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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1282-3
Swiss Army Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2797726
(State of incorporation) (I.R.S. Employer Identification No.)
One Research Drive, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 929-6391
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares of Issuer's Common Stock, $.10 par value, outstanding
on August 5, 1998, was 8,219,110 shares.
<PAGE>
SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997. 3 - 4
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1998 and 1997. 5
Consolidated Statements of Stockholders' Equity
for the Six Months Ended June 30, 1998 and 1997. 6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997. 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 14
Part II: OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16
Signatures 17
The Exhibit Index appears on page 16.
</TABLE>
2
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,151 $1,078
Accounts receivable, less
allowance for doubtful accounts
of $975, respectively 26,320 28,224
Inventories 30,527 27,438
Deferred income taxes 3,571 3,519
Prepaid and other 4,201 3,885
---------- ---------
Total current assets 66,770 64,144
---------- ---------
Deferred income taxes 2,329 2,407
Property, plant and equipment, net 3,661 3,751
Investments in preferred units, at cost 7,199 8,793
Investments in common stock 2,177 369
Foreign distribution rights, net of
accumulated amortization of $3,526 and $3,193,
respectively 3,213 3,551
Other assets, net of accumulated
amortization of $1,547 and $1,223,
respectively 11,226 11,036
-------- ---------
Total Assets $96,575 $94,051
======== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
3
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $11,619 $8,478
Accrued liabilities 8,563 9,865
-------- -------
Total current liabilities 20,182 18,343
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.10 per share:
shares authorized -2,000,000; no shares
issued - -
Common stock, par value $.10 per
share: shares authorized -
18,000,000; shares issued - 8,833,218
and 8,823,718, respectively 883 882
Additional paid-in capital 46,256 46,186
Foreign currency translation adjustment (342) (240)
Unrealized gain on marketable securities 327 -
Retained earnings 34,382 33,993
-------- --------
81,506 80,821
Less-cost of common stock in
treasury; 614,108 shares (5,113) (5,113)
-------- --------
Total stockholders' equity 76,393 75,708
-------- --------
Total Liabilities and Stockholders' Equity $96,575 $94,051
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
4
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share per data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $30,187 $28,862 $54,797 $53,077
Cost of sales 18,550 18,554 33,925 33,749
-------- ------- ------- -------
Gross profit 11,637 10,308 20,872 19,328
Selling, general and administrative
expenses 11,530 12,099 21,835 22,935
-------- ------- ------- -------
Operating income (loss) 107 (1,791) (963) (3,607)
Interest income and other, net 66 57 116 110
Gain on sale of investments - 110 1,500 110
-------- ------- ------- -------
Total interest and other income, net 66 167 1,616 220
-------- ------- ------- -------
Income (loss) before income taxes 173 (1,624) 653 (3,387)
Income tax provision (benefit) 70 (658) 264 (1,372)
-------- ------- ------- -------
Net income (loss) $103 ($966) $389 ($2,015)
======== ======= ======= =======
Earnings per share:
Basic $0.01 ($0.12) $0.05 ($0.25)
Diluted $0.01 ($0.12) $0.05 ($0.25)
Weighted average number of
shares outstanding:
Basic 8,219 8,196 8,216 8,210
Diluted 8,261 8,196 8,241 8,210
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements
5
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(in thousands, except for share data)
<TABLE>
<CAPTION>
Unrealized Foreign
Common Stock Additional Gain on Currency
Par Value $.10 Paid-In Marketable Translation Retained Treasury
Shares Amount Capital Securities Adjustment Earnings Stock
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1996 8,822,968 $882 $46,182 $ - ($113) $38,018 ($5,113)
Net loss for six
months ended
June 30, 1997 - - - - - (2,015) -
Stock options
exercised 750 - 4 - - - -
Foreign currency
translation
adjustment - - - - (30) - -
--------- ---- -------- ------- ------- --------- --------
BALANCE
June 30, 1997
(unaudited) 8,823,718 $882 $46,186 $ - ($143) $36,003 ($5,113)
========= ===== ======== ======= ======== ========= =========
BALANCE
December 31, 1997 8,823,718 $882 $46,186 $ - ($240) $33,993 ($5,113)
Net income for six
months ended
June 30, 1998 - - - - - 389 -
Unrealized gain on
marketable
securities - - - 327 - - -
Stock options
exercised 9,500 1 70 - - - -
Foreign currency
translation
adjustment - - - - (102) - -
----------- ------- -------- --------- ---------- --------- --------
BALANCE
June 30, 1998
(unaudited) 8,833,218 $883 $46,256 $327 ($342) $34,382 ($5,113)
=========== ======= ======== ========= ========== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements
6
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $389 ($2,015)
Adjustments to reconcile net income (loss) to cash
provided from operating activities:
Depreciation and amortization 1,426 1,481
Gain on sale of investments (1,500) (110)
Deferred income taxes 26 -
Changes in other current assets and liabilities:
Accounts receivable 1,837 10,169
Inventories (3,136) (4,207)
Prepaid and other (328) (2,472)
Accounts payable 3,174 763
Accrued liabilities (1,277) (492)
-------- ---------
Net cash provided from operating activities 611 3,117
-------- ---------
Cash flows from investing activities:
Capital expenditures (576) (538)
Additions to other assets (620) (1,062)
Distribution from investment in preferred units 1,613 -
Proceeds from sale of investments - 110
-------- ---------
Net cash provided from (used for)
investing activities 417 (1,490)
-------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options 71 -
-------- ---------
Net cash provided from financing activities 71 -
-------- ---------
Effect of exchange rate changes on cash (26) (21)
Net increase in cash
Cash and cash equivalents, beginning of period 1,073 1,606
Cash and cash equivalents, end of period 1,078 2,067
-------- ---------
$ 2,151 $ 3,673
======== =========
Cash paid during the period:
Interest $ 5 $ 7
======== =========
Income taxes $ 811 $ 453
======== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements
7
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1997
(unaudited)
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included in this Form 10-Q have been
prepared by Swiss Army Brands, Inc. ("Swiss Army", the "Company") without audit.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's report on Form 10-K for the year ended
December 31, 1997. In the opinion of management of the Company, the interim
financial statements included herein reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Due to the seasonal nature of the Company's business, the results of
operations for the interim periods presented are not necessarily indicative of
the operating results for the full year.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which establishes
standards for the reporting and display of comprehensive income and its
components.
The components of comprehensive income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income (loss) $103 ($966) $389 ($2,015)
Other comprehensive income,
net of tax:
Foreign currency translation
adjustment (61) (4) (61) (18)
Unrealized gain on
marketable securities 198 - 195 -
------ ------- ------- -------
Other comprehensive income 137 (4) 134 (18)
------ ------- ------- -------
Comprehensive income
(loss) $ 240 ($970) $523 ($2,033)
====== ======= ======= =======
</TABLE>
INVENTORIES
Domestic inventories are stated at the lower of cost (determined by the
last-in, first-out (LIFO) method) or market. Foreign inventories are valued at
the lower of cost or market determined by the FIFO method. Inventories
principally consist of finished goods.
8
<PAGE>
<TABLE>
<CAPTION>
INVESTMENTS
Investments consist of the following:
June 30,1998 December 31, 1997
(in thousands)
<S> <C> <C>
Preferred units of Hudson
River Capital LLC (A) $6,313 $7,907
Preferred units of
Victory Ventures LLC (B) 886 886
------ ------
Total investments in preferred
units $7,199 $8,793
====== ======
Common stock of Iron Mountain
Incorporated (C) $1,879 $ -
Common stock of Chaparral Resources
Inc. (D) 148 219
Common stock of SWWT, Inc. (E) 150 150
------ ------
Total investments in common stock $2,177 $369
====== ======
</TABLE>
(A) Hudson River Capital LLC ("Hudson River"), is a private equity firm
specializing in middle market acquisitions, re-capitalization and expansion
capital investments. In January 1998, Hudson River distributed to the Company
$1,613,000 in cash and authorized to distribute 63,018 (effected for a three to
two stock split which occurred in July 1998) shares of common stock (valued at
$1,481,000) of Iron Mountain Incorporated. The Company received the common stock
in June 1998. In the first quarter of 1998, the Company recognized a $1.5
million gain on the cash and common stock distribution which is included in gain
on sale of investment in the accompanying financial statements.
(B) Victory Ventures LLC is a private equity firm specializing in small
venture capital investments.
(C) Iron Mountain Incorporated ("Iron Mountain"), a publicly traded
company, is a full service provider of records management and related services.
At June 30, 1998, the Company owns 63,018 shares of Iron Mountain stock valued
at $29.83. The Company accounts for this investment at fair value, with changes
between cost and fair value reflected as a component of stockholders' equity.
(D) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is
an independent oil and gas exploration and production company. At June 30, 1998
the Company owns 87,634 shares of Chapparal common stock valued at $1.6875 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.
(E) SWWT, Inc is a holding company formerly in the business of
manufacturing and marketing portable water purification and filtration systems
to certain markets. The Company has recorded this investment at its estimated
fair value.
9
<PAGE>
SIGNIFICANT CUSTOMER
Sales related to special promotional programs to a single customer
accounted for approximately 16% and 11% of net sales for the three and six
months ended June 30, 1998, respectively. Sales to this customer were less than
10% of net sales for the three and six months ended June 30, 1998.
EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share". This statement replaces the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. All earnings per
share amounts for all periods presented have been restated to conform to the
requirements of this statement.
For the periods ended June 30, 1997, 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 provisions (benefits) for the interim 1998 and 1997 periods exceed
the federal statutory rate of 34% due primarily to state income taxes (net of
federal benefit).
10
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
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 for the Three Months Ended June 30, 1998 and 1997
Sales for the three months ended June 30, 1998 were $30.2 million compared
with $28.9 million for the same period in 1997, representing an increase of $1.3
million or 4.6%. Sales comparisons for the three months ended June 30, 1998 were
significantly impacted by sales related to special promotional programs with one
customer which accounted for approximately 9.3% and 15.7% of sales in the three
months ended June 30, 1998 and 1997 respectively. Excluding sales to this
customer, sales increased by $3.0 million or 12.5% in the three months ended
June 30, 1998, as compared to the comparable period in 1997. The sales increase
was due to a 11.1% increase in sales of Victorinox(r) products, primarily the
Victorinox(r) SwissTool(tm) , a 12.8% increase in watch sales and an 18.6%
increase in cutlery sales.
Gross profit of $11.6 million for the three months ended June 30, 1998
increased $1.3 million or 12.9% from 1997. The gross profit margin percentage
for the second quarter of 1998 of 38.5% was higher than the gross profit margin
percentage of 35.7% reported for the same period in 1997 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 third quarter of 1999. However, such
hedging activity cannot eliminate the long-term adverse impact on the Company's
competitive position and results of operations that would result from a
sustained decrease in the value of the dollar versus the Swiss franc. These
hedging transactions, which are meant to reduce foreign currency risk, also
reduce the beneficial effects to the Company if the dollar increases relative to
the Swiss franc. The Company plans to continue to engage in hedging
transactions; however, it is uncertain as to what extent to which such hedging
transactions will reduce the effect of adverse currency fluctuations.
11
<PAGE>
Selling, general and administrative expenses for the three months ended
June 30, 1998 of $11.5 million were $0.6 million or 4.7% lower than the amount
for the comparable period in 1997. The decrease was primarily due to decreased
advertising and marketing related expenses related to the 1997 introduction of a
new brand of Swiss watches and $0.3 million of restructuring costs in 1997.
As a percentage of net sales, total selling general and administrative
expenses decreased from 41.9% in 1997 to 38.2% in 1998.
Interest income and other, net of $66,000 for the three months ended June
30, 1998 was $9,000 higher than interest income and other, net for the
comparable period in 1997 primarily due to increased invested cash balances
during 1998 as compared to 1997.
Gain on sale of investments was $110,000 in 1997. In 1997, the Company
recovered $110,000 related to an investment in a privately held start-up entity
which the Company had written off in 1996 There were no gains in the three
months ended June 30, 1998.
As a result of these changes, income (loss) before income taxes for the
three months ended June 30, 1998 was income of $173,000 versus a loss of
$1,624,000 for the same period in 1997, an improvement of $1,797,000.
Income tax expense (benefit) was provided at an effective rate of 40.5% in
1998 and 1997.
As a result, net income (loss) for the three months ended June 30, 1998 was
income of $103,000 ($0.01 per share -basic and diluted) versus a loss of
$966,000 ($0.12 per share - basic and diluted) for the same period in 1997, an
increase of $1,069,000.
Comparison for the Six Months Ended June 30, 1998 and 1997
Sales for the six months ended June 30, 1998 were $54.8 million compared
with $53.1 million for the same period in 1997, representing an increase of $1.7
million or 3.2%. Sales comparisons for the six months ended June 30, 1998 were
significantly impacted by sales related to special promotional programs with one
customer which accounted for approximately 5.6% and 11.1% of sales in the six
months ended June 30, 1998 and 1997, respectively. Excluding sales to this
customer, sales increased by $4.6 million in the six months ended June 30, 1998
as compared to the comparable period in 1997. The sales increase was due to a
9.4% increase in sales of Victorinox products, primarily the Victorinox
SwissTool, an 11.9% increase in watch sales and an 8.9% increase in cutlery
sales.
12
<PAGE>
Gross profit of $20.9 million for the six months ended June 30, 1998
increased $1.6 million or 8.0% from 1997. The gross profit margin percentage for
the six months of 1998 of 38.1% was higher than the gross profit margin
percentage of 36.4% reported for the same period in 1997 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 third quarter of 1999. However, such
hedging activity cannot eliminate the long-term adverse impact on the Company's
competitive position and results of operations that would result from a
sustained decrease in the value of the dollar versus the Swiss franc. These
hedging transactions, which are meant to reduce foreign currency risk, also
reduce the beneficial effects to the Company if the dollar increases relative to
the Swiss franc. The Company plans to continue to engage in hedging
transactions; however, 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 six months ended June
30, 1998 of $21.8 million were $1.1 million or 4.8% lower than the amount for
the comparable period in 1997. The decrease was primarily due to decreased
expenses for advertising and marketing related activities related to the 1997
introduction of a new brand of Swiss watches and $0.3 million of restructuring
costs in 1997.
As a percentage of net sales, total selling general and administrative
expenses decreased from 43.2% in 1997 to 39.8% in 1998.
Interest income and other, net of $116,000 for the six months ended June
30, 1998 was $6,000 higher than interest income (expense), net for the
comparable period in 1997.
Gain on sale of investments was $1,500,000 and $110,000 in the six months
ended June 30,1998 and 1997, respectively. 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. In 1997, the Company recovered $110,000 related to
an investment in a privately held start-up entity which the Company had written
off in 1996.
As a result of these changes, income (loss) before income taxes for the six
months ended June 30, 1998 was income of $653,000 versus a loss of $3,387,000
for the same period in 1997, a change of $4,040,000.
Income tax expense (benefit) was provided at an effective rate of 40.5% in
1998 and 1997.
As a result, net income (loss) for the six months ended June 30, 1998 was
income of $389,000 ($0.05 per share - basic and diluted) versus a loss of
$2,015,000 ($0.25 per share - basic and diluted) for the same period in 1997, an
increase of $2,404,000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had working capital of $46.6 million
compared with $45.8 million as of December 31, 1997, an increase of $0.8
million. Significant sources of working capital included a $1.6 million cash
distribution from Hudson River Capital LLC and significant uses of working
capital included a $0.6 million increase in other assets and capital
expenditures of $0.6 million. The Company currently has no material commitments
for capital expenditures.
Cash provided from operating activities was approximately $0.6 million in
the six months ended June 30, 1998 compared with $3.1 million in the comparable
period in 1997. The change resulted primarily due to a smaller decrease in
accounts receivable in 1998 as compared to 1997, offset in part by net income in
1998 as compared to a loss in 1997 and a smaller increase in prepaid and other
in 1998 as compared to 1997.
13
<PAGE>
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its credit agreements. As
of June 30, 1998, the Company has a $5.0 million demand line of credit which it
can use for any borrowings and a $5.0 million revolving credit agreement which
expires in September 1998. The Company is currently reviewing a proposal for
renewal of the 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.
Year 2000
The Company has been conducting a review of its computer systems to
identify those areas that could be affected by the "Year 2000" issue and has
developed an implementation plan to minimize disruption. The Company presently
believes that, with modifications to existing software, of which some already
have been implemented and investment in new software, the Year 2000 problem as
it relates to its own computer systems will not pose significant operational
concerns and the costs to ensure compliance of its own computer systems will not
have a material impact on the financial position or results of operations in any
given year. However, the Year 2000 readiness of the Company's customers,
suppliers and lenders may vary, and no assurances can be given that the Year
2000 problem will not have a material impact on the financial condition or
results of operations in any given year.
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, 1998, the Company
has entered into foreign currency contracts and options to purchase
approximately 83,500,000 Swiss francs in 1998 and 1999 at a weighted average
rate $1.488 Swiss franc/dollar. At June 30, 1998, the unrealized loss on these
contracts and options was approximately $1.1 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.
14
<PAGE>
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,
1998, pursuant to notice, at which the meeting shareholders elected the
following directors:
<TABLE>
<CAPTION>
NUMBER OF VOTES NUMBER OF VOTES
FOR WITHHELD
NAME
<S> <C> <C>
A. Clinton Allen 7,490,335 23,459
Clarke H. Bailey 7,489,939 23,855
Thomas A. Barron 7,490,316 23,478
Vincent D. Farrell, Jr. 7,490,435 23,359
Herbert M. Friedman 7,358,387 155,407
Peter W. Gilson 7,490,416 23,378
Keith R. Lively 7,490,206 23,588
Louis Marx, Jr. 7,490,191 23,603
Stanley R. Rawn, Jr. 7,490,239 23,555
Eric M. Reynolds 7,490,435 23,359
John Spencer 7,490,110 23,684
J. Merrick Taggart 7,490,320 23,474
John V. Tunney 7,489,624 24,170
</TABLE>
15
<PAGE>
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 filed for the three months
ended June 30, 1998.
16
<PAGE>
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: August 7, 1998
By /s/ Thomas M. Lupinski
Name: Thomas M. Lupinski
Title: Senior Vice President &
Chief Financial Officer, Secretary
and Treasurer
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731947
<NAME> Swiss Army Brands, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,151
<SECURITIES> 0
<RECEIVABLES> 26,320
<ALLOWANCES> 975
<INVENTORY> 30,527
<CURRENT-ASSETS> 66,770
<PP&E> 10,878
<DEPRECIATION> 7,217
<TOTAL-ASSETS> 96,575
<CURRENT-LIABILITIES> 20,182
<BONDS> 0
0
0
<COMMON> 883
<OTHER-SE> 75,510
<TOTAL-LIABILITY-AND-EQUITY> 96,575
<SALES> 54,797
<TOTAL-REVENUES> 54,797
<CGS> 33,925
<TOTAL-COSTS> 21,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (116)
<INCOME-PRETAX> 653
<INCOME-TAX> 264
<INCOME-CONTINUING> 389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 389
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
