and fair value reflected as a component of stockholders'equity. (E) SWWT, Inc is a holding company formerly in the business of manufacturing and marketing portable water purification and filtration systems to certain markets. The Company has recorded this investment at its estimated fair value. 9 SIGNIFICANT CUSTOMER Sales related to special promotional programs to a single customer accounted for approximately 16% and 11% of net sales for the three and six months ended June 30, 1998, respectively. Sales to this customer were less than 10% of net sales for the three and six months ended June 30, 1998. EARNINGS PER SHARE In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings Per Share". This statement replaces the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. All earnings per share amounts for all periods presented have been restated to conform to the requirements of this statement. For the periods ended June 30, 1997, the weighted average number of shares of common stock outstanding do not include the dilutive effect of stock options as they would have anti-dilutive effect. INCOME TAXES Income taxes are provided at the projected annual effective tax rate. The income tax provisions (benefits) for the interim 1998 and 1997 periods exceed the federal statutory rate of 34% due primarily to state income taxes (net of federal benefit). 10 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited) FORWARD LOOKING STATEMENTS The following discussion contains, in addition, to historical information, forward looking statements. The forward looking statements were prepared on the basis of certain assumptions which relate, among other things, to the demand for and cost of purchasing and marketing the Company's products; the prices at which such products may be sold; new product development; seasonal selling trends; the Swiss franc - U.S. dollar exchange rates; the extent to which the Company is able to successfully hedge against foreign currency fluctuations; the impact of the Year 2000 issue on the Company's financial position or results of operations and the Company's anticipated credit needs and ability to obtain such credit. Even if the assumptions upon which the projections are based prove accurate and appropriate, the actual results of the Company's operations in the future may vary widely from financial projections due to increased competition, changes in consumer tastes and other factors not yet known or anticipated. Accordingly, the actual results of the Company's operations in the future may vary widely from the forward looking statements included herein. RESULTS OF OPERATIONS Comparison for the Three Months Ended June 30, 1998 and 1997 Sales for the three months ended June 30, 1998 were $30.2 million compared with $28.9 million for the same period in 1997, representing an increase of $1.3 million or 4.6%. Sales comparisons for the three months ended June 30, 1998 were significantly impacted by sales related to special promotional programs with one customer which accounted for approximately 9.3% and 15.7% of sales in the three months ended June 30, 1998 and 1997 respectively. Excluding sales to this customer, sales increased by $3.0 million or 12.5% in the three months ended June 30, 1998, as compared to the comparable period in 1997. The sales increase was due to a 11.1% increase in sales of Victorinox(r) products, primarily the Victorinox(r) SwissTool(tm) , a 12.8% increase in watch sales and an 18.6% increase in cutlery sales. Gross profit of $11.6 million for the three months ended June 30, 1998 increased $1.3 million or 12.9% from 1997. The gross profit margin percentage for the second quarter of 1998 of 38.5% was higher than the gross profit margin percentage of 35.7% reported for the same period in 1997 primarily due to the increase in the value of the U.S. dollar versus the Swiss franc and favorable product mix. The Company's gross profit margin is a function of both product mix and Swiss franc exchange rates. Since the Company imports virtually all of its products from Switzerland, its costs are affected by both the spot rate of exchange and by its foreign currency hedging program. The Company enters into foreign currency contracts and options to hedge the exposure associated with foreign currency fluctuations. Based upon current Swiss franc requirements the Company believes it is hedged through the third quarter of 1999. However, such hedging activity cannot eliminate the long-term adverse impact on the Company's competitive position and results of operations that would result from a sustained decrease in the value of the dollar versus the Swiss franc. These hedging transactions, which are meant to reduce foreign currency risk, also reduce the beneficial effects to the Company if the dollar increases relative to the Swiss franc. The Company plans to continue to engage in hedging transactions; however, it is uncertain as to what extent to which such hedging transactions will reduce the effect of adverse currency fluctuations. 11 Selling, general and administrative expenses for the three months ended June 30, 1998 of $11.5 million were $0.6 million or 4.7% lower than the amount for the comparable period in 1997. The decrease was primarily due to decreased advertising and marketing related expenses related to the 1997 introduction of a new brand of Swiss watches and $0.3 million of restructuring costs in 1997. As a percentage of net sales, total selling general and administrative expenses decreased from 41.9% in 1997 to 38.2% in 1998. Interest income and other, net of $66,000 for the three months ended June 30, 1998 was $9,000 higher than interest income and other, net for the comparable period in 1997 primarily due to increased invested cash balances during 1998 as compared to 1997. Gain on sale of investments was $110,000 in 1997. In 1997, the Company recovered $110,000 related to an investment in a privately held start-up entity which the Company had written off in 1996 There were no gains in the three months ended June 30, 1998. As a result of these changes, income (loss) before income taxes for the three months ended June 30, 1998 was income of $173,000 versus a loss of $1,624,000 for the same period in 1997, an improvement of $1,797,000. Income tax expense (benefit) was provided at an effective rate of 40.5% in 1998 and 1997. As a result, net income (loss) for the three months ended June 30, 1998 was income of $103,000 ($0.01 per share -basic and diluted) versus a loss of $966,000 ($0.12 per share - basic and diluted) for the same period in 1997, an increase of $1,069,000. Comparison for the Six Months Ended June 30, 1998 and 1997 Sales for the six months ended June 30, 1998 were $54.8 million compared with $53.1 million for the same period in 1997, representing an increase of $1.7 million or 3.2%. Sales comparisons for the six months ended June 30, 1998 were significantly impacted by sales related to special promotional programs with one customer which accounted for approximately 5.6% and 11.1% of sales in the six months ended June 30, 1998 and 1997, respectively. Excluding sales to this customer, sales increased by $4.6 million in the six months ended June 30, 1998 as compared to the comparable period in 1997. The sales increase was due to a 9.4% increase in sales of Victorinox products, primarily the Victorinox SwissTool, an 11.9% increase in watch sales and an 8.9% increase in cutlery sales. 12 Gross profit of $20.9 million for the six months ended June 30, 1998 increased $1.6 million or 8.0% from 1997. The gross profit margin percentage for the six months of 1998 of 38.1% was higher than the gross profit margin percentage of 36.4% reported for the same period in 1997 primarily due to the increase in the value of the U.S. dollar versus the Swiss franc and favorable product mix. The Company's gross profit margin is a function of both product mix and Swiss franc exchange rates. Since the Company imports virtually all of its products from Switzerland, its costs are affected by both the spot rate of exchange and by its foreign currency hedging program. The Company enters into foreign currency contracts and options to hedge the exposure associated with foreign currency fluctuations. Based upon current Swiss franc requirements the Company believes it is hedged through the third quarter of 1999. However, such hedging activity cannot eliminate the long-term adverse impact on the Company's competitive position and results of operations that would result from a sustained decrease in the value of the dollar versus the Swiss franc. These hedging transactions, which are meant to reduce foreign currency risk, also reduce the beneficial effects to the Company if the dollar increases relative to the Swiss franc. The Company plans to continue to engage in hedging transactions; however, it is uncertain as to what extent to which such hedging transactions will reduce the effect of adverse currency fluctuations. Selling, general and administrative expenses for the six months ended June 30, 1998 of $21.8 million were $1.1 million or 4.8% lower than the amount for the comparable period in 1997. The decrease was primarily due to decreased expenses for advertising and marketing related activities related to the 1997 introduction of a new brand of Swiss watches and $0.3 million of restructuring costs in 1997. As a percentage of net sales, total selling general and administrative expenses decreased from 43.2% in 1997 to 39.8% in 1998. Interest income and other, net of $116,000 for the six months ended June 30, 1998 was $6,000 higher than interest income (expense), net for the comparable period in 1997. Gain on sale of investments was $1,500,000 and $110,000 in the six months ended June 30,1998 and 1997, respectively. In 1998, the Company recorded a $1.5 million gain due to a cash and stock distribution from the Company's investment in Hudson River Capital LLC. In 1997, the Company recovered $110,000 related to an investment in a privately held start-up entity which the Company had written off in 1996. As a result of these changes, income (loss) before income taxes for the six months ended June 30, 1998 was income of $653,000 versus a loss of $3,387,000 for the same period in 1997, a change of $4,040,000. Income tax expense (benefit) was provided at an effective rate of 40.5% in 1998 and 1997. As a result, net income (loss) for the six months ended June 30, 1998 was income of $389,000 ($0.05 per share - basic and diluted) versus a loss of $2,015,000 ($0.25 per share - basic and diluted) for the same period in 1997, an increase of $2,404,000. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, the Company had working capital of $46.6 million compared with $45.8 million as of December 31, 1997, an increase of $0.8 million. Significant sources of working capital included a $1.6 million cash distribution from Hudson River Capital LLC and significant uses of working capital included a $0.6 million increase in other assets and capital expenditures of $0.6 million. The Company currently has no material commitments for capital expenditures. Cash provided from operating activities was approximately $0.6 million in the six months ended June 30, 1998 compared with $3.1 million in the comparable period in 1997. The change resulted primarily due to a smaller decrease in accounts receivable in 1998 as compared to 1997, offset in part by net income in 1998 as compared to a loss in 1997 and a smaller increase in prepaid and other in 1998 as compared to 1997. 13 The Company meets its short-term liquidity needs with cash generated from operations, and, when necessary, bank borrowings under its credit agreements. As of June 30, 1998, the Company has a $5.0 million demand line of credit which it can use for any borrowings and a $5.0 million revolving credit agreement which expires in September 1998. The Company is currently reviewing a proposal for renewal of the revolving credit agreement. The Company's short-term liquidity is affected by seasonal changes in inventory levels, payment terms and seasonality of sales. The Company believes its current liquidity levels and financial resources will be sufficient to meet its operating needs in the near-term. Year 2000 The Company has been conducting a review of its computer systems to identify those areas that could be affected by the "Year 2000" issue and has developed an implementation plan to minimize disruption. The Company presently believes that, with modifications to existing software, of which some already have been implemented and investment in new software, the Year 2000 problem as it relates to its own computer systems will not pose significant operational concerns and the costs to ensure compliance of its own computer systems will not have a material impact on the financial position or results of operations in any given year. However, the Year 2000 readiness of the Company's customers, suppliers and lenders may vary, and no assurances can be given that the Year 2000 problem will not have a material impact on the financial condition or results of operations in any given year. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange Risk The Company is exposed to market risk from changes in foreign exchange rates as the Company imports virtually all its products from Switzerland. To minimize the risks associated with fluctuations in the value of the Swiss franc versus the U.S. dollar, the Company enters into foreign currency contracts and options. Pursuant to guidelines approved by its Board of Directors, the Company is to engage in these activities only as a hedging mechanism against foreign exchange rate fluctuations associated with specific inventory purchase commitments to protect gross margin and is not to engage in speculative trading. Gains or losses on these contracts and options are deferred and recognized in cost of sales when the related inventory is sold. At June 30, 1998, the Company has entered into foreign currency contracts and options to purchase approximately 83,500,000 Swiss francs in 1998 and 1999 at a weighted average rate $1.488 Swiss franc/dollar. At June 30, 1998, the unrealized loss on these contracts and options was approximately $1.1 million. The Company's ultimate unrealized gain or loss on these contracts and options will primarily depend on the currency exchange rates in effect at the time the contracts and options mature. 14 PART II. - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the stockholders of the Company was held on May 14, 1998, pursuant to notice, at which the meeting shareholders elected the following directors:
NUMBER OF VOTES NUMBER OF VOTES FOR WITHHELD NAME A. Clinton Allen 7,490,335 23,459 Clarke H. Bailey 7,489,939 23,855 Thomas A. Barron 7,490,316 23,478 Vincent D. Farrell, Jr. 7,490,435 23,359 Herbert M. Friedman 7,358,387 155,407 Peter W. Gilson 7,490,416 23,378 Keith R. Lively 7,490,206 23,588 Louis Marx, Jr. 7,490,191 23,603 Stanley R. Rawn, Jr. 7,490,239 23,555 Eric M. Reynolds 7,490,435 23,359 John Spencer 7,490,110 23,684 J. Merrick Taggart 7,490,320 23,474 John V. Tunney 7,489,624 24,170
15 Item 6. Exhibits and Reports on Form 8-K A.) Exhibits (2) Not Applicable (3) Not Applicable (4) Not Applicable (10) Not Applicable (11) Statement regarding computation of per share earnings is not required because the relevant computation can be clearly determined from the material contained in the Financial Statements included herein. (15) Not Applicable (18) Not Applicable (19) Not Applicable (22) Not Applicable (23) Not Applicable (24) Not Applicable (27) Financial Data Schedule (99) Not Applicable B.) There were no reports or exhibits on Form 8-K filed for the three months ended June 30, 1998. 16 Pursuant to the requirements to 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. SWISS ARMY BRANDS, INC. (Registrant) Date: August 7, 1998 By /s/ Thomas M. Lupinski Name: Thomas M. Lupinski Title: Senior Vice President & Chief Financial Officer, Secretary and Treasurer 17 EX-27 2 FDS --
5 0000731947 Swiss Army Brands, Inc. 1,000 US Dollars 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 2,151 0 26,320 975 30,527 66,770 10,878 7,217 96,575 20,182 0 0 0 883 75,510 96,575 54,797 54,797 33,925 21,835 0 0 (116) 653 264 389 0 0 0 389 .05 .05
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