-----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, R7ZN3467j1e41FvtWEDpuZoaIw76nOjwXC0RlGFf+TxuwjzFxz+djUotc7kovikZ BaPQ7H9C3ZUKvUPkHeeJMg== 0000731947-98-000006.txt : 19980515 0000731947-98-000006.hdr.sgml : 19980515 ACCESSION NUMBER: 0000731947-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: 98619347 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 March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-1282-3 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 May 1, 1998, was 8,217,860 shares. SWISS ARMY BRANDS, INC. AND SUBSIDIARIES INDEX
PART I: FINANCIAL INFORMATION Page No. Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997. 3 - 4 Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and 1997. 5 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 1998 and 1997. 6 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997. 7 Notes to Consolidated Financial Statements 8 - 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 11 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11 Part II: OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12 Signatures 13 The Exhibit Index Appears on Page 12.
2 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) Assets
March 31, December 31, 1998 1997 (unaudited) Current assets: Cash and cash equivalents $ 8,598 $ 1,078 Accounts receivable, less allowance for doubtful accounts of $975 for both periods 20,648 28,224 Inventories 28,994 27,438 Deferred income taxes 3,474 3,519 Prepaid and other 3,277 3,885 -------- -------- Total current assets 64,991 64,144 -------- -------- Deferred income taxes 2,433 2,407 Property, plant and equipment, net of accumulated depreciation of $6,893 and $7,207, respectively 3,655 3,751 Investments in preferred units 8,680 8,793 Investments in common stock 363 369 Foreign distribution rights, net of accumulated amortization of $3,358 and $3,193, respectively 3,382 3,551 Other assets, net of accumulated amortization of $1,437 and $1,223, respectively 11,086 11,036 -------- ------- Total Assets $94,590 $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 share data) Liabilities and Stockholders' Equity
March 31, December 31, 1998 1997 (unaudited) Current liabilities: Accounts payable $9,877 $8,478 Accrued liabilities 8,664 9,865 -------- -------- Total current liabilities 18,541 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 - 8,831,968 and 8,823,718 respectively 883 882 Additional paid-in capital 46,244 46,186 Foreign currency translation adjustment (239) (240) Unrealized loss on marketable securities (5) - Retained earnings 34,279 33,993 --------- -------- 81,162 80,821 Less-cost of common stock in treasury; 614,108 shares (5,113) (5,113) --------- -------- Total stockholders' equity 76,049 75,708 --------- -------- Total Liabilities and Stockholders' Equity $94,590 $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 per share data) (unaudited)
Three Months Ended March 31, 1998 1997 Net sales $24,610 $24,215 Cost of sales 15,375 15,195 --------- --------- Gross profit 9,235 9,020 Selling, general and administrative expenses 10,305 10,836 --------- --------- Operating loss (1,070) (1,816) Interest income and other, net 50 54 Gain on sale of investment 1,500 - --------- --------- Total interest income and other, net 1,550 54 --------- --------- Income (loss) before income taxes 480 (1,762) Income tax provision (benefit) 194 (714) --------- --------- Net income (loss) $286 ($1,048) ========= ========= Earnings per share: Basic $0.03 ($0.13) ========= ========= Diluted $0.03 ($0.13) ========= ========= Weighted average number of shares outstanding: Basic 8,213 8,209 ========= ========= Diluted 8,273 8,209 ========= =========
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 THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (In thousands, except share data) (unaudited)
Unrealized Foreign Common Stock Additional Loss 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 three months ended March 31, 1997 - - - - - (1,048) - Stock options exercised 750 - 4 - - - - Foreign currency translation adjustment - - - - (24) - - ----------- -------- -------- --------- --------- ---------- --------- BALANCE March 31, 1997 8,823,718 $882 $46,186 $ - ($137) $36,970 ($5,113) =========== ======== ======== ========= ========= ========== ========= BALANCE December 31, 1997 8,823,718 $882 $46,186 $ - ($240) $33,993 ($5,113) Net income for three months ended March 31, 1998 - - - - - 286 - Unrealized loss on marketable securities - - - (5) - - - Stock options exercised 8,250 1 58 - - - - Foreign currency translation adjustment - - - - 1 - - ------------ -------- --------- --------- --------- --------- --------- BALANCE March 31, 1998 8,831,968 $883 $46,244 $ (5) ($239) $34,279 ($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 (In thousands) (unaudited)
Three Months Ended March 31, 1998 1997 Cash flows from operating activities: Net income (loss) $286 ($1,048) Adjustments to reconcile net income (loss) to net cash provided from operating activities: Depreciation and amortization 714 741 Gain on sale of investment (1,500) - Deferred income taxes 19 - ------- -------- (481) (307) Changes in other current assets and liabilities: Accounts receivable 7,582 12,458 Inventories (1,550) (4,074) Prepaid and other 609 (644) Accounts payable 1,408 (762) Accrued liabilities (1,189) (456) -------- -------- Net cash provided from operating activities 6,379 6,215 -------- -------- Cash flows from investing activities: Capital expenditures (233) (325) Additions to other assets (265) (710) Distribution from investment in preferred units 1,613 - -------- -------- Net cash provided from (used for) investing activities 1,115 (1,035) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options 59 4 -------- -------- Net cash provided from financing activities 59 4 -------- -------- Effect of exchange rate changes on cash (25) (47) Net increase in cash and cash equivalents Cash and cash equivalents, beginning of period 7,528 5,137 Cash and cash equivalents, end of period 1,070 2,067 -------- -------- $ 8,598 $ 7,204 ======== ======== Cash paid during the period: Interest $ 7 $ 4 ======== ======== Income taxes $ 295 $ - ======== ========
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 MARCH 31, 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, for the first quarter of 1998 and 1997 are as follows:
March 31, 1998 March 31, 1997 (in thousands) Net income (loss) $286 ($1,048) Other comprehensive income, net of tax: Foreign currency translation adjustment 1 (14) Unrealized loss on marketable securities (3) - ------ -------- Other comprehensive income (2) (14) ------ -------- Comprehensive income (loss) $284 ($1,062) ====== ========
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: March 31, 1998 December 31, 1997 (in thousands) Preferred units of Hudson River Capital LLC (A) $7,794 $7,907 Preferred Units of Victory Ventures LLC (B) 886 886 ------- ------- Total investments in preferred units $8,680 $8,793 ======= ======= Common stock of Chaparral Resources, Inc. (C) $ 213 $ 219 Common stock of SWWT, Inc. (D) 150 150 ------- ------- Total investments in common stock $1,363 $ 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 42,014 shares of common stock (valued at $1,481,000) of Iron Mountain Incorporated ("Iron Mountain"). Iron Mountain, a publicly traded company, is a full service provider of records management and related services. The Company expects to receive the common stock during 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) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is an independent oil and gas exploration and production company. At March 31, 1998, the Company owns 87,634 shares of Chapparal common stock valued at $2.44 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. (D) 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. INCOME TAXES - ------------ Income taxes are provided at the projected annual effective tax rate. The income tax provision (benefit) for the interim 1998 and 1997 periods exceed the federal statutory rate of 34% due primarily to state income taxes. 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 period ended March 31, 1997, the weighted average number of shares of common stock outstanding do not include the dilutive effect of stock options as they would have an anti-dilutive effect. 9 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 and 1997 (unaudited) RESULTS OF OPERATIONS --------------------- Sales for the three months ended March 31, 1998 were $24.6 million compared with $24.2 million for the same period in 1997, representing an increase of $0.4 million or 1.6%. Excluding a $1.1 million sales decrease related to special promotional programs with one customer, sales increased by 6.7%. This increase was due to a 9.7% increase in sales of Victorinox products, primarily related to the Victorinox SwissTool, and a 7.1% increase in watch sales. Gross profit of $9.2 million for the quarter ended March 31, 1998 increased $0.2 million or 2.4% from 1997. The gross profit margin percentage for the first quarter of 1998 of 37.5% was higher than the gross profit margin percentage of 37.2% reported for the same period in 1997, primarily due to the increase in the value of the U.S. dollar versus the Swiss franc offset in part by unfavorable 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 first 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, the extent to which such hedging transactions will reduce the effect of adverse currency fluctuations is uncertain. Selling, general and administrative expenses for the three months ended March 31, 1998 of $10.3 million were $0.5 million or 5.2% lower than the amount for the comparable period in 1997. The decrease is primarily due to expenses in 1997 related to the introduction of a new brand of Swiss watches. Due to the increase in net sales and the decrease in expenses, as a percentage of net sales, selling general and administrative expenses decreased from 44.7% in 1997 to 41.9% in 1998. Interest income and other, net of $50,000 for the three months ended March 31, 1998 was $4,000 lower than interest income and other, net for the comparable period in 1997. Gain on sale of investment of $1.5 million in the three months ended March 31, 1998 was due to a cash and stock distribution from the Company's investment in Hudson River Capital LLC. As a result of these changes, income before income taxes for the three months ended March 31, 1998 was $480,000 versus a loss of $1,762,000 for the same period in 1997, a change of $2,242,000. Income tax provision (benefit) was provided at an effective rate of 40.5% in 1998 and 1997. 10 As a result, net income for the three months ended March 31, 1998 was $286,000 ($0.03 per share - basic and diluted) versus a loss of $1,048,000 ($0.13 per share - basic and diluted) for the same period in 1997, a change of $1,334,000. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- As of March 31, 1998, the Company had working capital of $46.4 million compared with $45.8 million as of December 31, 1997, an increase of $0.6 million. Significant sources of working capital included a $1.6 million cash distribution from the Company's investment in Hudson River Capital LLC and significant uses of working capital included a $0.2 million increase in other assets and capital expenditures of $0.3 million. The Company currently has no material commitments for capital expenditures. Cash provided from operating activities was approximately $6.4 million in the three months ended March 31, 1998 compared with $6.2 million in the comparable period in 1997. The improvement resulted primarily from a smaller increase in inventory in 1998 as compared to 1997 offset in part by a smaller decrease in accounts receivable in 1998 as compared to 1997. Swiss Army meets its short-term liquidity needs with cash generated from operations, and, when necessary, bank borrowings under its revolving credit agreement. As of March 31, 1998, the Company has a $5.0 million line of credit which it can use for any borrowings and a $5.0 million commercial promissory note agreement which expires on June 30,1998. The Company is currently reviewing its options to establish a new 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. 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 March 31, 1998, the Company has entered into foreign currency contracts and options to purchase approximately 83,000,000 Swiss francs in 1998 and 1999. The Company expects that the deferred gains and losses on these contracts will be immaterial. 11 PART II. OTHER INFORMATION 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 for the three months ended March 31, 1998. 12 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: May 10, 1998 By /s/ Thomas M. Lupinski Name: Thomas M. Lupinski Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer 13 EX-27 2 FDS --
5 0000731947 Swiss Army Brands, Inc. 1,000 US Dollars 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 8,590 0 21,623 975 28,994 64,991 10,548 6,893 94,590 18,541 0 0 0 883 75,166 94,590 24,610 24,610 15,375 10,305 (1,500) 0 (50) 480 194 286 0 0 0 286 .03 .03
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