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, 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
May 1, 1998, was 8,217,860 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
March 31, 1998 and December 31, 1997. 3 - 4
Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1997. 5
Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 1998 and
1997. 6
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997. 7
Notes to Consolidated Financial Statements 8 - 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10 - 11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 11
Part II: OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
Signatures 13
The Exhibit Index Appears on Page 12.
</TABLE>
2
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,598 $ 1,078
Accounts receivable, less
allowance for doubtful accounts
of $975 for both periods 20,648 28,224
Inventories 28,994 27,438
Deferred income taxes 3,474 3,519
Prepaid and other 3,277 3,885
-------- --------
Total current assets 64,991 64,144
-------- --------
Deferred income taxes 2,433 2,407
Property, plant and equipment, net of
accumulated depreciation of $6,893 and
$7,207, respectively 3,655 3,751
Investments in preferred units 8,680 8,793
Investments in common stock 363 369
Foreign distribution rights, net of
accumulated amortization of $3,358
and $3,193, respectively 3,382 3,551
Other assets, net of accumulated
amortization of $1,437 and
$1,223, respectively 11,086 11,036
-------- -------
Total Assets $94,590 $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 share data)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $9,877 $8,478
Accrued liabilities 8,664 9,865
-------- --------
Total current liabilities 18,541 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 -
8,831,968 and 8,823,718 respectively 883 882
Additional paid-in capital 46,244 46,186
Foreign currency translation adjustment (239) (240)
Unrealized loss on marketable securities (5) -
Retained earnings 34,279 33,993
--------- --------
81,162 80,821
Less-cost of common stock in
treasury; 614,108 shares (5,113) (5,113)
--------- --------
Total stockholders' equity 76,049 75,708
--------- --------
Total Liabilities and Stockholders' Equity $94,590 $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 per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Net sales $24,610 $24,215
Cost of sales 15,375 15,195
--------- ---------
Gross profit 9,235 9,020
Selling, general and administrative
expenses 10,305 10,836
--------- ---------
Operating loss (1,070) (1,816)
Interest income and other, net 50 54
Gain on sale of investment 1,500 -
--------- ---------
Total interest income and other, net 1,550 54
--------- ---------
Income (loss) before income taxes 480 (1,762)
Income tax provision (benefit) 194 (714)
--------- ---------
Net income (loss) $286 ($1,048)
========= =========
Earnings per share:
Basic $0.03 ($0.13)
========= =========
Diluted $0.03 ($0.13)
========= =========
Weighted average number of
shares outstanding:
Basic 8,213 8,209
========= =========
Diluted 8,273 8,209
========= =========
</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 THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Unrealized Foreign
Common Stock Additional Loss 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 three
months ended
March 31, 1997 - - - - - (1,048) -
Stock options
exercised 750 - 4 - - - -
Foreign currency
translation
adjustment - - - - (24) - -
----------- -------- -------- --------- --------- ---------- ---------
BALANCE
March 31, 1997 8,823,718 $882 $46,186 $ - ($137) $36,970 ($5,113)
=========== ======== ======== ========= ========= ========== =========
BALANCE
December 31, 1997 8,823,718 $882 $46,186 $ - ($240) $33,993 ($5,113)
Net income for three
months ended
March 31, 1998 - - - - - 286 -
Unrealized loss on
marketable
securities - - - (5) - - -
Stock options
exercised 8,250 1 58 - - - -
Foreign currency
translation
adjustment - - - - 1 - -
------------ -------- --------- --------- --------- --------- ---------
BALANCE
March 31, 1998 8,831,968 $883 $46,244 $ (5) ($239) $34,279 ($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
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $286 ($1,048)
Adjustments to reconcile net income (loss) to net
cash provided from operating activities:
Depreciation and amortization 714 741
Gain on sale of investment (1,500) -
Deferred income taxes 19 -
------- --------
(481) (307)
Changes in other current assets and liabilities:
Accounts receivable 7,582 12,458
Inventories (1,550) (4,074)
Prepaid and other 609 (644)
Accounts payable 1,408 (762)
Accrued liabilities (1,189) (456)
-------- --------
Net cash provided from operating activities 6,379 6,215
-------- --------
Cash flows from investing activities:
Capital expenditures (233) (325)
Additions to other assets (265) (710)
Distribution from investment in preferred units 1,613 -
-------- --------
Net cash provided from (used for) investing
activities 1,115 (1,035)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 59 4
-------- --------
Net cash provided from financing activities 59 4
-------- --------
Effect of exchange rate changes on cash (25) (47)
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period 7,528 5,137
Cash and cash equivalents, end of period 1,070 2,067
-------- --------
$ 8,598 $ 7,204
======== ========
Cash paid during the period:
Interest $ 7 $ 4
======== ========
Income taxes $ 295 $ -
======== ========
</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
MARCH 31, 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, for the first
quarter of 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
(in thousands)
<S> <C> <C>
Net income (loss) $286 ($1,048)
Other comprehensive income,
net of tax:
Foreign currency translation
adjustment 1 (14)
Unrealized loss on marketable
securities (3) -
------ --------
Other comprehensive income (2) (14)
------ --------
Comprehensive income (loss) $284 ($1,062)
====== ========
</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>
INVESTMENTS
- -----------
<TABLE>
<CAPTION>
Investments consist of the following:
March 31, 1998 December 31, 1997
(in thousands)
<S> <C> <C>
Preferred units of Hudson
River Capital LLC (A) $7,794 $7,907
Preferred Units of
Victory Ventures LLC (B) 886 886
------- -------
Total investments in preferred units $8,680 $8,793
======= =======
Common stock of Chaparral Resources,
Inc. (C) $ 213 $ 219
Common stock of SWWT, Inc. (D) 150 150
------- -------
Total investments in common stock $1,363 $ 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 42,014 shares of
common stock (valued at $1,481,000) of Iron Mountain Incorporated ("Iron
Mountain"). Iron Mountain, a publicly traded company, is a full service
provider of records management and related services. The Company expects to
receive the common stock during 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) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is
an independent oil and gas exploration and production company. At March 31,
1998, the Company owns 87,634 shares of Chapparal common stock valued at
$2.44 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.
(D) 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.
INCOME TAXES
- ------------
Income taxes are provided at the projected annual effective tax rate. The
income tax provision (benefit) for the interim 1998 and 1997 periods exceed the
federal statutory rate of 34% due primarily to state income taxes.
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 period ended March 31, 1997, 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.
9
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 and 1997
(unaudited)
RESULTS OF OPERATIONS
---------------------
Sales for the three months ended March 31, 1998 were $24.6 million compared
with $24.2 million for the same period in 1997, representing an increase of $0.4
million or 1.6%. Excluding a $1.1 million sales decrease related to special
promotional programs with one customer, sales increased by 6.7%. This increase
was due to a 9.7% increase in sales of Victorinox products, primarily related to
the Victorinox SwissTool, and a 7.1% increase in watch sales.
Gross profit of $9.2 million for the quarter ended March 31, 1998 increased
$0.2 million or 2.4% from 1997. The gross profit margin percentage for the first
quarter of 1998 of 37.5% was higher than the gross profit margin percentage of
37.2% reported for the same period in 1997, primarily due to the increase in the
value of the U.S. dollar versus the Swiss franc offset in part by unfavorable
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 first 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, the extent to which such hedging transactions will reduce
the effect of adverse currency fluctuations is uncertain.
Selling, general and administrative expenses for the three months ended
March 31, 1998 of $10.3 million were $0.5 million or 5.2% lower than the amount
for the comparable period in 1997. The decrease is primarily due to expenses in
1997 related to the introduction of a new brand of Swiss watches. Due to the
increase in net sales and the decrease in expenses, as a percentage of net
sales, selling general and administrative expenses decreased from 44.7% in 1997
to 41.9% in 1998.
Interest income and other, net of $50,000 for the three months ended March
31, 1998 was $4,000 lower than interest income and other, net for the comparable
period in 1997.
Gain on sale of investment of $1.5 million in the three months ended March
31, 1998 was due to a cash and stock distribution from the Company's investment
in Hudson River Capital LLC.
As a result of these changes, income before income taxes for the three
months ended March 31, 1998 was $480,000 versus a loss of $1,762,000 for the
same period in 1997, a change of $2,242,000.
Income tax provision (benefit) was provided at an effective rate of 40.5%
in 1998 and 1997.
10
<PAGE>
As a result, net income for the three months ended March 31, 1998 was
$286,000 ($0.03 per share - basic and diluted) versus a loss of $1,048,000
($0.13 per share - basic and diluted) for the same period in 1997, a change of
$1,334,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of March 31, 1998, the Company had working capital of $46.4 million
compared with $45.8 million as of December 31, 1997, an increase of $0.6
million. Significant sources of working capital included a $1.6 million cash
distribution from the Company's investment in Hudson River Capital LLC and
significant uses of working capital included a $0.2 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 $6.4 million in
the three months ended March 31, 1998 compared with $6.2 million in the
comparable period in 1997. The improvement resulted primarily from a smaller
increase in inventory in 1998 as compared to 1997 offset in part by a smaller
decrease in accounts receivable in 1998 as compared to 1997.
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, 1998, the Company has a $5.0 million line of credit
which it can use for any borrowings and a $5.0 million commercial promissory
note agreement which expires on June 30,1998. 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.
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 March 31, 1998, the Company
has entered into foreign currency contracts and options to purchase
approximately 83,000,000 Swiss francs in 1998 and 1999. The Company expects that
the deferred gains and losses on these contracts will be immaterial.
11
<PAGE>
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, 1998.
12
<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: May 10, 1998
By /s/ Thomas M. Lupinski
Name: Thomas M. Lupinski
Title: Senior Vice President,
Chief Financial Officer, Secretary
and Treasurer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731947
<NAME> Swiss Army Brands, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 8,590
<SECURITIES> 0
<RECEIVABLES> 21,623
<ALLOWANCES> 975
<INVENTORY> 28,994
<CURRENT-ASSETS> 64,991
<PP&E> 10,548
<DEPRECIATION> 6,893
<TOTAL-ASSETS> 94,590
<CURRENT-LIABILITIES> 18,541
<BONDS> 0
0
0
<COMMON> 883
<OTHER-SE> 75,166
<TOTAL-LIABILITY-AND-EQUITY> 94,590
<SALES> 24,610
<TOTAL-REVENUES> 24,610
<CGS> 15,375
<TOTAL-COSTS> 10,305
<OTHER-EXPENSES> (1,500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (50)
<INCOME-PRETAX> 480
<INCOME-TAX> 194
<INCOME-CONTINUING> 286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
