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, 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 April 30, 1995, was 8,185,360 shares.
<PAGE>
THE FORSCHNER GROUP, INC.
AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
March 31, 1995 and December 31, 1994 3 - 4
Consolidated Statements of Operations for the three months
ended March 31, 1995 and 1994. 5
Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1995 and 1994. 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1995 and 1994. 7
Notes to Consolidated Financial Statements 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9 - 10
Part II: OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 10 - 11
Signatures 11
The Exhibit Index appears on pages 10 and 11.
2
<PAGE>
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
At March 31, At December 31,
1995 1994
-------------- ---------------
(unaudited)
Current assets:
Cash and short-term investments ........... $ 13,371,758 $ 18,019,797
Accounts receivable, less
allowance for doubtful accounts
of $555,000 and $755,000, respectively ... 18,333,956 29,606,328
Inventories ............................... 33,850,745 27,862,105
Deferred income tax benefits .............. 2,380,289 2,467,440
Prepaid and other ......................... 1,784,757 685,273
------------- -------------
Total current assets ................... 69,721,505 78,640,943
------------- -------------
Deferred income tax benefits ................. 97,230 56,634
Property, plant and equipment, at cost:
Leasehold improvements .................... 766,993 658,842
Equipment ................................. 5,513,706 5,189,298
Furniture and fixtures .................... 1,296,648 1,256,462
------------- -------------
7,577,347 7,104,602
Less-accumulated depreciation ............. (3,247,555) (2,876,944)
------------- -------------
4,329,792 4,227,658
------------- -------------
Investment in preferred stock, at cost ....... 7,002,990 7,002,990
Investments in unconsolidated affiliates ..... 7,735,092 4,463,080
Foreign distribution rights, net of
accumulated amortization of $1,332,493
and $1,165,129, respectively .............. 5,408,884 5,579,079
Other assets, net of accumulated
amortization of $2,410,390 and
$2,159,756, respectively .................. 6,192,876 5,737,337
------------- -------------
Total Assets ................................. $ 100,488,369 $ 105,707,721
============= =============
3
<PAGE>
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
At March 31, At December 31,
1995 1994
----------- -------------
(unaudited)
Current liabilities:
Accounts payable .......................... $ 9,535,469 $ 14,057,507
Accrued liabilities ....................... 7,493,447 8,651,738
Income taxes payable ...................... 388,749 1,223,193
------------- -------------
Total current liabilities ............... 17,417,665 23,932,438
------------- -------------
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 -
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 ... (26,558) (28,085)
Retained earnings ......................... 41,441,106 40,170,324
------------- -------------
88,184,171 86,888,750
Less-cost of common stock in
treasury; 614,108 shares ............... (5,113,467) (5,113,467)
------------- -------------
Total stockholders' equity ................... 83,070,704 81,775,283
------------- -------------
Total Liabilities and Stockholders' Equity ... $ 100,488,369 $ 105,707,721
============= =============
4
<PAGE>
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
1995 1994
------------ ------------
Net sales ....................................... $ 29,369,721 $ 27,049,038
Cost of sales ................................... 18,669,127 16,276,048
------------ ------------
Gross profit .................................... 10,700,594 10,772,990
Selling, general and administrative expenses .... 9,121,037 8,193,417
------------ ------------
Operating income ................................ 1,579,557 2,579,573
Interest (expense) .............................. -- (7,153)
Interest income ................................. 250,866 14,252
Other income (expense), net ..................... 364,409 71,400
------------ ------------
Total interest and other income, net ............ 615,275 78,499
------------ ------------
Income before income taxes ...................... 2,194,832 2,658,072
Income tax provision ............................ 924,050 1,119,048
------------ ------------
Net income ...................................... $ 1,270,782 $ 1,539,024
============ ============
Net income per share ............................ $ 0.15 $ 0.21
============ ============
Weighted average number of
shares outstanding ........................... 8,246,759 7,385,972
============ ============
5
<PAGE>
<TABLE>
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
<CAPTION>
Foreign
Common Stock Additional Currency
Par Value $.10 Paid-In Translation Retained Treasury
Shares Amount Capital Adjustment Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1993 7,648,968 $764,897 $34,520,872 $(6,829) $30,810,594 $(5,472,110)
Net income for
three months ended
March 31, 1994
(unaudited) - - - 1,539,024 -
Stock options exercised 36,000 3,600 371,677 - - -
Foreign currency
translation adjustment - - - (5,081) - -
-------------- ----------- ------------ ---------- ----------- -----------
BALANCE, March 31,
1994 (unaudited) 7,684,968 $768,497 $34,892,549 $(11,910) $32,349,618 $(5,472,110)
============= =========== ============ ========== ============= =============
BALANCE
December 31, 1994 8,796,968 $879,697 $45,866,814 $(28,085) $40,170,324 $(5,113,467)
Net income for
three months ended
March 31, 1995
(unaudited) - - - - 1,270,782 -
Stock options exercised 2,500 250 22,862 - - -
Foreign currency
translation adjustment - - - 1,527 - -
-------------- ---------- ------------ ---------- ----------- ------------
BALANCE, March 31,
1995 (unaudited) 8,799,468 $879,947 $45,889,676 $(26,558) $41,441,106 $(5,113,467)
============== ========== =========== ========== ============ =============
</TABLE>
6
<PAGE>
<TABLE>
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three months ended
March 31,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................... $ 1,270,782 $ 1,539,024
Adjustments to reconcile net income to cash
provided from (used for) operating activities:
Depreciation and amortization .............................................. 837,003 726,070
Equity in earnings of unconsolidated
subsidiaries, net of goodwill amortization .............................. (362,466) --
Deferred income taxes ...................................................... 46,555 (95,539)
Gain on sale of partial investment in stock ................................ -- (36,720)
------------ ------------
1,791,874 2,132,835
Changes in other current assets and liabilities:
Accounts receivable ........................................................... 11,274,946 4,513,081
Inventories ................................................................... (5,958,363) (3,100,342)
Prepaid and other ............................................................. (1,099,484) 1,185,531
Accounts payable .............................................................. (4,522,038) (6,771,123)
Accrued liabilities ........................................................... (1,157,661) (77,079)
Income taxes payable .......................................................... (834,444) 763,003
------------ ------------
Net cash (used for) operating activities ................................... (505,170) (1,354,094)
------------ ------------
Cash flows from investing activities:
Capital expenditures .......................................................... (496,149) (406,527)
Proceeds from sales of property, plant & equipment ............................ 10,206 --
Additions to other assets ..................................................... (738,536) (101,830)
Investment in preferred stock ................................................. -- (6,250,000)
Investments in common stock ................................................... (2,909,546) --
Proceeds from sale of investments in stock .................................... -- 374,400
Proceeds from note receivable ................................................. -- 10,570
------------ ------------
Net cash (used for) investing activities ................................... (4,134,025) (6,373,387)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options ....................................... 23,112 375,277
------------ ------------
Net cash provided from financing activities ................................ 23,112 375,277
------------ ------------
Effect of exchange rate changes on cash .......................................... (31,956) 35,804
----------- ------------
Net (decrease) in cash and short-term investments ................................ (4,648,039) (7,316,400)
Cash and short-term investments, beginning of period .......................... 18,019,797 7,835,848
------------ ------------
Cash and short-term investments, end of period ................................ $ 13,371,758 $ 519,448
============ =============
Cash paid during the period:
Interest $ - $ 7,153
=========== ============
Income taxes $ 1,616,456 $ 467,266
=========== ============
</TABLE>
7
<PAGE>
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995 and 1994
(unaudited)
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the three months ended March 31, 1995 and 1994 have been prepared by The
Forschner Group, Inc. ("Forschner", the "Company") without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1995 and 1994 have
been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. 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. 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.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
In the first quarter of 1995, Forschner purchased an additional 155,000
shares of common stock of Simmons Outdoor Corporation ("Simmons") for
$1,072,000, increasing its percentage ownership to 20%. Also, in the three
months ended March 31, 1995, Forschner increased its percentage ownership of the
common stock of SweetWater, Inc. ("SweetWater") to 37% by purchasing an
additional 300,000 shares for $1,837,000. In accordance with generally accepted
accounting principles, as of March 31, 1995, these investments are being
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
quarter ended March 31, 1995 is recorded in other income (expense), net in the
accompanying statements of operations. This includes a $635,000 non-recurring
adjustment to record Forschner's share of earnings/losses of unconsolidated
affiliates, less amortization of goodwill, computed from the date when Forschner
first acquired stock in each of the companies through December 31, 1994. The
accompanying balance sheet as of December 31, 1994 reflects adjustments
necessary to show Forschner's investments in Simmons and Sweewater under the
equity method.
SIGNIFICANT CUSTOMER
A special promotional program with a single customer of the Corporate
Markets Division accounted for 26% and 24% of total sales for the quarters ended
March 31, 1995 and 1994, respectively. Sales to this customer under the existing
program ended in March 1995, and no further programs currently are scheduled
with this customer.
8
<PAGE>
THE FORSCHNER GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(unaudited)
RESULTS OF OPERATIONS
Sales for the three months ended March 31, 1995 were $29.4 million
compared with $27.0 million for the same period in 1994, representing an
increase of $2.4 million or 8.6%. Special promotional programs with a single
customer of the Corporate Markets Division accounted for 26% and 24% of sales
for the first quarter of 1995 and 1994, respectively. An agreement with this
customer in the fourth quarter of 1994 regarding a change in pricing on sales
under an existing program adversely affected gross profit in the first quarter
of 1995. Sales to this customer ended in March 1995, and no further programs
currently are scheduled with this customer. Including results of this special
promotional program, sales of Swiss Army Brand Watches and cutlery increased,
while sales of Swiss Army Knives and Swiss Army Brand Sunglasses decreased from
that in the same period of 1994. Excluding the impact of sales to this customer,
the Company's sales were 4.8% higher than in the same quarter of 1994 with sales
of Swiss Army Knives modestly lower than in the first quarter of 1994 and watch
sales slightly higher. Cutlery sales recorded strong growth over the 1994
quarter.
Gross profit of $10.7 million for the quarter ended March 31, 1995
decreased $0.1 million or 0.7% from 1994. The gross profit margin for the first
quarter of 1995 of 36.4% was lower than the margin of 39.8% reported for the
same period in 1994, primarily due to the impact in 1995 of a change in pricing
on sales under the major promotional program with a single large customer of the
Corporate Markets Division. 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 was not a factor in
the first quarter of 1995 since inventory that was sold had been paid for with
Swiss francs purchased at favorable rates. However, unless the exchange rate
between the U.S. dollar and Swiss franc improves substantially in favor of the
dollar, continuing weakness will have an adverse impact on earnings starting in
the second quarter.
Selling, general and administrative expenses for the three months ended
March 31, 1995 of $9.1 million were $0.9 million or 11% higher than the amount
for the comparable period in 1994. As a percentage of net sales, selling general
and administrative expenses increased from 30.3% in 1994 to 31.1% in 1995. The
dollar increase in expenses resulted primarily from personnel costs related to
increases in Forschner's sales force and increased advertising expenses.
Net interest income was $251,000 for the three months ended March 31,
1995 versus $7,000 in the same period for the prior year, reflecting higher
invested cash balances and rates of return. Other income (expense), net of
$364,000 for 1995 exceeded the $71,000 amount in the prior year by $293,000, due
primarily to a $635,000 one-time favorable impact of recognizing Forschner's
cumulative share of net income, less amortization of goodwill, of Forschner's
two equity investments.
As a result of these changes, income before income taxes for the three
months ended March 31, 1995 was $2.2 million versus $2.7 million for the same
period in the prior year, a decrease of $0.5 million or 17%.
9
<PAGE>
Income tax expense was provided at an effective rate of 42.1% in both
1995 and 1994.
As a result, net income of $1.3 million in 1995 compared with $1.5
million for the quarter ended March 31, 1994, for a decrease of 17%.
Net income per share for the three months ended March 31, 1995 was $0.15
compared with $0.21 for the same period in 1994, a 26% decrease.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, Forschner had working capital of $52.3 million
compared with $54.7 million as of December 31, 1994, a decrease of $2.4 million
principally due to the Company's investment activity during the quarter. Sources
of working capital included net income of $1.3 million plus depreciation and
amortization of $.8 million less the non-cash equity in earnings and goodwill of
unconsolidated affiliates of $.4 million. Significant uses of working capital
included the Company's $2.9 million increased investment in the common stock of
Simmons Outdoor Corporation and SweetWater, Inc., $.7 million increase in other
assets and capital expenditures of $.5 million. The Company currently has no
material commitments for capital expenditures.
Cash used in operating activities was approximately $.5 million in the
quarter ended March 31, 1995 compared with $1.4 million in the comparable period
in 1994. The improvement resulted primarily from larger collections of accounts
receivable in the first quarter of 1995 than in the comparable period of 1994
and a smaller decrease in accounts payable in 1995 than in 1994 which included
payments of a large dollar amount of invoices pertaining to 1993. Partially
offsetting this impact was a larger buildup in inventories in 1995 than in 1994,
a larger reduction of accrued liabilities in 1995 than in the prior year, an
increase in the prepaid expense account in 1995 versus a decrease in 1994 and a
reduction in taxes payable in 1995 compared with 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 March 31, 1995, Forschner had no outstanding borrowings under
its revolving line of credit, leaving an unused line of $15 million. Forschner's
short-term liquidity is affected by seasonal changes in inventory levels,
payment terms and seasonality of sales. The Company's current liquidity levels
and financial resources are sufficient to meet its operating needs.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
(2) Not Applicable
(4) 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.
10
<PAGE>
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(20) Not Applicable
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(28) Not Applicable
b.) There were no reports or exhibits on Form 8-K for the three
months ended March 31, 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: May 12, 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
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731947
<NAME> The Forschner Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-START> Jan-01-1995
<PERIOD-END> Mar-31-1995
<EXCHANGE-RATE> 1
<CASH> 13,372
<SECURITIES> 0
<RECEIVABLES> 18,889
<ALLOWANCES> 555
<INVENTORY> 33,851
<CURRENT-ASSETS> 69,722
<PP&E> 7,577
<DEPRECIATION> 3,248
<TOTAL-ASSETS> 100,488
<CURRENT-LIABILITIES> 17,418
<BONDS> 0
<COMMON> 880
0
0
<OTHER-SE> 82,171
<TOTAL-LIABILITY-AND-EQUITY> 100,488
<SALES> 29,370
<TOTAL-REVENUES> 29,370
<CGS> 18,669
<TOTAL-COSTS> 9,121
<OTHER-EXPENSES> 615
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<INCOME-TAX> 924
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