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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-1282-3
SWISS ARMY BRANDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2797726
(State of incorporation) (I.R.S. Employer Identification No.)
ONE RESEARCH DRIVE, SHELTON, CONNECTICUT 06484
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 929-6391
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares of Issuer's Common Stock, $.10 par value,
outstanding on May 9, 1997, was 8,209,610 shares.
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SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996. 3 - 4
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996. 5
Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 1997 and
1996. 6
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996. 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 11
Signatures 12
The Exhibit Index Appears on Page 11.
2
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SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,204 $ 2,067
Accounts receivable, less
allowance for doubtful accounts
of $1,032 for both periods 20,448 32,992
Inventories 33,811 29,657
Deferred income taxes 3,295 3,295
Prepaid and other 3,564 2,922
------- ------
Total current assets 68,322 70,933
------- ------
Deferred income taxes 1,597 1,597
Property, plant and equipment, net 3,918 3,969
Investment in preferred units, at cost 9,003 9,003
Investment in common stock
of unconsolidated affiliate 150 150
Foreign distribution rights, net of
accumulated amortization of $2,687
and $2,518, respectively 4,057 4,226
Other assets, net of accumulated
amortization of $656 and
$496, respectively 9,268 8,765
----- -----
TOTAL ASSETS $96,315 $98,643
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
3
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SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- -----------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $10,171 $10,952
Accrued liabilities 7,357 7,835
----- -------
Total current liabilities 17,528 18,787
====== ======
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 -
8,823,718 and 8,822,968 respectively 882 882
Additional paid-in capital 46,186 46,182
Foreign currency translation adjustment (137) (113)
Retained earnings 36,969 38,018
------ ------
Less-cost of common stock in 83,900 84,969
treasury; 614,108 shares (5,113) (5,113)
------ ------
Total stockholders' equity 78,787 79,856
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $96,315 $98,643
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
4
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SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------- -----------
<S> <C> <C>
NET SALES $24,214 $26,080
Cost of sales 15,194 17,487
------ ------
GROSS PROFIT 9,020 8,593
Selling, general and administrative expenses 10,836 9,172
------ -----
OPERATING LOSS (1,816) (579)
Interest income (expense), net 57 48
Other income (expense), net (4) 116
--------- --------
Total interest and other income (expense), net 53 164
--------- --------
Loss before income taxes (1,763) (415)
Income tax benefit (714) (170)
--------- ---------
NET LOSS ($1,049) ($245)
======== ========
NET LOSS PER SHARE ($0.13) ($0.03)
========= ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 8,209 8,187
======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
5
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SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Unrealized Foreign
Par Value $.10 Additional gain on Currency
----------------------------- Paid-In Marketable Translation Retained Treasury
Shares Amount Capital Securities Adjustment Earnings Stock
----------------------------- --------------- ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1995 8,800,718 $880 $45,898 $ - ($9) $43,283 ($5,113)
Net loss for three
months ended
March 31, 1996 - - - - - (245) -
Stock options
exercised 13,750 1 172 - - - -
Unrealized gain on
marketable
securities - - 475
Foreign currency
translation
adjustment - - - - 2 - -
----------- ---------------- ----------------- ----------- ------------ ---------- ---------
BALANCE
MARCH 31, 1996 8,814,468 $881 $46,070 $ 475 ($7) $43,038 ($5,113)
========== ==== ======= ======= ============ ======= ========
BALANCE
DECEMBER 31, 1996 8,822,968 $882 $46,182 $ - ($113) $38,018 ($5,113)
Net loss for three
months ended
March 31, 1997
- - - - - (1,049) -
Stock options
exercised 750 - 4 - - - -
Foreign currency
translation
adjustment - - - - (24) - -
--------- ---- ------- ------------ --------- --------- --------
BALANCE
MARCH 31, 1997 8,823,718 $882 $46,186 $ - ($137) $36,969 ($5,113)
========= ==== ======= ============ ========= ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
6
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SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,049) ($245)
Adjustments to reconcile net loss to net cash
provided from operating activities:
Depreciation and amortization 742 802
Gain on sale of partial investment in stock - (11)
--------- --------
(307) 546
CHANGES IN OTHER CURRENT ASSETS AND LIABILITIES:
Accounts receivable 12,458 11,106
Inventories (4,074) (9,014)
Prepaid and other (644) (436)
Accounts payable (762) 3,800
Accrued liabilities (456) (3,386)
---- -------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 6,215 2,616
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (325) (333)
Additions to other assets (710) (524)
Proceeds from sale of investments in common stock - 60
------- -------
NET CASH (USED FOR) INVESTING ACTIVITIES (1,035) (797)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4 173
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NET CASH PROVIDED FROM FINANCING ACTIVITIES 4 173
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (47) (5)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,137 1,987
Cash and cash equivalents, beginning of period 2,067 609
------- -------
Cash and cash equivalents, end of period $ 7,204 $ 2,596
======= =======
CASH PAID DURING THE PERIOD:
Interest $ 4 $ 30
======= =======
Income taxes $ - $ 1,467
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
7
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SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included in this Form 10-Q have been
prepared by Swiss Army Brands, Inc. ("Swiss Army", the "Company") without audit.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's report on Form 10-K for the year ended
December 31, 1996. 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.
INCOME TAXES
Income taxes are provided at the projected annual effective tax rate. The
income tax provisions (benefits) for the interim 1997 and 1996 periods exceed
the federal statutory rate of 34% due primarily to state income taxes (net of
federal benefit).
EARNINGS PER SHARE
For the periods ended March 31, 1997 and 1996, the weighted average number
of shares of common stock outstanding do not include the dilutive effect of
stock options as they would have an anti-dilutive effect.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128" or the "Statement"),
Earnings Per Share ("EPS"). SFAS No. 128 establishes standards for computing and
presenting EPS and is effective for both interim and annual periods ending after
December 15, 1997. The Statement does not permit early application of its
provisions. The Statement replaces the presentation of primary EPS with a
presentation of basic EPS, as defined. It also requires dual presentation of
basic and diluted EPS on the face of the Statement of Operations for entities
with a complex capital structure. The Company does not anticipate the effect on
EPS to be material.
8
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SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
RESULTS OF OPERATIONS
Sales for the three months ended March 31, 1997 were $24.2 million compared
with $26.1 million for the same period in 1996, representing a decrease of $1.9
million or 7.2%. Approximately $775,000 of the $1.9 million sales decrease was
due to the sale of substantially all of the assets of Cuisine de France Limited
in January 1997, with the remaining sales decrease due primarily to a 23%
decrease in sales of Victorinox Original Swiss Army Knives, and a marginal
decrease in watch and cutlery sales. Special promotional programs with a
single customer accounted for less than 10% of sales for the first quarter of
1997 and 1996, respectively. The Company has continued to receive orders from
this customer in the second quarter for 1997.
Gross profit of $9.0 million for the quarter ended March 31, 1997 increased
$0.4 million or 5.0% from 1996. The gross profit margin percentage for the first
quarter of 1997 of 37.3% was higher than the gross profit margin percentage of
32.9% reported for the same period in 1996, primarily due to the increase in the
value of the U.S. dollar versus the Swiss franc. 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
remainder of 1997. However, such hedging activity cannot eliminate the long-term
adverse impact on the Company's competitive position and results of operations
that would result from a sustained decrease in the value of the dollar versus
the Swiss franc. These hedging transactions, which are meant to reduce foreign
currency risk, also reduce the beneficial effects to the Company if the dollar
increases relative to the Swiss franc. The Company plans to continue to engage
in hedging transactions; however, it is uncertain as to what extent to which
such hedging transactions will reduce the effect of adverse currency
fluctuations.
Selling, general and administrative expenses for the three months ended
March 31, 1997 of $10.8 million were $1.7 million or 18.1% higher than the
amount for the comparable period in 1996. Approximately $1.0 million of the $1.7
million increase is due to expenses related to the introduction of a new brand
and a major brand extension; fine Swiss Watches marketed under the name Allenby
and Swiss Army Brand Sunglasses, and the remaining increase is due primarily
to increased expenditures for advertising and marketing related activities. The
Company expects to continue to invest in these two brands during the remainder
of 1997. As a percentage of net sales, selling general and administrative
expenses increased from 35.2% in 1996 to 44.8% in 1997.
9
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Interest income (expense), net of $57,000 for the three months ended March
31, 1997 was $9,000 higher than interest income (expense), net for the
comparable period in 1996 primarily due to increased invested cash balances
during 1997 as compared to 1996.
Other income (expense), net of ($4,000) for the three months ended March
31, 1997 versus $116,000 in the same period for the prior year, is due to the
favorable settlement of a legal matter in 1996.
As a result of these changes, loss before income taxes for the three months
ended March 31, 1997 was $1,763,000 versus $415,000 for the same period in 1996,
an increase of $1,348,000.
Income tax expense (benefit) was provided at an effective rate of 40.5% and
41.0% in 1997 and 1996, respectively.
As a result, net loss for the three months ended March 31, 1997 was
$1,049,000 ($0.13 per share) versus $245,000 ($0.03 per share) for the same
period in 1996, an increase of $804,000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had working capital of $50.8 million
compared with $52.1 million as of December 31, 1996, a decrease of $1.3 million.
Significant uses of working capital included a $0.7 million increase in other
assets and capital expenditures of $0.3 million. The Company currently has no
material commitments for capital expenditures.
Cash provided from operating activities was approximately $6.2 million in
the three months ended March 31, 1997 compared with $2.6 million in the
comparable period in 1996. The improvement resulted primarily from a larger
decrease in accounts receivable in 1997 as compared to 1996, a smaller increase
in inventory in 1997 as compared to 1996, a smaller decrease in accrued
liabilities in 1997 as compared to 1996, offset in part by a decrease in
accounts payable in 1997 as compared to an increase in 1996, and by the larger
net loss in 1997 as compared to 1996.
Swiss Army meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its revolving credit
agreement. As of March 31, 1997, the Company has a $5.0 million line of credit
which it can use for any borrowings. The Company had a $15.0 million revolving
credit agreement which expired in January 1997. The Company is currently
reviewing its options to establish a new revolving credit agreement. The
Company's short-term liquidity is affected by seasonal changes in inventory
levels, payment terms and seasonality of sales. The Company believes its current
liquidity levels and financial resources will be sufficient to meet its
operating needs in the near-term.
10
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
(2) Not Applicable
(3) Not Applicable
(4) Not Applicable
(10) Not Applicable
(11) Statement regarding computation of per share earnings is
not required because the relevant computation can be
clearly determined from the material contained in the
Financial Statements included herein.
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(27) Financial data schedule
(99) Not Applicable
b.) There were no reports or exhibits on Form 8-K for the three
months ended March 31, 1997.
11
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Pursuant to the requirements to the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Swiss Army Brands, Inc.
(Registrant)
Date: May 9, 1997
By /s/ Thomas M. Lupinski
Name: Thomas M. Lupinski
Title: Senior Vice President,
Chief Financial Officer, Secretary
and Treasurer
12
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,204
<SECURITIES> 0
<RECEIVABLES> 21,480
<ALLOWANCES> 1,032
<INVENTORY> 33,811
<CURRENT-ASSETS> 68,322
<PP&E> 10,236
<DEPRECIATION> 6,408
<TOTAL-ASSETS> 96,315
<CURRENT-LIABILITIES> 17,528
<BONDS> 0
0
0
<COMMON> 882
<OTHER-SE> 77,905
<TOTAL-LIABILITY-AND-EQUITY> 96,315
<SALES> 24,214
<TOTAL-REVENUES> 24,214
<CGS> 15,194
<TOTAL-COSTS> 10,836
<OTHER-EXPENSES> (4)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (57)
<INCOME-PRETAX> (1,763)
<INCOME-TAX> (714)
<INCOME-CONTINUING> (1,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,049)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
