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, 1999
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 Registrant's Common Stock, $.10 par value,
outstanding on August 10, 1999, was 7,861,510 shares.
<PAGE>
SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
- ------------------------------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998. 3 - 4
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 1999 and 1998. 5
Consolidated Statements of Stockholders'
Equity for the Six Months Ended
June 30, 1999 and 1998. 6
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999
and 1998. 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 15
Part II: OTHER INFORMATION
- ---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Signatures 18
The Exhibit Index appears on page 17.
2
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
Assets
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $551 $1,309
Accounts receivable, less
allowance for doubtful accounts
of $975, respectively 24,843 31,321
Inventories 41,797 28,890
Deferred income taxes 2,217 2,205
Prepaid and other 4,143 6,658
-------- --------
Total current assets 73,551 70,383
-------- --------
Deferred income taxes 1,355 1,069
Property, plant and equipment, net 4,768 3,735
Investments 4,522 9,467
Goodwill and foreign distribution rights, net 8,714 2,875
Other assets, net 12,539 12,875
-------- --------
Total Assets $105,449 $100,404
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
3
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
Liabilities and Stockholders' Equity
June 30, December 31,
1999 1998
---------- ------------
(unaudited)
<S> <C> <C>
Current liabilities:
Line of credit $12,890 $5,140
Accounts payable 12,574 12,439
Accrued liabilities 7,402 8,227
--------- ---------
Total current liabilities 32,866 25,806
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 - 8,868,218
and 8,858,218, respectively 886 885
Additional paid-in capital 48,025 46,472
Accumulated other comprehensive
income (loss) (433) 177
Retained earnings 32,977 35,456
--------- ---------
81,455 82,990
Less: Treasury stock: 1,006,708
and 958,108, respectively (8,711) (8,194)
Deferred compensation (161) (198)
--------- ----------
Total stockholders' equity 72,583 74,598
--------- ----------
Total Liabilities and Stockholders' Equity $105,449 $100,404
========= ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
4
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $30,396 $30,187 $53,966 $54,797
Cost of sales 18,406 18,550 33,027 33,925
-------- -------- -------- --------
Gross profit 11,990 11,637 20,939 20,872
Selling, general and
administrative expenses 11,330 11,530 21,320 21,835
-------- -------- -------- --------
Operating income (loss) 660 107 (381) (963)
Interest income (expense)
and other, net (143) 66 (136) 116
Gain (loss) on sale (write-down)
of investments (2,700) - (2,280) 1,500
-------- -------- -------- --------
Total interest and
other income, net (2,843) 66 (2,416) 1,616
-------- -------- -------- --------
Income (loss) before
income taxes (2,183) 173 (2,797) 653
Income tax provision (benefit) (57) 70 (318) 264
-------- -------- --------- --------
Net income (loss) ($2,126) $103 ($2,479) $389
======== ======== ========= ========
Earnings per share:
Basic ($0.27) $0.01 ($0.32) $0.05
Diluted ($0.27) $0.01 ($0.32) $0.05
Weighted average number of
shares outstanding:
Basic 7,854 8,219 7,869 8,216
Diluted 7,854 8,261 7,869 8,241
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands, except for share data)
Accumulated
Common Stock Additional Other
Par Value $.10 Paid-In Comprehensive Retained Treasury Comprehensive
Shares Amount Capital Income (Loss) Earnings Stock Income (Loss)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1997 8,823,718 $882 $46,186 ($240) $33,993 ($5,113)
Comprehensive Income:
Net income for six
months ended
June 30, 1998 - - - - 389 - $389
Unrealized gain on
marketable securities - - - 327 - - 327
Foreign currency
translation adjustment - - - (102) - - (102)
-----
Comprehensive Income $614
Stock options exercised 9,500 1 70 - - - =====
----------- ------ -------- ------- -------- --------
BALANCE
June 30, 1998 (unaudited) 8,833,218 $883 $46,256 ($15) $34,382 ($5,113)
=========== ====== ======== ======= ======== ========
BALANCE
December 31, 1998 8,858,218 $885 $46,472 $177 $35,456 ($8,194)
Comprehensive Loss:
Net loss for six months
ended June 30, 1999 - - - - ($2,479) - ($2,479)
Foreign currency
translation adjustment - - - 153 - - 153
Change in unrealized gain
in marketable (763)
securities - - - (763) - -
--------
Comprehensive Loss ($3,089)
========
Acquisition of Bear MGC
Cutlery, Inc. - - 1,500 - - -
Stock options
exercised 10,000 1 53 - - -
Repurchase of
common stock - - - - - (517)
------------ ------ ------- ------- --------- --------
BALANCE
June 30, 1999
(unaudited) 8,868,218 $886 $48,025 ($433) ($32,977) ($8,711)
============ ====== ======== ======= ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements
6
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($2,479) $389
Adjustments to reconcile net income to cash
provided from operating activities:
Depreciation and amortization 1,526 1,426
Gain (loss) on sale (write-down)
of investments 2,280 (1,500)
Stock compensation expense 37 -
Deferred income taxes (298) 26
Changes in other current assets and liabilities:
Accounts receivable 7,681 1,837
Inventories (11,283) (3,136)
Prepaid and other 2,573 (328)
Accounts payable (252) 3,174
Accrued liabilities (1,151) (1,277)
-------- -------
Net cash provided from (used for)
operating activities (1,366) 611
-------- -------
Cash flows from investing activities:
Acquisition of Bear MGC Cutlery, Inc., net
of cash acquired (7,791) -
Capital expenditures (735) (576)
Additions to other assets (61) (620)
Proceeds from sale of investments 1,972 1,613
-------- -------
Net cash provided from (used for)
investing activities (6,615) 417
-------- -------
Cash flows from financing activities:
Repurchase of common stock (517) -
Borrowings under bank agreements 28,395 -
Repayments under bank agreements (20,645) -
Proceeds from exercise of stock options 54 71
-------- -------
Net cash provided from financing activities 7,287 71
-------- -------
Effect of exchange rate changes on cash (64) (26)
-------- -------
Net increase (decrease) in cash (758) 1,073
Cash and cash equivalents, beginning of period 1,309 1,078
-------- -------
Cash and cash equivalents, end of period $551 $2,151
======== =======
Cash paid during the period:
Interest $124 $5
======== =======
Income taxes $355 $811
======== =======
</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, 1999 and 1998
(unaudited)
CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------
The consolidated financial statements included in this Form 10-Q have been
prepared by Swiss Army Brands, Inc. ("Swiss Army" or 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 consolidated
financial statements and notes thereto included in the Company's report on Form
10-K for the year ended December 31, 1998. 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.
ACQUISITION
- -----------
On April 16, 1999, Swiss Army and Bear Cutlery, Inc., a Delaware
corporation and a wholly-owned subsidiary of Swiss Army (collectively, the
"Buyer") entered into an Asset Purchase Agreement (the "Agreement") with Bear
MGC Cutlery, Inc. ("Bear MGC") and the stockholders (the "Shareholders") of Bear
MGC, pursuant to which the Buyer acquired substantially all of the assets and
assumed certain of the liabilities of Bear MGC. In consideration for the
acquisition of the assets, the Buyer paid Bear MGC $6,970,000 in cash and repaid
debt of $298,000 upon execution of the Agreement. In further consideration of
the acquired assets, on each of April 16, 2000, 2001 and 2002, the Company shall
transfer to Bear MGC 52,868 shares of the Swiss Army's common stock, valued at
$500,000 (based on the average daily closing price of the Common Stock during
the 30 trading days prior to April 16, 1999). The total value of these shares of
Common Stock is included in additional paid-in capital as of June 30, 1999.
Pursuant to the Agreement, Swiss Army may also pay up to an additional
$2,500,000 in either cash or a combination of cash and shares as determined in
accordance with the Agreement, if Bear MGC attains certain earnings targets for
the year ending December 31, 1999.
8
<PAGE>
The purchase method of accounting was used to account for the acquisition.
The aggregate purchase price has been allocated to the assets and liabilities of
Bear MGC based on preliminary estimates of fair market value. The purchase price
does not include the additional consideration("Earnings Pay-out") to be paid to
Bear MGC if Bear MGC attains certain earnings targets for the year ending
December 31, 1999. Any adjustments, except for the Earnings Pay-out, resulting
from the final purchase price allocation, which could result in changes to the
carrying values of assets and liabilities, including goodwill, are not expected
to be material to the consolidated financial statements. The purchase price has
resulted in acquired goodwill and other intangible assets of approximately $6.2
million, which is being amortized, on a straight-line basis over 20 years. The
following is a summary of the preliminary allocation (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash..................................... $ 16
Accounts receivable...................... 1,215
Inventory................................ 1,496
Other current assets..................... 13
Plant and equipment...................... 1,025
Intangible assets and goodwill........... 6,238
Accrued expenses and other liabilities... (396)
Debt..................................... (298)
-------
$9,309
=======
</TABLE>
INVESTMENTS
- -----------
<TABLE>
<CAPTION>
Investments consist of the following:
June 30,1999 December 31, 1998
(in thousands)
<S> <C> <C>
Preferred units of Hudson
River Capital LLC (A) $3,613 $6,313
Preferred units of
Victory Ventures LLC (B) 851 851
------- -------
Total investments in preferred units $4,464 $7,164
Common stock of Iron Mountain
Incorporated (C) - $2,273
Common stock of Chaparral Resources,
Inc. (D) 58 30
------- -------
Total investments in common stock $ 58 $2,303
------- -------
Total investments $4,522 $9,467
======= =======
</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 the three months ended June 30, 1999, the Company
recorded a $2.7 million non-cash write-down of the investment in Hudson River
due to the permanent impairment of the value of the investment. The Company
accounts for this investment on the cost basis, subject to review for permanent
impairment. Since this investment does not have a readily determinable fair
value, the valuation is subject to uncertainty.
(B) Victory Ventures LLC is a private equity firm specializing in small venture
capital investments.
9
<PAGE>
(C) Iron Mountain, Inc., a publicly traded company, is a full service provider
of records management and related services. The Company sold its common stock
investment in Iron Mountain, Inc. in January 1999 and recognized a gain of
approximately $420,000.
(D) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is an
independent oil and gas exploration and production company. At June 30, 1999,
the Company owned 1,461 shares (adjusted for a reverse stock split of one share
in exchange for sixty) of Chapparal common stock valued at $39.50 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.
EARNINGS PER SHARE
- ------------------
For the periods ended June 30, 1999, 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 benefit for the interim 1999 periods are lower than the federal
statutory rate of 34% as the Company has taken limited tax benefits on the
capital loss write-down of the Hudson River investment. The income tax provision
for the interim 1998 periods exceed the federal statutory rate of 34% due
primarily to state income taxes (net of federal benefit).
10
<PAGE>
Item 2. 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 of the Three Months Ended June 30, 1999 and 1998
- -----------------------------------------------------------
Sales for the three months ended June 30, 1999 were $30.4 million compared
with $30.2 million for the same period in 1998, representing an increase of $0.2
million or 0.7%. The sales increase was primarily due to $1.4 million in sales
by Bear Cutlery, Inc. ("Bear") and an increase in watch sales, offset in part by
a decrease in sales of Swiss Army Brand Sunglasses and Victorinox Original Swiss
Army Knives. The Company, through Bear, acquired certain assets and assumed
certain liabilities of Bear MGC Cutlery, Inc. in April 1999.
Gross profit of $12.0 million for the three months ended June 30, 1999
increased $0.4 million or 3.0% from 1998. The gross profit margin percentage for
the second quarter of 1999 of 39.4% was higher than the gross profit margin
percentage of 38.5% reported for the same period in 1998 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 second quarter of 2000. 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 of the 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, 1999 of $11.3 million were $0.2 million or 1.7% lower than the amount
for the comparable period in 1998. The decrease was primarily due to decreased
expenses for advertising and promotion related to Swiss Army Brand Sunglasses,
offset in part by the operating expenses of Bear. As a percentage of net sales,
total selling general and administrative expenses decreased from 38.2% in 1998
to 37.3% in 1999.
Interest income (expense) and other, net was expense of $143,000 for the
three months ended June 30, 1999, as compared to income of $66,000 for the
comparable period in 1998 primarily due to increased borrowings related to the
acquisition of Bear MGC Cutlery, Inc.
Loss on write-down of investments was $2.7 million in 1999 due to the
write-off of the Company's investment in Hudson River Capital LLC, a private
equity firm.
As a result of these changes, income (loss) before income taxes for the
three months ended June 30, 1999 was a loss of $2,183,000 versus income of
$173,000 for the same period in 1998, a change of $2,356,000.
Income tax expense (benefit) was provided at an effective rate of 2.6% and
40.5%, respectively. The income tax benefit for 1999 was significantly lower
than the federal statutory rate of 34% as the Company has taken limited tax
benefits on the capital loss write-down of the Hudson River investment.
As a result, net income (loss) for the three months ended June 30, 1999 was
a loss of $2,126,000 ($0.27 per share-basic and diluted) versus income of
$103,000 ($0.01 per share -basic and diluted) for the same period in 1998, a
change of $2,229,000.
Comparison for the Six Months Ended June 30, 1999 and 1998
- ----------------------------------------------------------
Sales for the six months ended June 30, 1999 were $54.0 million compared
with $54.8 million for the same period in 1998, representing a decrease of $0.8
million or 1.5%. The sales decrease was due to a decrease in sales of Victorinox
Original Swiss Army Knives and Swiss Army Brand Sunglasses, offset in part by
$1.4 million in sales by Bear.
Gross profit of $20.9 million for the six months ended June 30, 1999
increased by $67,000 or 0.3% from 1998. The gross profit margin percentage for
the six months of 1999 of 38.8% was higher than the gross profit margin
percentage of 38.1% reported for the same period in 1998 primarily due to the
increase in the value of the U.S. dollar versus the Swiss franc and favorable
product mix.
Selling, general and administrative expenses for the six months ended June
30, 1999 of $21.3 million were $0.5 million or 2.4% lower than the amount for
the comparable period in 1998. The decrease was primarily due to decreased
expenses for advertising and promotion related to Swiss Army Brand Sunglasses
offset in part by the operating expenses of Bear. As a percentage of net sales,
total selling general and administrative expenses decreased from 39.8% in 1998
to 39.5% in 1999.
12
<PAGE>
Interest income (expense) and other, net was expense of $136,000 for the
six months ended June 30, 1999 as compared to $116,000 of income in the
comparable period in 1998 due to increased borrowings related to the acquisition
of Bear MGC Cutlery, Inc.
Gain (loss) on sale (write-down) of investments was a loss of $2.3 million
in 1999 versus a gain of $1.5 million in 1998. In 1999, the Company recorded a
$420,000 gain on the sale of its common stock investment in Iron Mountain, Inc.
and recorded a $2.7 million write-down of its investment in Hudson River. 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.
As a result of these changes, income (loss) before income taxes for the six
months ended June 30, 1999 was a loss of $2,797,000 versus income of $653,000
for the same period in 1998, a change of $3,450,000.
Income tax expense (benefit) was provided at an effective rate of 11.4% and
40.4% in 1999 and 1998, respectively. The income tax benefit for 1999 was
significantly lower than the statutory rate of 34% as the Company has taken
limited tax benefits on the capital loss write-down of the Hudson River
investment.
As a result, net income (loss) for the six months ended June 30, 1999 was a
loss of $2,479,000 ($0.32 per share - basic and diluted) versus income of
$389,000 ($0.05 per share - basic and diluted) for the same period in 1998, a
change of $2,868,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1999, the Company had working capital of $40.7 million
compared with $44.6 million as of December 31, 1998, a decrease of $3.9 million.
Significant uses of working capital included the acquisition of Bear MGC
Cutlery, Inc., capital expenditures of $0.7 million and repurchases of the
Company's common stock of $0.5 million. A significant source of working capital
included proceeds of $2.0 million from the sale of its common stock investment
of Iron Mountain, Inc. The Company currently has no material commitments for
capital expenditures.
Cash used in operating activities was approximately $1.4 million in the six
months ended June 30, 1999 as compared to cash provided from operating
activities of $0.6 million in the comparable period in 1998. The change resulted
from a larger increase in inventory in 1999 compared to 1998, offset in part by
a larger decrease in accounts receivable in 1999 compared to 1998.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its bank agreement. As of
June 30, 1999, the Company had $12,890,000 of outstanding borrowings under its
bank agreement. The Company currently has a $15.0 million revolving credit
agreement, which expires in September 1999. The Company is currently reviewing
its options to establish a new credit agreement, including increasing the
available borrowing amount from $15.0 million, and believes it can establish a
new credit agreement at the appropriate date. The Company's short-term liquidity
is affected by seasonal changes in sales and inventory levels. The Company
believes its current liquidity levels and financial resources continue to be
sufficient to meet its operating needs.
13
<PAGE>
Year 2000
- ---------
The Company has been conducting a review of its computer systems and
operations to identify those areas that could be affected by the "Year 2000"
issue and has developed an implementation plan to minimize disruption.
The Company has completed the assessment phase of its internal information
computer systems. Based upon that assessment, certain computer systems were
vulnerable to the Year 2000 issues. As a result of that assessment, the Company
made certain modifications to existing software and hardware, and invested in
new software and hardware. As a result of those actions, which have been
completed, the Company believes all the Year 2000 issues as it relates to its
own computer systems have been solved and will not pose significant operational
concerns. The costs associated with the Year 2000 compliance for the Company's
computer systems primarily included costs to upgrade non-compliant computer
systems. The majority of these costs were incurred in the normal course of
business as the Company has continually upgraded their hardware and software to
keep pace with technological advances. The costs of the Year 2000 initiative as
it relates to its own internal systems was less than $100,000, and as discussed
above, have been completed.
The Company is working with its significant suppliers and service providers
to ensure that those parties have appropriate plans to manage the Year 2000
issue as it relates to the Company's operations. The Company has communicated
with its significant suppliers and service providers and based upon those
communications believes that the Year 2000 problem will not affect the Company
as it relates to its significant suppliers or service providers.
While the Company believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no assurance that the systems of other
companies on which the Company's systems and operations rely on will be
converted on a timely basis and will not have a material adverse effect on the
Company. However, based on the progress the Company has made on its internal
initiative and the information available from third parties, the Company has not
identified a need to develop an extensive contingency plan for non-compliance
issues at this time. The need for such plan is evaluated on an ongoing basis as
part of the Company's overall Year 2000 initiative.
14
<PAGE>
Item 3. 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, 1999, the Company
has entered into foreign currency contracts and options to purchase
approximately 81,000,000 Swiss francs in 1999 and 2000 at a weighted average
rate $1.485 Swiss franc/dollar. At June 30, 1999, the unrealized loss on these
contracts and options was approximately $2.4 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.
15
<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,
1999, 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 7,512,089 16,962
Clarke H. Bailey 7,511,889 17,162
Thomas A. Barron 7,512,089 16,962
Vincent D. Farrell, Jr. 7,511,889 17,162
Herbert M. Friedman 7,511,941 17,110
Peter W. Gilson 7,511,889 17,162
Keith R. Lively 7,511,489 17,562
Louis Marx, Jr. 7,511,945 17,106
Robert S. Prather, Jr. 7,511,689 17,362
Stanley R. Rawn, Jr. 7,511,593 17,458
Eric M. Reynolds 7,512,089 16,962
John Spencer 7,511,593 17,458
J. Merrick Taggart 7,511,889 17,162
John V. Tunney 7,511,493 17,558
</TABLE>
16
<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.) The Company filed a report on Form 8-K on May 03, 1999 and a report on
Form 8K/A on June 30, 1999 related to acquisition of Bear MGC Cutlery,
Inc. For items 2 and 7. These reports included several exhibits related
to the acquisition of Bear MGC Cutlery, Inc.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
Date: August 16, 1999
By /s/ Thomas M. Lupinski
Name: Thomas M. Lupinski
Title: Senior Vice President &
Chief Financial Officer,
Secretary and Treasurer
18
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 551
<SECURITIES> 0
<RECEIVABLES> 25,818
<ALLOWANCES> 975
<INVENTORY> 41,797
<CURRENT-ASSETS> 73,551
<PP&E> 10,115
<DEPRECIATION> (5,347)
<TOTAL-ASSETS> 105,449
<CURRENT-LIABILITIES> 32,866
<BONDS> 0
0
0
<COMMON> 886
<OTHER-SE> 71,697
<TOTAL-LIABILITY-AND-EQUITY> 105,449
<SALES> 53,966
<TOTAL-REVENUES> 53,966
<CGS> 33,027
<TOTAL-COSTS> 21,320
<OTHER-EXPENSES> (2,280)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (136)
<INCOME-PRETAX> (2,797)
<INCOME-TAX> (318)
<INCOME-CONTINUING> (2,479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,479)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
