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, 2000
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, 2000, was 8,065,346 shares.
<PAGE>
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<CAPTION>
SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
------------------------------
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and December 31, 1999. 3 - 4
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999
(unaudited). 5
Consolidated Statements of Stockholders' Equity
and Comprehensive Income for the Six Months
Ended June 30, 2000 and 1999 (unaudited). 6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 (unaudited). 7
Notes to Consolidated Financial Statements 8 - 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11 - 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 13
Part II: OTHER INFORMATION
---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15
Signatures 15
The Exhibit Index appears on page 15.
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<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
Assets
June 30, December 31,
2000 1999
-------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 578 $ 1,302
Accounts receivable, less
allowance for doubtful accounts
of $1,060 for both periods 25,809 33,718
Inventories 41,279 30,227
Deferred income taxes 2,242 2,235
Prepaid and other 4,256 3,058
--------- ---------
Total current assets 74,164 70,540
--------- ---------
Deferred income taxes 1,460 1,474
Property, plant and equipment, net 4,643 4,856
Investments 6,972 4,476
Intangible assets, net 10,932 11,548
Other assets, net 14,907 14,710
--------- --------
Total Assets $113,078 $107,604
========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<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,
2000 1999
-------- ------------
(unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 875 $ 875
Accounts payable 12,722 7,732
Accrued liabilities 8,495 10,562
---------- ---------
Total current liabilities 22,092 19,169
---------- ---------
Long-term liabilities:
Long-term debt 12,535 11,362
Other 792 693
---------- ---------
Total Liabilities 35,419 31,224
---------- ---------
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 - 8,971,080
and 8,866,218, respectively 897 886
Additional paid-in capital 49,116 49,137
Accumulated other comprehensive income (loss) 410 (401)
Retained earnings 36,007 35,576
--------- --------
86,430 85,198
Less: Treasury stock: 1,014,108 for
both periods (8,711) (8,711)
Deferred compensation (60) (107)
---------- ---------
Total stockholders' equity 77,659 76,380
---------- ---------
Total Liabilities and Stockholders' Equity $113,078 $107,604
========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $29,345 $30,396 $54,881 $53,966
Cost of sales 17,595 18,406 33,364 33,027
-------- -------- -------- --------
Gross profit 11,750 11,990 21,517 20,939
Selling, general and administrative
expenses 11,295 11,330 21,780 21,320
-------- -------- -------- --------
Operating income (loss) 455 660 (263) (381)
Interest income (expense), net (345) (143) (559) (136)
Investment gain (loss), net 164 (2,700) 1,583 (2,280)
-------- -------- -------- --------
Total other income (expense), net (181) (2,843) 1,024 (2,416)
-------- -------- -------- --------
Income (loss) before income taxes 274 (2,183) 761 (2,797)
Income tax provision (benefit) 119 (57) 330 (318)
-------- -------- -------- --------
Net income (loss) $ 155 ($2,126) $431 ($2,479)
======== ======== ======== ========
Earnings per share:
Basic $0.02 ($0.27) $0.05 ($0.32)
Diluted $0.02 ($0.27) $0.05 ($0.32)
Weighted average number of shares
outstanding:
Basic 7,940 7,854 7,895 7,869
Diluted 8,153 7,854 8,110 7,869
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(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, 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)
Change in Unrealized gain on
marketable securities - - - (763) - - (763)
Foreign currency
translation adjustment - - - 153 - - 153
---------
Comprehensive Loss ($3,089)
Acquisition of Bear =========
MGC Cutlery, Inc. - - 1,500 - - -
Repurchase of
common stock - - - - - (517)
Stock options exercised 10,000 1 53 - - -
----------- -------- --------- ------- --------- --------
BALANCE
June 30, 1999 (unaudited) 8,868,218 $886 $48,025 ($433) $32,977 ($8,711)
=========== ======== ========= ======= ========= ========
BALANCE
December 31, 1999 8,866,218 $886 $49,137 ($401) $35,576 ($8,711)
Comprehensive Income:
Net income for six months
ended June 30, 2000 - - - - 431 - $431
Foreign currency
translation adjustment - - - 208 - - 208
Change in unrealized
gain in marketable
securities - - - 603 - - 603
------
Comprehensive Income $1,242
======
Issuance of common stock 106,112 11 (11) - - -
Cancellation of stock grant (1,250) - (10) - - -
---------- ---- ------ ------ -------- --------
BALANCE
June 30, 2000 (unaudited) 8,971,080 $897 $49,116 $410 $36,007 ($8,711)
========== ==== ====== ====== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $431 ($2,479)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,788 1,526
Investment (gain) loss, net (1,583) 2,280
Stock compensation expense 37 37
Deferred income taxes 7 (298)
Changes in other current assets and liabilities:
Accounts receivable 7,951 7,681
Inventories (11,148) (11,283)
Prepaid and other (1,208) 2,573
Accounts payable 4,962 (252)
Accrued liabilities (1,959) (1,151)
-------- --------
Net cash used in operating activities (722) (1,366)
-------- --------
Cash flows from investing activities:
Acquisition of Bear MGC Cutlery, Inc., net of
cash acquired - (7,791)
Capital expenditures (693) (735)
Additions to other assets (457) (61)
Proceeds from sale of investments - 1,972
-------- -------
Net cash used in investing activities (1,150) (6,615)
-------- -------
Cash flows from financing activities:
Repurchase of common stock - (517)
Borrowings under bank agreements 26,630 28,395
Repayments under bank agreements (25,457) (20,645)
Proceeds from exercise of stock options - 54
-------- --------
Net cash provided from financing activities 1,173 7,287
-------- --------
Effect of exchange rate changes on cash (25) (64)
-------- --------
Net increase (decrease) in cash (724) (758)
Cash and cash equivalents, beginning of period 1,302 1,309
-------- --------
Cash and cash equivalents, end of period $578 $551
======== ========
Cash paid during the period:
Interest $607 $124
======== ========
Income taxes $1,056 $355
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
(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, 1999. 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.
INVESTMENTS
-----------
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<CAPTION>
Investments consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
(in thousands)
<S> <C> <C>
Preferred units of Highgate
Capital LLC (A) $3,613 $3,613
Common stock of John Hancock
Financial Services, Inc. (B) 2,496 -
Preferred units of
Victory Ventures LLC (C) 851 851
Common stock of Chaparral Resources,
Inc. (D) 12 12
------- -------
Total investments $6,972 $4,476
======= =======
</TABLE>
(A) Highgate Capital LLC, ("Highgate"), formerly known as Hudson River
Capital LLC, 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 Highgate due to the other than temporary
impairment in 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.
<PAGE>
(B) In the first quarter of 2000, the Company received 95,707 shares of
common stock of John Hancock Financial Services, Inc. ("John Hancock") related
to the demutualization of John Hancock. As a result, the Company recorded an
investment gain of $1,627,000 in the first quarter of 2000. In the second
quarter of 2000, the Company received an additional 9,663 shares of common stock
of John Hancock. As a result, the Company recorded an additional gain of
$164,000 in the second quarter of 2000. The Company accounts for this investment
at fair value, with changes between cost and fair value reflected as a separate
component of stockholder's equity.
(C) Victory Ventures LLC is a private equity firm specializing in small
venture capital investments.
(D) Chapparal Resources, Inc.("Chapparal"), a publicly traded company, is an
independent oil and gas exploration and production company. At June 30, 2000,
the Company owned 1,461 shares of Chapparal common stock. In the three months
ended March 31, 2000, the Company recorded a non-cash write-down of $208,000 of
its investment in Chapparal due to the other than temporary impairment in the
value of the investment.
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 an 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 Highgate investment. The income tax provision for
the interim 2000 periods exceeds the federal statutory rate of 34% due primarily
to state income taxes (net of federal benefit).
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities." This
statement standardizes the accounting and reporting standards for derivatives
and hedging activities and is effective for fiscal years beginning after June
15, 2000. The Company will adopt this statement effective January 1, 2001. The
Company is currently evaluating the impact of SFAS No. 133 on the Company's
financial position and results of operations and has yet to determine the
impact of the adoption of this statement.
SUBSEQUENT EVENT
----------------
On July 24, 2000, the Company and Victorinox AG, a Swiss corporation and a
principal supplier to and substantial shareholder of the Company ("Victorinox"),
each acquired 50% of the issued and outstanding capital stock of Xantia, S.A.
Fabrique de Montres Precision ("Xantia"), the principal manufacturer and
assembler of watches sold by the Company. The Xantia shares were acquired by
both firms from the stockholders of Xantia (the "Sellers") pursuant to an
agreement of June 23, 2000, as amended by agreements of July 10, 2000 and July
24, 2000 (collectively the "Agreements"), which contain provisions intended to
secure ongoing control of Xantia by the Company.
<PAGE>
Pursuant to the Agreements, the Company paid at the closing 2,250,000 Swiss
Francs ("CHF") ($1,345,500) and delivered 108,374 shares of the Company's Common
Stock, such shares valued at 1,000,000 CHF ($602,000). At the closing,
Victorinox paid to the Sellers 3,250,000 CHF ($1,956,500). Each of the Company
and Victorinox also agreed to pay an additional 12,000,000 CHF ($7,224,000) over
the next seven years plus interest with the total purchase price subject to
upward or downward adjustment of up to 1,000,000 CHF ($602,000).
The source of funds for the acquisition by the Company was a bank line of
credit from the Company's existing lender. The purchase price was determined on
the basis of arms-length negotiations between the Company and the Sellers. The
division of the purchase price between the Company and Victorinox was based upon
an arms-length agreement to share equally in the acquisition.
Pursuant to the Agreements, the Company and Victorinox each own 50% of the
capital stock of Xantia. Following the acquisition, Xantia retained all of its
pre-closing assets, including plant and equipment used in the manufacture and
assembly of watches and timepieces and will continue to employ those assets to
manufacture timepieces to be supplied to the Company and to third party
customers.
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; 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, 2000 and 1999
-----------------------------------------------------------
<TABLE>
<CAPTION>
Net revenues consist of the following:
2000 1999
---- ----
<S> <C> <C>
Product sales, net $29,105 $30,396
Royalty income 240 -
------- -------
$29,345 $30,396
======= =======
</TABLE>
<PAGE>
Product sales for the three months ended June 30, 2000 were $29.1 million
compared with $30.4 million for the same period in 1999, representing a decrease
of $1.3 million or 4.4%. The sales decrease was primarily due to a decrease in
watch sales, offset in part by an increase in sales of Victorinox Original Swiss
Army Knives and Victorinox SwissCards. Royalty income relates to the licensing
program of Victorinox Travel Gear, which was introduced in the fourth quarter of
1999.
Gross profit of $11.8 million for the three months ended June 30, 2000
decreased $0.2 million or 2.0% from 1999. The gross profit margin percentage for
the second quarter of 2000 of 40.0% was higher than the gross profit margin
percentage of 39.4% reported for the same period in 1999 primarily because
royalty income revenues have no related cost of sales, and also due to an
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 (including royalty income)
and Swiss franc exchange rates. Since the Company imports the majority 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 2001. 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.
Selling, general and administrative expenses for the three months ended
June 30, 2000 of $11.3 million were even with the amount for the comparable
period in 1999. As a percentage of net sales, total selling general and
administrative expenses increased from 37.3% in 1999 to 38.4% in 2000.
Interest income (expense) and other, net was expense of $345,000 for the
three months ended June 30, 2000, compared to $143,000 for the comparable period
in 1999 primarily due to increased borrowings related to the acquisition of Bear
MGC Cutlery, Inc.
Investment gain (loss), net in 2000 was a gain of $164,000 due to the
common stock received related to the demutualization of John Hancock Financial
Services, Inc. Investment gain (loss), net in 1999 was a loss of $2.7 million
due to the write-down of the Company's investment in Highgate Capital LLC, a
private equity firm.
As a result of these changes, income (loss) before income taxes for the
three months ended June 30, 2000 was income of $274,000 versus a loss of
$2,183,000 for the same period in 1999, a change of $2,457,000.
Income tax expense (benefit) was provided at an effective rate of 43.4% and
2.6% in 2000 and 1999, 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 Highgate
Capital LLC investment.
As a result, net income (loss) for the three months ended June 30, 2000 was
income of $155,000 ($0.02 per share-basic and diluted) versus a loss of
$2,126,000 ($0.27 per share -basic and diluted) for the same period in 1999, a
change of $2,281,000.
<PAGE>
<TABLE>
<CAPTION>
Comparison for the Six Months Ended June 30, 2000 and 1999
Net revenues consist of the following:
2000 1999
---- ----
<S> <C> <C>
Product sales, net $54,415 $53,966
Royalty income 466 -
------- -------
$54,881 $53,966
======= =======
</TABLE>
Product sales for the six months ended June 30, 2000 were $54.4 million
compared with $54.0 million for the same period in 1999, representing an
increase of $0.4 million or 0.8%. The sales increase was due the sales related
to Bear Cutlery, Inc. ("Bear") which was acquired in April 1999 and an increase
in sales of Victorinox products, offset in part by a decrease in watch sales and
a decrease in sales related to a special promotion program with one customer.
Royalty income relates to the licensing program of Victorinox Travel Gear, which
was introduced in the fourth quarter of 1999.
Gross profit of $21.5 million for the six months ended June 30, 2000
increased by $0.6 million or 2.8% from 1999. The gross profit margin percentage
for the six months of 2000 of 39.2% was higher than the gross profit margin
percentage of 38.8% reported for the same period in 1999 primarily due to the
increase in the value of the U.S. dollar versus the Swiss franc and an increase
in royalty income offset in part by unfavorable product mix.
Selling, general and administrative expenses for the six months ended June
30, 2000 of $21.8 million were $0.5 million or 2.2% higher than the amount for
the comparable period in 1999. The increase was primarily due to operating
expenses of Bear. As a percentage of net sales, total selling general and
administrative expenses increased from 39.5% in 1999 to 39.7% in 2000.
Interest income (expense) and other, net was expense of $559,000 for the
six months ended June 30, 2000 as compared to $136,000 in the comparable period
in 1999 due to increased borrowings related to the acquisition of Bear MGC
Cutlery, Inc.
Investment gain (loss), net was a gain of $1,583,000 due to a $1,791,000
gain from the common stock received related to the demutualization of John
Hancock Financial Services, Inc. offset in part by a $208,000 loss related to
the write-down of the Company's common stock investment in Chapparal Resources,
Inc. The investment loss in 1999 of $2,280,000 was due to a $2.7 million
non-cash write-down of its investment in Highgate Capital, LLC offset in part by
a $420,000 gain from the sale of its investment in Iron Mountain, Inc.
As a result of these changes, income (loss) before income taxes for the six
months ended June 30, 2000 was income of $761,000 versus a loss of $2,797,000
for the same period in 1999, a change of $3,558,000.
Income tax expense (benefit) was provided at an effective rate of 43.4% and
11.4% in 2000 and 1999, 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 Highgate Capital
investment.
As a result, net income (loss) for the six months ended June 30, 2000 was
income of $431,000 ($0.05 per share - basic and diluted) versus a loss of
$2,479,000 ($0.32 per share - basic and diluted) for the same period in 1999, a
change of $2,910,000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had working capital of $52.1 million
compared with $51.4 million as of December 31, 1999, an increase of $0.7
million. Significant uses of working capital included capital expenditures
of $0.7 million. The Company currently has no material commitments for capital
expenditures.
Cash used in operating activities was approximately $0.7 million in the six
months ended June 30, 2000 as compared to $1.4 million in the comparable period
in 1999. The change resulted from an increase in current liabilities in 2000
compared to a decrease in 1999 offset in part by an increase in other current
assets in 2000 as compared to a decrease in 1999.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its revolving credit
agreement. As of June 30, 2000, the Company had $13,410,000 of outstanding
borrowings under its bank agreement consisting of a $16.0 million credit line
and a $7.0 million term loan. As a result of the Company's acquisition of
Xantia, in July 2000, the Company amended its revolving credit agreement which,
among other things, increased the term loan by $1.6 million. 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.
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, 2000, the Company
has entered into foreign currency contracts and options to purchase
approximately 80.3 million Swiss francs in 2000 and 2001 at a weighted average
rate 1.539 Swiss franc/dollar. At June 30, 2000, the unrealized loss on these
contracts and options was approximately $3.1 million. The Company's ultimate
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.
<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 18,
2000, pursuant to notice, at which meeting shareholders elected the following
directors:
<TABLE>
<CAPTION>
NUMBER OF VOTES NUMBER OF VOTES
FOR WITHHELD
NAME --------------- ---------------
----
<S> <C> <C>
A. Clinton Allen 7,419,576 10,703
Clarke H. Bailey 7,419,676 10,603
Vincent D. Farrell, Jr. 7,419,580 10,699
Herbert M. Friedman 7,419,480 10,799
Peter W. Gilson 7,419,580 10,699
Louis Marx, Jr. 7,419,676 10,603
Robert S. Prather, Jr. 7,419,676 10,603
Stanley R. Rawn, Jr. 7,419,580 10,699
John Spencer 7,419,580 10,699
J. Merrick Taggart 7,419,676 10,603
John V. Tunney 7,419,484 10,795
</TABLE>
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A.) Exhibits
(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.
(27) Financial Data Schedule
(99) Not Applicable
B.) There were no reports on Form 8-K for the three months ended June 30,
2000.
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 14, 2000
By /s/
Name: Thomas M. Lupinski
Title: Senior Vice President &
Chief Financial Officer,
Secretary and Treasurer
