-----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, WM14LR+/M1BSjDwyFA2qWmz/SV+0Qfbtd9mkH2Te4NT35MmVQ+wDlfrDOFcdKlDB nP7UklDJUsIIXNcyQ1nW3Q== 0000731947-99-000016.txt : 19990817 0000731947-99-000016.hdr.sgml : 19990817 ACCESSION NUMBER: 0000731947-99-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691500 BUSINESS ADDRESS: STREET 1: ONE RESEARCH DRIVE STREET 2: PO BOX 874 CITY: SHELTON STATE: CT ZIP: 06484-0874 BUSINESS PHONE: 2039296391 MAIL ADDRESS: STREET 1: ONE RESEARCH DRIVE STREET 2: PO BOX 874 CITY: SHELTON STATE: CT ZIP: 06484-6226 FORMER COMPANY: FORMER CONFORMED NAME: FORSCHNER GROUP INC DATE OF NAME CHANGE: 19920703 10-Q 1 ANNUAL 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, 1999 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 Registrant's Common Stock, $.10 par value, outstanding on August 10, 1999, was 7,861,510 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, 1999 and December 31, 1998. 3 - 4 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999 and 1998. 5 Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 1999 and 1998. 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998. 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 15 Part II: OTHER INFORMATION - --------------------------- Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17 Signatures 18 The Exhibit Index appears on page 17. 2
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except for share data) Assets June 30, December 31, 1999 1998 ----------- ------------ (unaudited) Current assets: Cash and cash equivalents $551 $1,309 Accounts receivable, less allowance for doubtful accounts of $975, respectively 24,843 31,321 Inventories 41,797 28,890 Deferred income taxes 2,217 2,205 Prepaid and other 4,143 6,658 -------- -------- Total current assets 73,551 70,383 -------- -------- Deferred income taxes 1,355 1,069 Property, plant and equipment, net 4,768 3,735 Investments 4,522 9,467 Goodwill and foreign distribution rights, net 8,714 2,875 Other assets, net 12,539 12,875 -------- -------- Total Assets $105,449 $100,404 ========= =========
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, 1999 1998 ---------- ------------ (unaudited) Current liabilities: Line of credit $12,890 $5,140 Accounts payable 12,574 12,439 Accrued liabilities 7,402 8,227 --------- --------- Total current liabilities 32,866 25,806 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 - 8,868,218 and 8,858,218, respectively 886 885 Additional paid-in capital 48,025 46,472 Accumulated other comprehensive income (loss) (433) 177 Retained earnings 32,977 35,456 --------- --------- 81,455 82,990 Less: Treasury stock: 1,006,708 and 958,108, respectively (8,711) (8,194) Deferred compensation (161) (198) --------- ---------- Total stockholders' equity 72,583 74,598 --------- ---------- Total Liabilities and Stockholders' Equity $105,449 $100,404 ========= ==========
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 per share data) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Net sales $30,396 $30,187 $53,966 $54,797 Cost of sales 18,406 18,550 33,027 33,925 -------- -------- -------- -------- Gross profit 11,990 11,637 20,939 20,872 Selling, general and administrative expenses 11,330 11,530 21,320 21,835 -------- -------- -------- -------- Operating income (loss) 660 107 (381) (963) Interest income (expense) and other, net (143) 66 (136) 116 Gain (loss) on sale (write-down) of investments (2,700) - (2,280) 1,500 -------- -------- -------- -------- Total interest and other income, net (2,843) 66 (2,416) 1,616 -------- -------- -------- -------- Income (loss) before income taxes (2,183) 173 (2,797) 653 Income tax provision (benefit) (57) 70 (318) 264 -------- -------- --------- -------- Net income (loss) ($2,126) $103 ($2,479) $389 ======== ======== ========= ======== Earnings per share: Basic ($0.27) $0.01 ($0.32) $0.05 Diluted ($0.27) $0.01 ($0.32) $0.05 Weighted average number of shares outstanding: Basic 7,854 8,219 7,869 8,216 Diluted 7,854 8,261 7,869 8,241
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, 1999 AND 1998 (in thousands, except for share data) Accumulated Common Stock Additional Other Par Value $.10 Paid-In Comprehensive Retained Treasury Comprehensive Shares Amount Capital Income (Loss) Earnings Stock Income (Loss) BALANCE December 31, 1997 8,823,718 $882 $46,186 ($240) $33,993 ($5,113) Comprehensive Income: Net income for six months ended June 30, 1998 - - - - 389 - $389 Unrealized gain on marketable securities - - - 327 - - 327 Foreign currency translation adjustment - - - (102) - - (102) ----- Comprehensive Income $614 Stock options exercised 9,500 1 70 - - - ===== ----------- ------ -------- ------- -------- -------- BALANCE June 30, 1998 (unaudited) 8,833,218 $883 $46,256 ($15) $34,382 ($5,113) =========== ====== ======== ======= ======== ======== BALANCE December 31, 1998 8,858,218 $885 $46,472 $177 $35,456 ($8,194) Comprehensive Loss: Net loss for six months ended June 30, 1999 - - - - ($2,479) - ($2,479) Foreign currency translation adjustment - - - 153 - - 153 Change in unrealized gain in marketable (763) securities - - - (763) - - -------- Comprehensive Loss ($3,089) ======== Acquisition of Bear MGC Cutlery, Inc. - - 1,500 - - - Stock options exercised 10,000 1 53 - - - Repurchase of common stock - - - - - (517) ------------ ------ ------- ------- --------- -------- BALANCE June 30, 1999 (unaudited) 8,868,218 $886 $48,025 ($433) ($32,977) ($8,711) ============ ====== ======== ======= ========= ========
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) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income (loss) ($2,479) $389 Adjustments to reconcile net income to cash provided from operating activities: Depreciation and amortization 1,526 1,426 Gain (loss) on sale (write-down) of investments 2,280 (1,500) Stock compensation expense 37 - Deferred income taxes (298) 26 Changes in other current assets and liabilities: Accounts receivable 7,681 1,837 Inventories (11,283) (3,136) Prepaid and other 2,573 (328) Accounts payable (252) 3,174 Accrued liabilities (1,151) (1,277) -------- ------- Net cash provided from (used for) operating activities (1,366) 611 -------- ------- Cash flows from investing activities: Acquisition of Bear MGC Cutlery, Inc., net of cash acquired (7,791) - Capital expenditures (735) (576) Additions to other assets (61) (620) Proceeds from sale of investments 1,972 1,613 -------- ------- Net cash provided from (used for) investing activities (6,615) 417 -------- ------- Cash flows from financing activities: Repurchase of common stock (517) - Borrowings under bank agreements 28,395 - Repayments under bank agreements (20,645) - Proceeds from exercise of stock options 54 71 -------- ------- Net cash provided from financing activities 7,287 71 -------- ------- Effect of exchange rate changes on cash (64) (26) -------- ------- Net increase (decrease) in cash (758) 1,073 Cash and cash equivalents, beginning of period 1,309 1,078 -------- ------- Cash and cash equivalents, end of period $551 $2,151 ======== ======= Cash paid during the period: Interest $124 $5 ======== ======= Income taxes $355 $811 ======== =======
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, 1999 and 1998 (unaudited) CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------- The consolidated financial statements included in this Form 10-Q have been prepared by Swiss Army Brands, Inc. ("Swiss Army" or 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 consolidated financial statements and notes thereto included in the Company's report on Form 10-K for the year ended December 31, 1998. 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. 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. ACQUISITION - ----------- On April 16, 1999, Swiss Army and Bear Cutlery, Inc., a Delaware corporation and a wholly-owned subsidiary of Swiss Army (collectively, the "Buyer") entered into an Asset Purchase Agreement (the "Agreement") with Bear MGC Cutlery, Inc. ("Bear MGC") and the stockholders (the "Shareholders") of Bear MGC, pursuant to which the Buyer acquired substantially all of the assets and assumed certain of the liabilities of Bear MGC. In consideration for the acquisition of the assets, the Buyer paid Bear MGC $6,970,000 in cash and repaid debt of $298,000 upon execution of the Agreement. In further consideration of the acquired assets, on each of April 16, 2000, 2001 and 2002, the Company shall transfer to Bear MGC 52,868 shares of the Swiss Army's common stock, valued at $500,000 (based on the average daily closing price of the Common Stock during the 30 trading days prior to April 16, 1999). The total value of these shares of Common Stock is included in additional paid-in capital as of June 30, 1999. Pursuant to the Agreement, Swiss Army may also pay up to an additional $2,500,000 in either cash or a combination of cash and shares as determined in accordance with the Agreement, if Bear MGC attains certain earnings targets for the year ending December 31, 1999. 8 The purchase method of accounting was used to account for the acquisition. The aggregate purchase price has been allocated to the assets and liabilities of Bear MGC based on preliminary estimates of fair market value. The purchase price does not include the additional consideration("Earnings Pay-out") to be paid to Bear MGC if Bear MGC attains certain earnings targets for the year ending December 31, 1999. Any adjustments, except for the Earnings Pay-out, resulting from the final purchase price allocation, which could result in changes to the carrying values of assets and liabilities, including goodwill, are not expected to be material to the consolidated financial statements. The purchase price has resulted in acquired goodwill and other intangible assets of approximately $6.2 million, which is being amortized, on a straight-line basis over 20 years. The following is a summary of the preliminary allocation (in thousands):
Cash..................................... $ 16 Accounts receivable...................... 1,215 Inventory................................ 1,496 Other current assets..................... 13 Plant and equipment...................... 1,025 Intangible assets and goodwill........... 6,238 Accrued expenses and other liabilities... (396) Debt..................................... (298) ------- $9,309 =======
INVESTMENTS - -----------
Investments consist of the following: June 30,1999 December 31, 1998 (in thousands) Preferred units of Hudson River Capital LLC (A) $3,613 $6,313 Preferred units of Victory Ventures LLC (B) 851 851 ------- ------- Total investments in preferred units $4,464 $7,164 Common stock of Iron Mountain Incorporated (C) - $2,273 Common stock of Chaparral Resources, Inc. (D) 58 30 ------- ------- Total investments in common stock $ 58 $2,303 ------- ------- Total investments $4,522 $9,467 ======= =======
(A) Hudson River Capital LLC, ("Hudson River") is a private equity firm specializing in middle market acquisitions, re-capitalization and expansion capital investments. In the three months ended June 30, 1999, the Company recorded a $2.7 million non-cash write-down of the investment in Hudson River due to the permanent impairment of the value of the investment. The Company accounts for this investment on the cost basis, subject to review for permanent impairment. Since this investment does not have a readily determinable fair value, the valuation is subject to uncertainty. (B) Victory Ventures LLC is a private equity firm specializing in small venture capital investments. 9 (C) Iron Mountain, Inc., a publicly traded company, is a full service provider of records management and related services. The Company sold its common stock investment in Iron Mountain, Inc. in January 1999 and recognized a gain of approximately $420,000. (D) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is an independent oil and gas exploration and production company. At June 30, 1999, the Company owned 1,461 shares (adjusted for a reverse stock split of one share in exchange for sixty) of Chapparal common stock valued at $39.50 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. EARNINGS PER SHARE - ------------------ For the periods ended June 30, 1999, 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 benefit for the interim 1999 periods are lower than the federal statutory rate of 34% as the Company has taken limited tax benefits on the capital loss write-down of the Hudson River investment. The income tax provision for the interim 1998 periods exceed the federal statutory rate of 34% due primarily to state income taxes (net of federal benefit). 10 Item 2. 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 of the Three Months Ended June 30, 1999 and 1998 - ----------------------------------------------------------- Sales for the three months ended June 30, 1999 were $30.4 million compared with $30.2 million for the same period in 1998, representing an increase of $0.2 million or 0.7%. The sales increase was primarily due to $1.4 million in sales by Bear Cutlery, Inc. ("Bear") and an increase in watch sales, offset in part by a decrease in sales of Swiss Army Brand Sunglasses and Victorinox Original Swiss Army Knives. The Company, through Bear, acquired certain assets and assumed certain liabilities of Bear MGC Cutlery, Inc. in April 1999. Gross profit of $12.0 million for the three months ended June 30, 1999 increased $0.4 million or 3.0% from 1998. The gross profit margin percentage for the second quarter of 1999 of 39.4% was higher than the gross profit margin percentage of 38.5% reported for the same period in 1998 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 second quarter of 2000. 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 of the 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, 1999 of $11.3 million were $0.2 million or 1.7% lower than the amount for the comparable period in 1998. The decrease was primarily due to decreased expenses for advertising and promotion related to Swiss Army Brand Sunglasses, offset in part by the operating expenses of Bear. As a percentage of net sales, total selling general and administrative expenses decreased from 38.2% in 1998 to 37.3% in 1999. Interest income (expense) and other, net was expense of $143,000 for the three months ended June 30, 1999, as compared to income of $66,000 for the comparable period in 1998 primarily due to increased borrowings related to the acquisition of Bear MGC Cutlery, Inc. Loss on write-down of investments was $2.7 million in 1999 due to the write-off of the Company's investment in Hudson River Capital LLC, a private equity firm. As a result of these changes, income (loss) before income taxes for the three months ended June 30, 1999 was a loss of $2,183,000 versus income of $173,000 for the same period in 1998, a change of $2,356,000. Income tax expense (benefit) was provided at an effective rate of 2.6% and 40.5%, respectively. The income tax benefit for 1999 was significantly lower than the federal statutory rate of 34% as the Company has taken limited tax benefits on the capital loss write-down of the Hudson River investment. As a result, net income (loss) for the three months ended June 30, 1999 was a loss of $2,126,000 ($0.27 per share-basic and diluted) versus income of $103,000 ($0.01 per share -basic and diluted) for the same period in 1998, a change of $2,229,000. Comparison for the Six Months Ended June 30, 1999 and 1998 - ---------------------------------------------------------- Sales for the six months ended June 30, 1999 were $54.0 million compared with $54.8 million for the same period in 1998, representing a decrease of $0.8 million or 1.5%. The sales decrease was due to a decrease in sales of Victorinox Original Swiss Army Knives and Swiss Army Brand Sunglasses, offset in part by $1.4 million in sales by Bear. Gross profit of $20.9 million for the six months ended June 30, 1999 increased by $67,000 or 0.3% from 1998. The gross profit margin percentage for the six months of 1999 of 38.8% was higher than the gross profit margin percentage of 38.1% reported for the same period in 1998 primarily due to the increase in the value of the U.S. dollar versus the Swiss franc and favorable product mix. Selling, general and administrative expenses for the six months ended June 30, 1999 of $21.3 million were $0.5 million or 2.4% lower than the amount for the comparable period in 1998. The decrease was primarily due to decreased expenses for advertising and promotion related to Swiss Army Brand Sunglasses offset in part by the operating expenses of Bear. As a percentage of net sales, total selling general and administrative expenses decreased from 39.8% in 1998 to 39.5% in 1999. 12 Interest income (expense) and other, net was expense of $136,000 for the six months ended June 30, 1999 as compared to $116,000 of income in the comparable period in 1998 due to increased borrowings related to the acquisition of Bear MGC Cutlery, Inc. Gain (loss) on sale (write-down) of investments was a loss of $2.3 million in 1999 versus a gain of $1.5 million in 1998. In 1999, the Company recorded a $420,000 gain on the sale of its common stock investment in Iron Mountain, Inc. and recorded a $2.7 million write-down of its investment in Hudson River. 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. As a result of these changes, income (loss) before income taxes for the six months ended June 30, 1999 was a loss of $2,797,000 versus income of $653,000 for the same period in 1998, a change of $3,450,000. Income tax expense (benefit) was provided at an effective rate of 11.4% and 40.4% in 1999 and 1998, respectively. The income tax benefit for 1999 was significantly lower than the statutory rate of 34% as the Company has taken limited tax benefits on the capital loss write-down of the Hudson River investment. As a result, net income (loss) for the six months ended June 30, 1999 was a loss of $2,479,000 ($0.32 per share - basic and diluted) versus income of $389,000 ($0.05 per share - basic and diluted) for the same period in 1998, a change of $2,868,000. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- As of June 30, 1999, the Company had working capital of $40.7 million compared with $44.6 million as of December 31, 1998, a decrease of $3.9 million. Significant uses of working capital included the acquisition of Bear MGC Cutlery, Inc., capital expenditures of $0.7 million and repurchases of the Company's common stock of $0.5 million. A significant source of working capital included proceeds of $2.0 million from the sale of its common stock investment of Iron Mountain, Inc. The Company currently has no material commitments for capital expenditures. Cash used in operating activities was approximately $1.4 million in the six months ended June 30, 1999 as compared to cash provided from operating activities of $0.6 million in the comparable period in 1998. The change resulted from a larger increase in inventory in 1999 compared to 1998, offset in part by a larger decrease in accounts receivable in 1999 compared to 1998. The Company meets its short-term liquidity needs with cash generated from operations, and, when necessary, bank borrowings under its bank agreement. As of June 30, 1999, the Company had $12,890,000 of outstanding borrowings under its bank agreement. The Company currently has a $15.0 million revolving credit agreement, which expires in September 1999. The Company is currently reviewing its options to establish a new credit agreement, including increasing the available borrowing amount from $15.0 million, and believes it can establish a new credit agreement at the appropriate date. The Company's short-term liquidity is affected by seasonal changes in sales and inventory levels. The Company believes its current liquidity levels and financial resources continue to be sufficient to meet its operating needs. 13 Year 2000 - --------- The Company has been conducting a review of its computer systems and operations to identify those areas that could be affected by the "Year 2000" issue and has developed an implementation plan to minimize disruption. The Company has completed the assessment phase of its internal information computer systems. Based upon that assessment, certain computer systems were vulnerable to the Year 2000 issues. As a result of that assessment, the Company made certain modifications to existing software and hardware, and invested in new software and hardware. As a result of those actions, which have been completed, the Company believes all the Year 2000 issues as it relates to its own computer systems have been solved and will not pose significant operational concerns. The costs associated with the Year 2000 compliance for the Company's computer systems primarily included costs to upgrade non-compliant computer systems. The majority of these costs were incurred in the normal course of business as the Company has continually upgraded their hardware and software to keep pace with technological advances. The costs of the Year 2000 initiative as it relates to its own internal systems was less than $100,000, and as discussed above, have been completed. The Company is working with its significant suppliers and service providers to ensure that those parties have appropriate plans to manage the Year 2000 issue as it relates to the Company's operations. The Company has communicated with its significant suppliers and service providers and based upon those communications believes that the Year 2000 problem will not affect the Company as it relates to its significant suppliers or service providers. While the Company believes its planning efforts are adequate to address its Year 2000 concerns, there can be no assurance that the systems of other companies on which the Company's systems and operations rely on will be converted on a timely basis and will not have a material adverse effect on the Company. However, based on the progress the Company has made on its internal initiative and the information available from third parties, the Company has not identified a need to develop an extensive contingency plan for non-compliance issues at this time. The need for such plan is evaluated on an ongoing basis as part of the Company's overall Year 2000 initiative. 14 Item 3. 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, 1999, the Company has entered into foreign currency contracts and options to purchase approximately 81,000,000 Swiss francs in 1999 and 2000 at a weighted average rate $1.485 Swiss franc/dollar. At June 30, 1999, the unrealized loss on these contracts and options was approximately $2.4 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. 15 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, 1999, pursuant to notice, at which the meeting shareholders elected the following directors:
NUMBER OF VOTES NUMBER OF VOTES FOR WITHHELD NAME --------------- --------------- - ----------------- A. Clinton Allen 7,512,089 16,962 Clarke H. Bailey 7,511,889 17,162 Thomas A. Barron 7,512,089 16,962 Vincent D. Farrell, Jr. 7,511,889 17,162 Herbert M. Friedman 7,511,941 17,110 Peter W. Gilson 7,511,889 17,162 Keith R. Lively 7,511,489 17,562 Louis Marx, Jr. 7,511,945 17,106 Robert S. Prather, Jr. 7,511,689 17,362 Stanley R. Rawn, Jr. 7,511,593 17,458 Eric M. Reynolds 7,512,089 16,962 John Spencer 7,511,593 17,458 J. Merrick Taggart 7,511,889 17,162 John V. Tunney 7,511,493 17,558
16 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.) The Company filed a report on Form 8-K on May 03, 1999 and a report on Form 8K/A on June 30, 1999 related to acquisition of Bear MGC Cutlery, Inc. For items 2 and 7. These reports included several exhibits related to the acquisition of Bear MGC Cutlery, Inc. 17 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. SWISS ARMY BRANDS, INC. Date: August 16, 1999 By /s/ Thomas M. Lupinski Name: Thomas M. Lupinski Title: Senior Vice President & Chief Financial Officer, Secretary and Treasurer 18 EX-27 2 FDS
5 0000731947 Swiss Army Brands, Inc. 1,000 US Dollars 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1.000 551 0 25,818 975 41,797 73,551 10,115 (5,347) 105,449 32,866 0 0 0 886 71,697 105,449 53,966 53,966 33,027 21,320 (2,280) 0 (136) (2,797) (318) (2,479) 0 0 0 (2,479) (0.32) (0.32)
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