-----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, P/Jru8CgOmWJKD2sUgt+/a2eGfWq6N9nbXX0SjtOWrROfYFBT0xR3Jg2VthVC8aN yivB5Z2Xh0ThXlqsjhG92g== 0000950117-95-000453.txt : 19951201 0000950117-95-000453.hdr.sgml : 19951201 ACCESSION NUMBER: 0000950117-95-000453 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORSCHNER GROUP INC CENTRAL INDEX KEY: 0000731947 STANDARD INDUSTRIAL CLASSIFICATION: 5072 IRS NUMBER: 132797726 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12823 FILM NUMBER: 95590294 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 10-Q 1 THE FORSCHNER GROUP, INC. 10-Q 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 September 30, 1995 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 The Forschner Group, 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 October 31, 1995, was 8,186,610 shares. THE FORSCHNER GROUP, INC. AND SUBSIDIARIES INDEX
PART I: FINANCIAL INFORMATION Page No. -------- Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994. 3 - 4 Consolidated Statements of Operations for the three and nine months ended September 30, 1995 and 1994. 5 Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 1995 and 1994. 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994. 7 Notes to Consolidated Financial Statements 8 - 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 13 Part II: OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13 Signatures 14 The Exhibit Index appears on page 13.
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Assets
September 30, December 31, 1995 1994 ------------ ------------ (unaudited) Current assets: Cash and short-term investments $687,787 $18,019,797 Accounts receivable, less allowance for doubtful accounts of $675,000 and $755,000, 26,184,488 29,606,328 respectively Inventories 43,088,874 27,862,105 Deferred income tax benefits 2,243,818 2,467,440 Prepaid and other 2,451,100 685,273 ---------- ------------ Total current assets 74,656,067 78,640,943 ---------- ------------ Deferred income tax benefits 138,892 56,634 Property, plant and equipment, at cost: Leasehold improvements 812,197 658,842 Equipment 5,838,616 5,189,298 Furniture and fixtures 1,407,583 1,256,462 ---------- ------------ 8,058,396 7,104,602 Less-accumulated depreciation (4,026,264) (2,876,944) ---------- ------------ 4,032,132 4,227,658 ---------- ------------ Investments in equity securities, at cost 7,518,990 7,002,990 Investments in unconsolidated affiliates 7,072,925 4,463,080 Foreign distribution rights, net of accumulated amortization of $1,673,968 and $1,165,129, respectively 5,069,496 5,579,079 Other assets, net of accumulated amortization of $2,923,477 and $2,159,756, respectively 6,307,384 5,737,337 ------------ ------------ Total Assets $104,795,886 $105,707,721 ============ ============
3 THE FORSCHNER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Liabilities and Stockholders' Equity
September 30, December 31, 1995 1994 ------------ ------------ (unaudited) Current liabilities: Accounts payable $9,675,993 $14,057,507 Accrued liabilities 8,358,053 8,651,738 Income taxes payable -- 1,223,193 Short-term borrowings 3,250,000 -- ------------ ------------ Total current liabilities 21,284,046 23,932,438 ------------ ------------ Commitments and contingencies Stockholders' equity Preferred stock, par value $.1 per share: shares authorized -- -- 2,000,000; no shares issued Common stock, par value $.10 per share: shares authorized - 12,000,000; shares issued - 8,799,468 and 8,796,968, respectively 879,947 879,697 Additional paid-in capital 45,889,676 45,866,814 Foreign currency translation adjustment 105 (28,085) Retained earnings 41,855,579 40,170,324 ------------ ------------ 88,625,307 86,888,750 Less-cost of common stock in treasury; 614,108 shares (5,113,467) (5,113,467) ------------ ------------ Total stockholders' equity 83,511,840 81,775,283 ------------ ------------ Total Liabilities and Stockholders' Equity $104,795,886 $105,707,721 ============ ============
4 THE FORSCHNER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ----------------- ---------------- ----------------- --------------- Net sales $30,186,155 $37,264,291 $85,481,135 $104,248,649 Cost of sales 19,720,049 22,051,944 55,598,986 64,887,939 ----------- ----------- ----------- ------------ Gross profit 10,466,106 15,212,347 29,882,149 39,360,710 Selling, general and administrative expenses 9,636,030 9,454,151 26,768,550 28,657,708 ----------- ----------- ----------- ------------ Operating income 830,076 5,758,196 3,113,599 10,703,002 Interest income (expense), net 21,000 154,540 418,770 161,430 Equity interest in unconsolidated affiliates (319,218) -- (299,702) -- Other income (expense), net 8,473 14,590 41,269 104,635 ----------- ----------- ----------- ------------ Total other income (expense), net (289,745) 169,130 160,337 266,065 ----------- ----------- ----------- ------------ Income before income taxes 540,331 5,927,326 3,273,936 10,969,067 Income tax provision 344,041 2,495,404 1,588,681 4,617,977 ----------- ----------- ----------- ------------ Net income $196,290 $3,431,922 $1,685,255 $6,351,090 =========== =========== =========== ============ Net income per share $0.02 $0.42 $0.20 $0.81 =========== =========== =========== ============ Weighted average number of shares outstanding 8,252,978 8,205,862 8,231,012 7,881,576 =========== =========== =========== ============
5 THE FORSCHNER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Common Stock Foreign Par Value $.10 Additional Currency --------------------- Paid-In Translation Retained Treasury Shares Amount Capital Adjustment Earnings Stock ------ ------ ---------- ----------- --------- ---------- BALANCE December 31, 1993 ..................... 7,648,968 $764,897 $34,520,872 $ (6,829) $30,810,594 $(5,472,110) Net income for nine months ended September 30, 1994 (unaudited) ........................ -- -- -- -- 6,351,090 -- Stock options and warrants exercised ................. 1,111,000 111,100 10,467,657 -- -- -- Issuance of common stock from treasury ...................... -- -- 391,360 -- -- 358,643 Foreign currency translation adjustment ............. -- -- -- 7,058 -- -- --------- -------- ----------- -------- ----------- ----------- BALANCE, September 30, 1994 (unaudited) .................. 8,759,968 $875,997 $45,379,889 $ 229 $37,161,684 $(5,113,467) ========= ======== =========== ======== =========== =========== BALANCE December 31, 1994 ..................... 8,796,968 $879,697 $45,866,814 $(28,085) $40,170,324 $(5,113,467) Net income for nine months ended September 30, 1995 (unaudited) ........................ -- -- -- -- 1,685,255 -- Stock options exercised ............... 2,500 250 22,862 -- -- -- Foreign currency translation adjustment ............. -- -- -- 28,190 -- -- --------- -------- ----------- -------- ----------- ----------- BALANCE, September 30, 1995 (unaudited) .................. 8,799,468 $879,947 $45,889,676 $ 105 $41,855,579 $(5,113,467) ========= ======== =========== ======== =========== ===========
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended September 30, 1995 1994 ---- ---- Cash flows from operating activities: Net income $ 1,685,255 $ 6,351,090 Adjustments to reconcile net income to net cash provided from (used for) operating activities: Depreciation and amortization 2,421,880 2,156,252 Equity interest in unconsolidated affiliates 299,702 -- Deferred income taxes 141,364 (125,539) Treasury shares contributed to charitable -- 750,003 foundation -- (36,720) ------------ ----------- Gain on sale of partial investment in stock 4,548,201 9,095,086 Changes in other current assets and liabilities: Accounts receivable 3,477,571 (1,791,936) Inventories (15,146,112) (4,379,938) Prepaid and other (1,765,827) 2,131,886 Accounts payable (4,385,566) 575,464 Accrued liabilities (298,284) 2,229,284 Income taxes payable (1,223,193) (400,000) ------------ ----------- Net cash provided from (used for) operating activities (14,793,210) 7,459,846 ------------ ----------- Cash flows from investing activities: Capital expenditures (953,794) (1,322,253) Additions to other assets (1,333,024) (1,205,165) Investment in preferred stock -- (6,250,000) Investments in common stock (3,425,547) -- Proceeds from sale of investments in stock -- 374,400 Proceeds from note receivable -- 186,120 ------------ ----------- Net cash (used for) investing activities (5,712,365) (8,216,898) ------------ ----------- Cash flows from financing activities: Increase in notes payable 3,250,000 -- Proceeds from exercise of stock options 23,112 10,578,757 ------------ ----------- Net cash provided from financing activities 3,273,112 10,578,757 ------------ ----------- Effect of exchange rate changes on cash (99,547) 175,181 ------------ ----------- Net increase (decrease) in cash and short-term investments (17,332,010) 9,996,886 Cash and short-term investments, beginning of period 18,019,797 7,835,848 ------------ ----------- Cash and short-term investments, end of period $ 687,787 $17,832,734 ============ =========== Cash paid during the period: Interest $ 24,395 $ 34,401 ============ =========== Income taxes $ 2,821,410 $ 4,232,013 ============ ===========
7 THE FORSCHNER GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 and 1994 (unaudited) CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements included in this Form 10-Q have been prepared by The Forschner Group, Inc. ("Forschner", 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, 1994. 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. 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. Had the first-in, first-out (FIFO) method been used to value domestic inventories as of September 30, 1995 and December 31, 1994, the balance at which inventories are stated would have been $2,858,500 and $2,407,000 higher, respectively. Foreign inventories are valued at the lower or cost or market determined by the FIFO method. Inventories principally consist of finished goods and packaging material. INVESTMENTS Investments are comprised of the following as of September 30, 1995 and December 31, 1994:
September 30, December 31, 1995 1994 ------------- ------------ Investment in preferred stock, at cost (A) $7,002,990 $7,002,990 Investment in common stock, at cost (B) 516,000 -- ---------- ---------- Total investments in equity securities, at cost $7,518,990 $7,002,990 ========== ========== $7,072,925 $4,463,080 Investments in unconsolidated affiliates (C)
8 (A) Represents Forschner's investment in Forschner Enterprises, Inc., a privately held corporation. Forschner's preferred stock has cumulative dividends and voting rights. Forschner is accounting for this investment on the cost basis. (B) Represents Forschner's investment in a development stage company involved in the design, manufacture and marketing of fine jewelry. As of September 30, 1995, Forschner owned 19.0% of the outstanding common stock of this company and accounts for the investment on the cost basis. (C) Includes Forschner's investments in Simmons Outdoor Corporation ("Simmons") and SweetWater, Inc ("SweetWater"). In the first quarter of 1995, Forschner increased its percentage ownership of Simmons to 20% and SweetWater to 37%. In accordance with generally accepted accounting principles, as of March 31, 1995, these investments were accounted for under the equity method, with Forschner recording its proportional share of net income or losses of these companies and amortization of goodwill related to the acquisition of the two investments. The total net impact for the nine months ended September 30, 1995 is recorded in equity interest in unconsolidated affiliates in the accompanying statement of operations, including a $635,000 one-time favorable impact of Forschner's share of net income of both of these companies, less amortization of goodwill, computed from the date when Forschner first acquired stock in each of the companies. The accompanying balance sheet as of December 31, 1994 reflects adjustments necessary to show Forschner's investments in Simmons and SweetWater on a cost basis instead of at market as previously shown in the Company's Form 10-K. SIGNIFICANT CUSTOMER Special promotional programs with a single customer of the Corporate Markets Division accounted for 0% and 21% of total sales for the quarter ended September 30, 1995 and 1994, respectively, and 9% and 30% of total sales for the nine months ended September 30, 1995 and 1994, respectively. The Company is not participating in a program with this customer currently, nor are any programs currently scheduled with this customer. INCOME TAXES Income taxes are provided at the projected annual effective tax rate. The income tax provisions for the interim 1995 and 1994 periods exceed the federal statutory rate of 34% due primarily to state income taxes (net of federal benefit), foreign tax rate differences and, in 1995, to the non-deductibility of equity in losses of unconsolidated affiliates. EARNINGS PER COMMON SHARE The weighted average number of shares of common stock outstanding include the dilutive effect of stock options outstanding. The fully diluted earnings per share amount for both periods is the same as primary earnings per share. 9 THE FORSCHNER GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited) RESULTS OF OPERATIONS Comparison of the Three Months Ended September 30, 1995 and 1994 Sales for the three months ended September 30, 1995 were $30.2 million compared with $37.3 million for the same period a year ago, representing a decrease of $7.1 million or 19%. Sales comparisons with the third quarter of 1994 are significantly impacted by the exceptional promotional program for a single customer of the Corporate Markets Division which began in 1994 and concluded at the end of the first quarter of 1995. The promotional program accounted for 21% of the Company's sales for the third quarter of 1994 versus zero in 1995. Including results of the special promotional program, sales for the third quarter of 1995 decreased 19% from the same period in 1994. Excluding the impact of sales to this customer in 1994, sales increased 3% in the third quarter of 1995 as compared to the corresponding period of 1994. This increase was due to an increase in Swiss Army Brand Watch sales offset by small decreases in Swiss Army Knives and cutlery, reflecting weakness in the retail marketplace. Gross profit of $10.5 million for the three months ended September 30, 1995 decreased $4.7 million or 31% from 1994. The decrease relates principally to the impact of sales decreases previously discussed. The gross profit margin for the third quarter decreased from 40.8% in 1994 to 34.7% in 1995, primarily the result of a weakening of the U.S. dollar in relation to the Swiss franc. Forschner's gross profit margin is a function of both product mix and Swiss franc exchange rates. Since Forschner 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 weakness of the U.S. dollar in relation to the Swiss franc significantly impacted Forschner's gross margin in the third quarter of 1995, and unless the exchange rate between the U.S. dollar and Swiss franc improves substantially in favor of the dollar, continuing weakness will have a significant adverse impact on earnings for the rest of the year and on into 1996. Selling, general and administrative expenses for the three months ended September 30, 1995 of $9.6 million were $0.2 million or 2% higher than the amount for the comparable period in 1994. The increase in expenses resulted primarily from an increase in legal fees relating to the Company's ongoing trademark policing efforts and expenses relating to expanded display programs. As a percentage of net sales, selling, general and administrative expenses increased from 25.4% in 1994 to 31.9% in 1995. Due to lower invested cash balances through most of the third quarter in 1995 versus 1994 and to borrowings incurred in September 1995, net interest income of $21,000 in 1995 was $134,000, or 86% less than the amount recorded in the year earlier period. In the three months ended September 30, 1995, Forschner recorded $319,000 of equity interest in unconsolidated affiliates which consisted of the Company's share of losses in its equity investment SweetWater, Inc., offset somewhat by its share of income of its other equity investment, Simmons Outdoor Corporation, and amortization of goodwill relating to the two investments. No 10 similar expense was recorded in 1994, as Forschner's ownership position was less than 20% in 1994, which required that these investments be accounted for at fair value. Other income (primarily royalties ) of $8,000 for the quarter ended September 30, 1995 was $7,000 lower than the $15,000 of income for the same period in 1994. As a result of these changes, income before income taxes for the quarter ended September 30, 1995 was $0.5 million versus $5.9 million for the same period in 1994, for a decrease of $5.4 million or 91%. Income tax expense was provided at an effective rate of 63.7% for the three months ended September 30, 1995, versus 42.1% in 1994, with the increase related primarily to the non-deductibility of Forschner's share of losses and amortization of goodwill relating to its equity investments. Net income was $0.2 million for the quarter ended September 30, 1995 versus $3.4 million in the comparable period of 1994, representing a decrease of $3.2 million or 94%. On a per share basis for the quarter ended September 30, 1995, net income was $0.02 compared with $0.42 in 1994, a 94% decrease. Comparison of the Nine Months Ended September 30, 1995 and 1994 Sales for the nine month period ended September 30, 1995 were $85.5 million compared with $104.2 million for the same period a year ago, representing a decrease of $18.8 million or 18%. Sales comparisons with the first half of 1994 are significantly impacted by the exceptional promotional program for a single customer of the Corporate Markets Division which began in 1994 and concluded at the end of the first quarter of 1995. The promotional program accounted for 30% of the Company's sales for the first nine months of 1994 versus 9% in 1995. Including results of the special promotional program, sales for the nine months ending September 30, 1995 decreased 18% as compared to the comparable period of 1994. Excluding the impact of this promotional program on results for the 1994 period, sales increased 6% in the nine months ended September 30, 1995. Sales of Swiss Army Knives were modestly higher than in the first nine months of 1994. Swiss Army Brand Watch sales and sales of cutlery also posted increases. Gross profit of $29.9 million for the nine months ended September 30, 1995 decreased $9.5 million or 24% from 1994. The decrease relates principally to sales decreases previously discussed, reduced gross profit margins on sales to the promotional customer and the negative impact of a weaker U.S. dollar against the Swiss franc. The gross profit margin for the first nine months of 1995 of 35.0% decreased from the margin of 37.8% reported for the same period of 1994. Forschner's gross profit margin is a function of both product mix and Swiss franc exchange rates. Since Forschner 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 weakness of the U.S. dollar in relation to the Swiss franc began to impact Forschner's gross margin in the second quarter of 1995 and continued through the third quarter; unless the exchange rate between the U.S. dollar and Swiss franc improves substantially in favor of the dollar, continuing weakness will have a significant adverse impact on earnings for the rest of the year and into 1996. 11 Selling, general and administrative expenses for the nine months ended September 30, 1995 of $26.8 million were $1.9 million or 7% lower than the amount for the comparable period in 1994, which included a special charitable contribution of $1.5 million. The remaining $0.4 million decrease in expenses resulted primarily from decreased national advertising and lower printed material costs offset somewhat by increased legal fees relating to the Company's ongoing trademark policing efforts and expenses relating to expanded display programs. As a percentage of net sales, selling, general and administrative expenses (including the charitable contribution) increased from 27.5% in 1994 to 31.3% in 1995. Due to higher invested cash balances in the nine month period ended September 30, 1995 than in the comparable period of 1994, net interest income of $419,000 in 1995 exceeded the $161,000 recorded in the year earlier period. In the nine month period ended September 30, 1995, Forschner recorded $300,000 of expense which is comprised of the Company's share of losses in its equity investment SweetWater, Inc. and amortization of goodwill relating to its two equity investments, offset somewhat by Forschner's share of income of its other equity investment, Simmons Outdoor Corporation, and the one-time favorable impact of recognizing the Company's cumulative share of net income, less amortization of goodwill, of Forschner's two equity investments. No similar expense was recorded in 1994, since Forschner's ownership position was less than 20%, which required that these investments be accounted for at fair value. Other income of $41,000 for the nine months ended September 30, 1995 was $64,000 lower than the $105,000 of income for the same period in 1994, due to lower royalty income. As a result of these changes, income before income taxes for the nine months ended September 30, 1995 was $3.3 million versus $11.0 million for the same period in 1994, a decrease of $7.7 million or 70%. Income tax expense was provided at an effective rate of 48.5% for the nine months ended September 30, 1995, versus 42.1% in 1994, with the increase related primarily to the non-deductibility of Forschner's share of losses and amortization of goodwill relating to its equity investments. Net income was $1.7 million for the nine months ended September 30, 1995 versus $6.4 million in the comparable period of 1994, representing a decrease of $4.7 million or 74%. On a per share basis for the nine months ended September 30, 1995, net income was $0.20 compared with $0.81 in 1994, a 75% decrease. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1995, Forschner had working capital of $53.4 million compared with $54.7 million as of December 31, 1994, a decrease of $1.3 million principally due to investments the Company made during the nine months ended September 30, 1995. Sources of working capital included net income of $1.7 million and depreciation and amortization of $2.4 million. Significant uses of working capital included the Company's $3.4 million increase in the common stock investments of Simmons Outdoor Corporation and SweetWater, Inc. and capital expenditures and 12 additions to other assets of $2.3 million. The Company currently has no material commitments for capital expenditures. Inventories as of September 30, 1995 were $43,089,000 as compared to $27,862,000 as of December 31, 1994. The increase was due in large part to the increase in the value of the Swiss franc and to a lesser degree to inventory build up for new products. Cash used in operating activities was approximately $14.8 million in the nine months ended September 30, 1995 compared with cash provided from operating activities of $7.5 million in the comparable period of 1994. The usage of cash in operations in 1995 versus cash provided from operations in 1994 resulted from a much larger increase in inventories in 1995 than in the prior year, a decrease in accounts payable versus an increase in 1994, an increase in prepaid expenses versus a decrease in 1994, a decrease in accrued liabilities versus an increase in 1994 and a larger decrease in taxes payable in 1995 than in 1994, all of which were only slightly offset by a reduction in accounts receivable versus an increase in 1994. Forschner meets its short-term liquidity needs with cash generated from operations, and, when necessary, bank borrowings under its revolving credit agreement. As of September 30, 1995, Forschner had $3.2 million of outstanding borrowings under its revolving line of credit, leaving an unused line of $11.8 million. Forschner's short-term liquidity is affected by seasonal changes in inventory levels, payment terms and seasonality of sales. The Company believes that cash generated from operations and borrowings under its credit facility will be sufficient to meet the Company's anticipated operating and capital needs through the expiration of the revolving credit agreement in April 1996. The Company is currently in discussion with several banks regarding an expansion of its credit facility. 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) (a) Agreement dated October 6, 1995 between The Forschner Group, Inc. and James W. Kennedy (b) Letter Agreement dated February 15, 1995 between The Forschner Group, Inc. and Harry Thompson (c) Amendment to Letter Agreement of February 15, 1995 between The Forschner Group, Inc. and Harry Thompson dated October 25, 1995. (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. 13 (15) Not Applicable (18) Not Applicable (19) Not Applicable (22) Not Applicable (23) Not Applicable (24) Not Applicable (27) Financial Data Schedule (28) Not Applicable B.) There were no reports or exhibits on Form 8-K filed for the three months ended September 30, 1995. 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. THE FORSCHNER GROUP, INC. (Registrant) Date: November 9, 1995 By /s/ Thomas D. Cunningham --------------------------- Name: Thomas D. Cunningham Title: Executive Vice President, Principal Financial Officer and a Director By /s/ Thomas M. Lupinski --------------------------- Name: Thomas M. Lupinski Title: Senior Vice President, Controller 14 EX-10 2 EXHIBIT 10(A) The Forschner Group, Inc. One Research Drive Shelton, Conn. 06484-6226 October 6, 1995 Mr. James W. Kennedy The Forschner Group, Inc. One Research Drive Shelton, Conn. 06484-6226 Dear Jim: This will confirm the binding legal agreement between Forschner and yourself. We hereby mutually agree as follows: 1. In the event that at any time prior to October 6, 2000, your employment with Forschner shall terminate under the circumstances described in Paragraphs 1(a) or 1(b) below, you shall receive the benefits set forth in Paragraph 2 of this Letter Agreement: (a) You shall be discharged by Forschner for any reason other than "cause". For purposes of this Letter Agreement, the term 'cause' shall mean the following: (i) Your conviction of a felony. (ii) The commission of acts of dishonesty or moral turpitude by you that are detrimental to Forschner and/or its affiliates. (iii) Willful misfeasance in the performance of your duties. (iv) Gross negligence by you in the performance of your duties or failure to obey lawful orders of the Board of Directors or of the Chief Executive Officer of Forschner. (b) You shall resign for "good cause". For purposes of this letter, good cause shall mean the occurrence of any of the following: (i) For reasons other than cause, you have been removed as an officer of Forschner or not elected to an - 2 - office by the Board of Directors at a time when you are willing to accept such a position. (ii) Your primary duties shall be of a non-executive nature. (iii) You shall be required to relocate outside of Connecticut. 2. In the event of (a) your discharge, other than for cause, or (b) your resignation for good cause, you shall be entitled to the following: (i) Payment over the twelve months following such discharge or resignation at an annual rate equal to the average of your annual cash compensation, including bonuses but excluding stock options, over the five calendar years of your employment with Forschner in which your cash compensation was greatest. Provided that the non-competition provisions of this Letter Agreement are observed, you shall have no obligation to mitigate damages and this payment shall be independent of any compensation you may receive from other employers. (ii) Effective immediately, all of the stock options covering Forschner stock which you hold will be amended to provide that they shall vest upon such discharge or resignation and you shall have a period of six months following such discharge or resignation to exercise those stock options. You have informed us that all of the stock options held by you have exercise prices above the current market value of Forschner stock and that representation is a condition of Forschner's agreement to alter the terms of those options. 3. By requesting or accepting any of the benefits listed in Paragraph 2 above, you will, without further documentation, be agreeing that you will not engage in any phase of the knife, cutlery or watch business or otherwise compete with Forschner anywhere in the world, whether as stockholder, director, officer, employee, consultant or otherwise for a period of 36 months after the termination of your employment; that you will maintain as confidential all information you receive or have received from Forschner; that at no time whether before or after the period referred to above will you seek to induce any person who is employed by Forschner during your employment to leave Forschner or having left Forschner, to take employment with a competitor; and that you release Forschner from any and all claims, actions or liability whatsoever arising up to and including the date of your termination or resignation. You acknowledge that because of your wide experience in marketing, sales and other facets of business, the foregoing agreement not - 3 - to compete would not impose undo hardship upon you and is reasonable in all respects. 4. After the execution of this Letter Agreement, we will discuss whether it would be appropriate to embody the agreements contained herein in a more formal document but unless and until such a mutually agreeable formal document is signed, this Letter Agreement shall be binding on both parties, effective at 1:00 p.m. today when agreement was reached. 5. This document is not an employment agreement and your employment by Forschner remains an at will arrangement, terminable at any time by other party for any reason or for no reason. If this Letter Agreement sets forth your understanding of our mutual agreement, would you please so indicate by signing the enclosed copy and returning it to us. Very truly yours, THE FORSCHNER GROUP, INC. By: -------------------------- M. Leo Hart Co-Chief Executive Officer Accepted and Agreed: - - ------------------------ James W. Kennedy EX-10 3 EXHIBIT 10(B) The Forschner Group, Inc. One Research Drive Shelton, Conn. 06484-6226 February 15, 1995 Mr. Harry Thompson 169 East 78th Street Apt. 2D New York, New York 10021 Dear Harry: We are aware that, due unusual circumstances, in becoming a full-time Forschner employee you may be forced to sever other important business relationships. Therefore, we hereby agree that Forschner will continue to pay you a monthly salary at the annual rate of $200,000, less required deductions, for the 24 months beginning on January 1, 1995 subject only to the following condition. At the time of each monthly payment, you must be an employee of Forschner, having devoted your full business time to our affairs continuously from the date of this letter, unless the termination of your employment has been due to discharge by Forschner for reasons other than "cause". For purposes of this letter, the term "cause" shall mean any of the following: Failure to obey a written instruction from the Board of Directors or one of its Committees (the "Board"); continuing willful misconduct or gross negligence in performing your duties as an employee; acts which you know to be contrary to the best interests of Forschner or which have been so designated to you by the Board; the commission of a crime or the commission of any act which can reasonably be expected to bring Forschner or any of its products into disrepute. As you suggested, we confirm that this letter relates only to the obligation to pay salary. It does not imply the right to hold any position or to remain as an employee since employment may be terminated by either party at any time. However, you agree that while you have the status of employee and for two years thereafter you will not compete with Forschner or its affiliates whether as employee, consultant or otherwise and will keep confidential all information you learn or have learned concerning Forschner and its affiliates. - 2 - If this letter meets with your understanding of our mutual agreement, would you please so indicate by signing the enclosed copy and returning it to us. We are looking forward to a long and mutually profitable association. Sincerely, THE FORSCHNER GROUP, INC. By: ---------------------- Accepted and Agreed: - - -------------------------- Harry Thompson EX-10 4 EXHIBIT 10(C) The Forschner Group, Inc. One Research Drive Shelton, Conn. 06484-6226 October 25, 1995 Mr. Harry Thompson 169 East 78th Street Apt. 2D New York, New York 10021 Dear Harry: Please refer to that certain letter agreement between yourself and Forschner dated February 15, 1995. We hereby agree to extend the period of time during which Forschner agrees to pay your salary by one year by amending the second sentence of the letter agreement to read in its entirety as follows: "Therefore, we hereby agree that Forschner will continue to pay you a monthly salary at the annual rate of $200,000, less required deductions, for the 36 months beginning on January 1, 1995 subject only to the following condition." If this letter meets with your understanding of our mutual agreement, would you please so indicate by signing the enclosed copy and returning it to us. Sincerely, THE FORSCHNER GROUP, INC. By: ---------------------- Accepted and Agreed: - - -------------------------- Harry Thompson EX-27 5 FDS FOR 3RD QUARTER 10-Q 1995
5 1,000 9-Mos Dec-31-1994 Jan-01-1995 Sep-30-1995 688 0 26,859 675 43,088 74,656 4,032 4,026 104,796 21,284 0 880 0 0 82,632 104,796 85,481 85,481 55,599 26,769 160 0 0 3,274 1,589 1,685 0 0 0 1,685 .20 .20
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