SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [x]
The aggregate market value of voting stock held by nonaffiliates of the
registrant on March 20, 2000, was approximately $21,898,000. On such date, the
closing price of registrant's common stock was $7.97 per share. Solely for
purposes of this calculation, shares beneficially owned by directors, executive
officers and stockholders of the registrant that beneficially own more than 10%
of the registrant's common stock have been excluded, except shares with respect
to which such directors and officers disclaim beneficial ownership. Such
exclusion should not be deemed a determination or admission by the registrant
that such individuals are, in fact, affiliates of the registrant.
The number of shares of registrant's common stock, $.10 par value,
outstanding on March 20, 2000 was 7,850,860 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed in
connection with the Annual Meeting of Stockholders of registrant to be held May
18, 2000 are incorporated by reference in Part III herein.
PART I
Item 1.Business.
Swiss Army Brands, Inc. ("SABI" or the "Company") is the exclusive
distributor in the United States, Canada (with one minor exception for cutlery)
and the Caribbean of the Victorinox Original Swiss Army Knife, Victorinox
SwissTool, Victorinox SwissCard and Victorinox Cutlery. SABI also markets
its own line of Swiss Army Brand Watches, Swiss Army Brand Sunglasses and
Swiss Army Brand Writing Instruments under its Swiss Army Brand worldwide. In
addition, in 1999, the Company began manufacturing and distributing Bear MGC
knives and multi-tools. The Company has been marketing Victorinox Original Swiss
Army Knives and Victorinox Cutlery for over fifty years and has been the
exclusive United States distributor of such products since 1972 under agreements
with SABI's principal supplier of pocketknives and cutlery, Victorinox Cutlery
Company ("Victorinox"), a Swiss corporation and Europe's largest cutlery
producer. SABI added Canada and the Caribbean (including Bermuda) to its
exclusive territory for Victorinox Original Swiss Army Knives in 1992 and 1993,
respectively.
In April 1999, the Company purchased substantially all of the assets and
assumed certain liabilities of Bear MGC Cutlery, Inc., which manufactured and
distributed Bear MGC knives and multi-tools. See Note 4 to the Company's
Consolidated Financial Statements included herein for further information.
The Company is engaged principally in one line of business - the
importation, manufacturing and distribution of cutlery, pocketknives,
multi-tools, watches and other consumer products. Total SABI sales for the
calendar years 1999, 1998 and 1997 were $129,452,000, $127,851,000, and
$118,744,000, respectively. Sales of Victorinox Original Swiss Army Knives,
Victorinox SwissTools, Victorinox SwissCards and Bear MGC products, accounted
for approximately 39% of SABI's 1999 sales while watches and other Swiss Army
Brand products accounted for approximately 46%. Sales of professional and
consumer cutlery accounted for approximately 15% of SABI's 1999 sales. No
customer accounted for more than 10% of net sales during any year in the
three-year period ended December 31, 1999. See Note 17 to the Company's
Consolidated Financial Statements included herein for further information.
The Company was incorporated in Delaware on December 12, 1974 as a
successor to a New York corporation. SABI's principal executive offices are
located at One Research Drive, Shelton, Connecticut 06484 and its telephone
number is (203) 929-6391. As of December 31, 1999, SABI and its subsidiaries had
219 full-time employees, including 10 in Canada and five in Switzerland.
2
Products
--------
Victorinox Original Swiss Army Knives are multiblade pocketknives
containing implements capable of more functions than standard pocketknives. For
example, SABI's most popular Victorinox Original Swiss Army Knife model, the
Classic, with a suggested retail price of $16, features a blade, scissors, nail
file with screwdriver tip, toothpick and tweezers. SABI markets more than 70
different models of Victorinox Original Swiss Army Knives containing up to 35
different implements (with up to 45 separate functions), ranging from a basic
knife with a suggested retail price of $10 to the highest priced model at
approximately $70 as well as a SwissChamp Deluxe SOS kit with a suggested retail
price of approximately $160. SABI also sells multi-function lockblade knives
designed for the hunting and outdoor market. The Company also offers the
SwissCard , a credit card shaped, ten-function instrument, and the SwissTool , a
multi-tool with 23 features, including full size pliers. In 1999, the Company
added to its product line, a collection of Victorinox Lifestyle Tools; the
CyberTool, GolfTool, AutoTool and SportRatchetTool. These tools are designed for
use in specific activities.
SABI's line of Swiss Army Brand products includes 25 models of Swiss Army
Brand Watches with over 125 SKUs ranging from the Active Collection, starting
out a suggested retail price of $85, to the Professional Collection, which tops
out at a suggested retail price of $1,395. SABI's line of Swiss Army Brand
Sunglasses includes four models with suggested retail prices ranging from $60 to
$80. In addition, SABI's line of Swiss Army Brand writing instruments includes
six SKUs at a suggested retail price of $95. SABI currently obtains a majority
of its Swiss Army Brand Watches from a single Swiss supplier, which is
responsible for the final assembly of watch components manufactured by several
manufacturers. The Company believes that alternate suppliers would be available
if necessary and that the loss of its current supplier of Swiss Army Brand
Watches would not have a material adverse effect on the Company's business.
The Company also sells professional cutlery products, made of stainless
steel, primarily manufactured by Victorinox. Although the majority of SABI's
professional cutlery products are marketed under the trademarks "Forschner" and
"R.H. Forschner," the Company also has a private label business. Professional
cutlery imported from Switzerland is generally more expensive than domestic
United States products. SABI believes that it has the largest market share of
imported professional cutlery products sold in the United States and that its
share of all professional cutlery, foreign and domestic, sold in this country is
second to the dominant seller of such products. SABI believes that it has
achieved and maintained its market share due to the quality of its products and
its merchandising efforts.
The Company's line of Bear MGC knives and multi-tools include over 50
models with suggested retail prices primarily in the range of $20 to $60.
The Company distributes its products throughout the United States, Canada
and the Caribbean through independent sales representatives and its direct sales
force to over 3,800 wholesalers and retailers, including department stores,
specialty stores, high-end jewelers, sporting goods stores, cutlery shops,
catalog showrooms, mass merchandisers and mail order houses, and through
distributors to corporations and other organizations for promotional purposes,
premium, employee gift award programs and corporate identity catalogs. SABI
imprints its products primarily at its own facilities with the customer's
corporate name or logo. SABI's customers for professional cutlery include
distributors of hotel, restaurant, butcher, institutional, commercial fishing
and slaughterhouse supplies and retail cutlery stores located throughout the
United States and Canada.
3
Sales of Victorinox Original Swiss Army Knives and Swiss Army Brand
products are seasonal with sales typically stronger during July through
December.
Although the Company is the largest United States seller of Swiss Army
Knives, it faces competition from Precise Imports Corp. ("Precise"), the United
States and Canadian distributor of Swiss Army Knives manufactured by Wenger S.A.
("Wenger"), the only company other than Victorinox supplying knives to the Swiss
armed forces. Precise imports a substantially smaller number of knives into the
United States than SABI. The Company also faces competition from the
manufacturers and importers of other multiblade knives and multi-tools including
importers that sell non Swiss-made pocketknives under the "Swiss Army Knife"
name.
SABI is unable to determine its competitive position with respect to the
estimated seven major competitors in the general United States pocket knife
market. SABI's direct competitors in the specialty advertising market are
manufacturers of name brand products of similar price and quality. SABI has many
competitors in the sale of watches and sunglasses at all price points. Many of
these competitors have market shares and resources substantially greater than
those of SABI.
Victorinox Travel Gear
----------------------
In March 2000, the company signed a license agreement with TRG Accessories,
LLC ("TRG"), an Untied States based company, reflecting a prior informal
arrangement between the two companies. Under the agreement TRG is to develop,
manufacture and market a line of Travel Gear under the Victorinox trademark and
logo in the United States. The collection, including luggage, backpacks and
small leather goods (wallets, PDA covers, etc.) was launched to select
department store and specialty retailers in the late 1999. The marks are
sublicensed to TRG by the Company on a royalty basis pursuant to a license
agreement between the Company and Victorinox, granting the Company the right to
utilize and sublicense the Victorinox trademarks, in conjunction with the
development and international marketing of a collection of Travel Gear.
Trademark Agreements
--------------------
In 1992, in connection with the settlement of litigation with Precise, SABI
granted Precise a perpetual worldwide royalty-free license to use the trademark
Swiss Army in connection with Swiss-made non-knife goods, other than timepieces,
sunglasses and compasses. Under this agreement, Precise acknowledged SABI's
exclusive rights to the Swiss Army trademark for non-knife products including
timepieces, compasses and sunglasses. See Item 3 for discussion of legal
proceedings between SABI and Precise.
The Company is the owner of United States and certain foreign trademark
registrations for "Swiss Army", as applied to watches and sunglasses and
actively defends its trademarks throughout the world. Although the Company's
registrations have been challenged, on the basis of the advice of its trademark
counsel, SABI expects to prevail in those proceedings. The Company is dedicated
to a vigorous enforcement of these exclusive trademark rights.
No U.S. trademark registrations have ever been issued for "Swiss Army" as
applied to multi-bladed knives. In 1994, in a case originally brought by SABI
against Arrow Trading Co., Inc. ("Arrow") in September 1992 in the District
Court for the Southern District of New York, the U.S. Court of Appeals for the
Second Circuit reversed a judgment originally issued in the Company's favor and
held that the use of "Swiss Army" on Chinese-made knives could not be enjoined
on grounds of geographic misdescriptiveness. On remand, the District Court ruled
that Arrow had violated Section 43(a) of the Lanham Act and New York common law
in connection with its sale of Chinese-made multi-bladed pocketknives which
Arrow called "Swiss Army Knives." The court found that SABI had proved its
contention that Arrow engaged in unfair competition and held that Arrow,
although free to use the phrase "Swiss Army Knife" to designate its product,
must amply distinguish it from the SABI product and prohibited Arrow from
selling any multi-function pocketknives as "Swiss Army Knives" unless the phrase
"Swiss Army Knife" is immediately preceded or followed by Arrow's name in such a
way as to clearly designate its origin and that the size of the type designating
origin be no smaller or less prominent than the type used in the phrase "Swiss
Army Knife". The Company intends to utilize all reasonable means to safeguard
the public from being misled by inferior imitation products.
4
On January 17, 1995, Victorinox and Wenger confirmed and memorialized in
writing the grant of separate trademark licenses of Swiss Army as applied to
multi-function pocketknives to SABI and Precise. The license to the Company is
royalty-free and continues so long as SABI is a distributor for Victorinox.
Victorinox and Wenger have filed with the U.S. Patent and Trademark Office a
dual application for "Swiss Army" as applied to multi-bladed knives, which
application has been opposed by various third parties.
The Company is actively considering marketing other products under the
"Swiss Army" trademark or under other trademarks. However, no assurances can be
given that the Company will ever enter into these additional markets, or if
entered into, that such activities will be profitable.
If the Company's efforts to protect its trademarks prove to be
unsuccessful, the Company may incur increased competition from non-Swiss made
knives and other products sold under the "Swiss Army" name. No assurances can be
given that such competition from non-Swiss made products would not have a
material adverse effect on the business and prospects of the Company.
Swiss Confederation Trademarks
------------------------------
On December 18, 1996, the Swiss Military Department representing the Swiss
Confederation ("Swiss Confederation") and SABI entered into a trademark
agreement (the "Trademark Agreement") pursuant to which SABI was granted certain
worldwide use and sublicensing rights in connection with trademarks containing
the words "Swiss Army" registered by the Swiss Confederation in Switzerland (the
"Swiss Confederation Trademarks"). The Swiss Confederation acknowledged SABI's
exclusive right to use SABI's trademarks in the countries of their registration
or application and agreed to assist SABI in enforcing SABI's rights with respect
to its trademarks. In addition, the Swiss Confederation stated its intention to
assist Victorinox, Wenger, SABI and Precise in safeguarding their rights with
respect to "Swiss Army" as applied to knives and in preventing the use of "Swiss
Army" with respect to multi-blade pocketknives, multi-tools and other products
which are not Swiss products.
The Trademark Agreement grants SABI the right to an exclusive royalty-free
license of the Swiss Confederation Trademarks as applied to watches and
sunglasses in the United States, Canada and the Caribbean. SABI is also granted
such rights with respect to certain designated products that either it or its
licensees sell in commercial quantities in the United States, Canada and the
Caribbean within designated time periods. In the event SABI or its licensees do
not sell commercial quantities of product categories within the time periods set
by the agreement, the Swiss Confederation shall have the right, subject to
certain conditions, to license the Swiss Confederation Trademarks to a third
party and, in such event, SABI shall be obligated to offer such third party a
license of SABI's appropriate trademark.
5
Outside of the United States, Canada and the Caribbean, the Trademark
Agreement provides for the grant to SABI of the right to an exclusive license,
subject to the existing legal rights of others, for watches and sunglasses at a
royalty equal to 3% of net sales. In addition, SABI has the right to a license
for certain designated products outside of the United States, Canada and the
Caribbean, also at a royalty equal to 3% of net sales, to use the Swiss
Confederation Trademarks provided that SABI commences the sale of commercial
quantities of such products within time periods prescribed by the Trademark
Agreement. The Trademark Agreement also provides that all products sold under
the license must be of a quality at least equal in workmanship and materials to
the products currently sold by SABI, Victorinox or Wenger and that in the event
SABI discontinues sales of goods in commercial quantities in any category of
goods for three consecutive years, the Swiss Confederation shall have the right
to terminate the license as to that category after giving SABI notice and an
opportunity to resume sales. Except for the foregoing limitation, the rights of
SABI with respect to the use of the Swiss Confederation Trademarks under the
Trademark Agreement are perpetual. It is anticipated that the right to utilize
the Swiss Confederation Trademarks on certain products other than timepieces and
sunglasses will be made available to Precise by SABI on terms yet to be
discussed.
Victorinox Agreements
---------------------
All of SABI's products, except for the Bear MGC products, are manufactured
by independent suppliers. SABI's principal supplier of pocketknives and cutlery
is Victorinox, which has manufactured the Original Swiss Army Knife for the
Swiss Army for more than 100 years. The loss of this supplier would have a
material adverse effect on SABI's business. SABI, Victorinox's largest single
customer, has been distributing Victorinox's products since 1937. Distribution
was on a non-exclusive basis for more than 45 years when, as a result of
understandings reached on SABI's behalf by Mr. Louis Marx, Jr. and Mr. Stanley
R. Rawn, Jr., both now SABI Directors, and Mr. Charles Elsener, Sr., Chief
Executive Officer of Victorinox, SABI became Victorinox's exclusive United
States distributor of Victorinox Original Swiss Army Knives under an agreement
dated December 12, 1983 (as subsequently amended, the "U.S. Distribution
Agreement"). In 1992 and 1993, Messrs. Marx and Rawn held extensive
conversations principally in Switzerland, with Victorinox looking to expand the
scope of SABI's exclusive territory. This resulted in SABI obtaining exclusive
distributorship rights first in Canada, and then in Bermuda and the Caribbean
areas, as well as SABI's receipt of exclusive U.S., Canadian and Caribbean
distribution rights to the Victorinox Watch, which is supplied to the Company by
Victorinox along with another Swiss manufacturer.
The U.S. Distribution Agreement, together with the Company's agreements
with respect to the rights obtained in 1992 and 1993 (together, the "Victorinox
Agreements"), provides:
o.SABI is the exclusive distributor in the United States, its
territories and possessions, Canada (with one minor exception), Bermuda and
the Caribbean (excluding Cuba so long as SABI is prohibited by United
States law from operating therein) (together, the "Territories"), of
Victorinox Original Swiss Army Knives and most other Victorinox cutlery
products and Victorinox Swiss-made watches (collectively, "Products").
o.The U.S. Distribution Agreement was renewed in 1998 through December
12, 2003 and is subject to renewal at five year intervals at SABI's option
unless, in any two consecutive years, purchases of Products by SABI fall
below the average purchases for 1981 and 1982, which was 19,766,035 Swiss
francs. SABI's distribution rights in Canada, which were renewed in 1999,
and the Caribbean were for initial terms of seven years subject to renewal
for successive five-year periods. In the event that Victorinox elects not
to renew SABI's Canada distribution rights, Victorinox will be required to
pay SABI the amount of $3,500,000.
During each calendar year, SABI must purchase from Victorinox at least
85% of the maximum quantities of each of Swiss Army Knives and cutlery
(expressed in Swiss francs) purchased in any prior year. The only remedy of
Victorinox for SABI's failure to achieve these goals would be the
termination of SABI's U.S. distribution rights. In the years 1996 through
1998, Victorinox agreed to reduce the minimum purchase requirements. The
Company met the reduced minimum purchase requirements in years 1996 through
1998. In 1999, Victorinox met the minumum purchase requirement as set forth
in the U.S. Distribution Agreement.
6
o.In each calendar year Victorinox must, if requested, furnish SABI
with up to 105% of each type of product purchased during the immediately
preceding year. Victorinox has historically been able to accommodate SABI's
supply requirements even when they have exceeded such amount. However,
Victorinox's plant has a finite capacity and no assurances can be given
that Victorinox will continue to meet any increased supply requirements of
SABI.
o.Pricing provisions assure that the prices paid by SABI for products
shipped to the United States will be as low or lower than those charged to
any other Victorinox customer. In addition, SABI is granted a 4% discount
on purchases of pocketknives and a 3% discount on purchases of cutlery. For
products shipped directly to Canada and the Caribbean, the prices paid by
SABI are Victorinox's regular export prices. SABI also pays a royalty to
Victorinox of 1% of net sales of Victorinox Watches.
o.SABI will not sell any new cutlery items without the agreement of
Victorinox.
o.SABI will have complete discretion as to advertising, packaging,
pricing and other marketing matters.
In consideration of the grant of the Canadian distribution rights in 1992,
SABI issued to Victorinox 277,066 shares of common stock, par value $.10 per
share, of SABI ("Common Stock"). In consideration for the grant of the Caribbean
distribution rights in 1993, the Victorinox watch distribution rights and the
acquisition by SABI of Victorinox's 20% interest in a subsidiary of SABI, SABI
issued to Victorinox a five-year warrant to purchase 1,000,000 shares of Common
Stock at a discount from the market price on the date of exercise. Victorinox
exercised the warrant in full in April 1994 at a price per share of $9.75, a
discount of $4.25 per share from the then current market price of SABI Common
Stock. All of the shares issued upon exercise of the warrant were subsequently
sold to Brae Group, Inc. ("Brae"), a corporate stockholder of SABI that is
controlled by Louis Marx, Jr., a Director of SABI, in exchange for shares of the
common stock of that corporation.
Investments
-----------
In 1994, SABI invested a total of $7,002,990, paid in cash and in shares of
stock of a publicly traded corporation, to acquire 700,299 shares of Series A
Preferred Stock of Forschner Enterprises, Inc., a privately held corporation
which was merged into Victory Capital LLC. In 1996, Victory Capital LLC changed
its name to Hudson River Capital LLC ("Hudson River"). In 1996, SABI invested
$2,000,209, paid in cash, to acquire 190,477 Series B Preferred Units of Hudson
River. SABI's interest in Hudson River currently represents, in the aggregate,
approximately 9.6% of the equity of Hudson River. Hudson River is a private
equity firm specializing in middle market acquisitions, recapitalizations and
expansion capital investments. The preferred units of Hudson River held by SABI
carry a preference on liquidation equal to their cost and, in certain instances,
are entitled to an annual preferred return.
7
In 1996, Hudson River distributed pro-rata to its members all of its
interest in Victory Ventures LLC, a private equity firm specializing in small
market venture capital investments ("Victory Ventures"). SABI received in the
distribution, and continues to hold, 890,776 Series A Preferred Units of Victory
Ventures valued at the time of the distribution at $1.23 per unit, currently
representing approximately 1.2% of the equity of Victory Ventures. The preferred
units of Victory Ventures held by SABI carry a preference on liquidation equal
to the value of the Series A Preferred Units on the date of the distribution
and, in certain instances, are entitled to an annual preferred return.
490,000 of Hudson River's common units and 2,279,763 of Hudson River's
Series B Preferred Units (currently representing, in the aggregate,
approximately 29.9% of Hudson River's outstanding equity) are held by Brae
Capital Corporation ("Brae Capital"), a wholly-owned subsidiary of Brae. Mr.
Marx is the owner of 700,000 plan units (representing approximately 7.5% of
Hudson River's outstanding equity) issued by Hudson River under its Equity
Incentive Plan, which entitle Mr. Marx to voting rights and to receive a portion
of the appreciation of Hudson River's assets after the date of grant of such
units under certain circumstances.
490,000 of Victory Ventures' common units and 6,917,035 of Victory
Ventures' Series A Preferred Units (currently representing in the aggregate,
approximately 9.6% of Victory Ventures' outstanding equity) are held by Brae
Capital. In addition, Brae Capital is the owner of 2,911,613 plan units
(representing approximately 3.8% of Victory Ventures' outstanding equity)
issued by Victory Ventures under its Equity Incentive Plan, which entitle Brae
Capital to voting rights and to receive a portion of the appreciation of Victory
Ventures' assets after the date of grant of such units, under certain
circumstances. Pursuant to an agreement between Hudson River and Brae, if
certain conditions are met, Brae is required to purchase from Hudson River at
Hudson River's cost 10%, and may purchase up to 20%, of the "equity portion"
(defined as the common and warrant portion, or the preferred and warrant portion
if no common is purchased provided that the preferred portion is participating)
of each investment made by Hudson River. Brae may allocate all or a portion of
the securities to be acquired pursuant to such agreement among the officers,
directors, employees, consultants and common equityholders of Hudson River and
such other persons who may be in a position to benefit Hudson River in such
proportions as Brae shall determine. Brae is party to a similar agreement with
Victory Ventures.
Also, Mr. Marx is a director and chairman of a private company that owns
6,841,784.4 series A preferred units of Victory Ventures (representing
approximately 8.9% of the total outstanding units), and 193,652.6 series B
preferred units of Hudson River (2.1% of the total outstanding units). Mr. Marx
does not own any units of Victory Ventures directly.
Mr. Marx, a Director of SABI, is a Co-Chairman of the Board, a director and
an equity holder of each of Hudson River and Victory Ventures, and a consultant
to Victory Ventures. Mr. Clarke H. Bailey, a Director of SABI, is a Co-Chairman
of the Board, a Director and an equityholder of Hudson River. Mr. Stanley R.
Rawn, Jr., Senior Managing Director and a Director of SABI, and Mr. Herbert M.
Friedman, Vice President and General Counsel and Director of SABI, also serve as
directors and are equityholders of each of Hudson River and Victory Ventures.
Mr. Robert S. Prather, Jr., a director of SABI, also serves as a director of
Victory Ventures, LLC.
St. John Knits, Inc. License Agreement
--------------------------------------
On May 15, 1997, SABI entered into an agreement with St. John Knits, Inc.
("St. John") providing for the grant of an exclusive license, subject to certain
terms and conditions, to SABI to market watches bearing the St. John trademark.
St. John is a leading designer, manufacturer and marketer of fine woman's
apparel. SABI introduced the St. John Timepiece Collection in November 1998.
SABI discontinued the sale of the St. John Timepiece Collection in the third
quarter of 1999.
8
Item 2. Properties.
- ------ ----------
The executive and administrative offices of SABI occupy approximately
42,500 square feet of leased space in an office building located in Shelton,
Connecticut. SABI moved into these premises in September, 1993. The initial term
of the lease on this space expires on September 1, 2001, subject to renewal
options.
In addition, SABI leases approximately 7.4 acres in Shelton, Connecticut
upon which the landlord has constructed a 85,000 square foot building that SABI
uses as a facility for warehousing, distribution, imprinting and assembly. The
lease commenced in June 1991 and has a term of ten years, subject to renewal
options. SABI also leases approximately 13,000 square feet in a building in
Toronto, Canada that it uses for office space and warehousing of products. The
lease commenced in December 1992 and expired in December 1997. The Company has
extended the term on this lease until December 31, 2000. Also, in 1996, SABI
entered into a four-year lease for 7,000 square feet of space in a 30,000 square
foot building in Bienne, Switzerland for use as a distribution center. This
lease has been extended until January 2001.
SABI believes its properties are sufficient for the current and anticipated
needs of its business.
Item 3. Legal Proceedings.
- ------ -----------------
Except as set forth or referenced below, the Company is not involved in any
material pending legal proceedings.
K-Swiss filed on December 30, 1996 petitions to cancel the Company's U.S.
Trademark Reg. No. 1,734,665 for watches and Reg. No. 1,715,093 for sunglasses
for "Swiss Army". The Company believes it has meritorious defenses to these
petitions although their outcome cannot be predicted at this time.
On July 14, 1997, the Company filed with the American Arbitration
Association in New York, New York a demand for arbitration against Precise. In
the demand for arbitration, the Company charged that Precise had violated the
license agreement dated June 30, 1992 between Precise and the Company by
utilizing the trademark Swiss Army in ways prohibited by the agreement. In
response, Precise alleged certain counterclaims. These claims and counterclaims
between the Company and Precise were dismissed with prejudice on December 31,
1999 pursuant to the terms of a November 7, 1998 stipulation since neither party
exercised its right to continue the proceeding.
The Company is also a plaintiff in several proceedings to enforce its
intellectual property rights. In addition, see "Business - Trademark
Agreements".
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
Not Applicable.
9
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
A. Market Information.
------------------
Shares of SABI's Common Stock trades on The Nasdaq Stock Market under the
symbol "SABI". The high and low closing sales prices for shares of Common Stock,
which is the only class of capital stock of SABI outstanding, as reported by
Nasdaq since the first quarter of 1998 were as follows:
1998 1999 2000*
High Low High Low High Low
First Quarter $12 1/16 $ 9 3/16 $10 1/8 $8 5/8 $8 1/2 $6
Second Quarter 12 1/2 10 1/4 10 7 5/8
Third Quarter 11 1/4 8 3/4 11 1/2 7 9/32
Fourth Quarter 10 3/8 8 7/8 9 1/2 6 5/8
*Through March 20, 2000.
The public market for Common Stock is limited and the foregoing quotations
should not be taken as necessarily reflective of prices that might be obtained
in transactions involving substantial numbers of shares.
B. Holders.
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On March 20, 2000, shares of Common Stock were held of record by 299
persons, including several holders who are nominees for an undetermined number
of beneficial owners.
C. Dividends.
---------
The Company has not paid a cash dividend since its inception, and its
present policy is to retain earnings for use in its business. Payment of
dividends is dependent upon the earnings and financial condition of SABI and
other factors that its Board of Directors may deem appropriate. Under SABI's
revolving credit agreement, which expires on June 30, 2001, SABI agreed not to
declare or pay any dividends unless immediately following such payment SABI's is
in compliance with the financial covenants set forth in the revolving credit
agreement.
10
Item 6. Selected Financial Data
- ------ -----------------------
The following selected financial data for the five years ended December 31, 1999
was derived from the consolidated financial statements of the Company. This data
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements, related notes and other financial information included herein.
(In thousands, except per share amounts) Year Ended December 31,
- ----------------------------------------
Operating Data: 1999 1998 1997(1) 1996(2) 1995
---- ---- ------- ------- ----
Net sales $ 129,452 $127,851 $118,744 $130,030 $126,695
Gross profit 50,846 49,982 42,724 40,836 44,264
Selling, general and
administrative expenses 46,305 49,005 49,639 46,241 40,265
Operating income (loss) 4,541 977 (6,915) (5,405) 3,999
Gain (loss) on sale (write-down)
of investments (2,280) 1,651 398 (2,382) 1,771
Other income (expense), net (610) 55 116 179 (134)
Income (loss) before income taxes 1,651 2,683 (6,401) (7,608) 5,636
Income tax provision (benefit) 1,531 1,220 (2,376) (2,343) 2,523
--------- -------- -------- -------- --------
Net income (loss) $ 120 $1,463 ($4,025) ($5,265) $3,113
========= ======== ======== ======== ========
Earnings per share:
Basic $ 0.02 $ 0.18 ($0.49) ($0.64) $0.38
Diluted $ 0.01 $ 0.18 ($0.49) ($0.64) $0.38
Balance Sheet Data:
Current assets $ 70,540 $ 70,383 $64,144 $70,933 $74,355
Total assets 107,604 100,404 94,051 98,643 101,230
Current liabilities 19,169 25,210 18,343 18,787 16,291
Long-term debt 11,362 - - - -
Stockholders' equity 76,380 74,598 75,708 79,856 84,939
Cash dividends per common share $ - $ - $ - $ - $ -
Weighted average number of shares outstanding:
Basic 7,862 8,138 8,209 8,202 8,185
Diluted 8,021 8,236 8,209 8,202 8,236
(1) The financial results for 1997 include a $1.3 million write-off of
discontinued inventory (included in cost of sales) and $0.8 million of
restructuring costs (included in selling, general and administrative expenses).
See Note 16 to the Company's Consolidated Financial Statements.
(2) The financial results for 1996 include special charges of approximately
$9.9 million. The special charges consisted of a $4.9 million write-off of
discontinued inventory (included in cost of sales), a $2.6 million write-off of
obsolete displays, goodwill and other assets (included in selling, general and
administrative expenses) and a $2.4 million write-down of non-strategic
investments.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
-------------
FORWARD LOOKING STATEMENTS
The following discussion, as well as other portions of this Annual Report
on Form 10-K, 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.
11
Results of Operations
The financial results for 1999 and 1997 were negatively impacted by
investment write-downs, inventory write-offs and restructuring costs. The 1999
results included a $2.7 million ($2.4 million after-tax) write-down of the
Company's investment in Hudson River Capital LLC. The 1997 financial results
included a $1.3 million inventory write-off of discontinued inventory (included
in cost of sales) and $0.8 million of restructuring costs (included in selling,
general and administrative expenses). These restructuring costs primarily
consisted of severance and related expenses.
The following table shows, as a percentage of net sales, the Company's
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1999:
Year Ended December 31,
1999 1998 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 60.7 60.9 64.0
----- ----- -----
Gross profit 39.3 39.1 36.0
Selling, general and
administrative expense 35.8 38.3 41.8
----- ----- -----
Operating income (loss) 3.5 0.8 (5.8)
Interest income (expense), net (0.5) - .1
Gain (loss) on sale (write-down)
of investments (1.8) 1.3 .3
Other income, net - - -
----- ----- -----
Income (loss) before
income taxes 1.2 2.1 (5.4)
Income tax provision (benefit) 1.1 1.0 (2.0)
----- ----- -----
Net income (loss) 0.1% 1.1% (3.4%)
===== ===== =====
Comparison of the Years Ended December 31, 1999 and December 31, 1998
- ---------------------------------------------------------------------
Net sales for the year ended December 31, 1999 were $129.5 million compared
with $127.9 million for the same period in 1998, representing an increase of
$1.6 million or 1.3%. The sales increase was due primarily to $5.3 million in
sales related to Bear Cutlery, Inc., an increase in sales of new Victorinox
products, primarily the Victorinox CyberTool, SwissCard and AutoTool, and an
increase in North American sales of Swiss Army Brand Watches. The increases
were partially offset by a decrease in sales of watches marketed under the St.
John Timepiece Collection and a decrease in sales of Swiss Army Brand
Sunglasses.
12
Gross profit for the year ended December 31, 1999 was $50.8 million, 1.7%
higher than in 1998. The increase in gross profit was primarily due to the
increase in the value of the U.S. dollar versus the Swiss franc and an increase
in net sales, partially offset 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. Increases in the value of the Swiss franc versus the dollar may
effectively increase the cost of these products to the Company. The increase in
the cost of products to the Company may result in either higher prices charged
to customers or reductions in gross profit, both of which may have an adverse
effect on the Company's results of operations. The Company enters into foreign
currency contracts and options to hedge the exposure associated with foreign
currency fluctuations. Based upon current estimated Swiss franc requirements,
the Company believes it is hedged through the first 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 of any increase in the dollar
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 year ended December
31, 1999 were $46.3 million, $2.7 million or 5.5% lower than in 1998. The
expense decrease resulted primarily from decreased advertising and merchandising
expense related to Swiss Army Brand Sunglasses offset in part by expenses
related to Bear. As a percentage of net sales, selling, general and
administrative expenses decreased to 35.8% in 1999 from 38.3% in 1998.
As a result of the above, the Company recorded operating income of $4.5
million for the year ended December 31, 1999 compared to $1.0 million in 1998.
Interest expense of $748,000 for the year ended December 31, 1999 was
$615,000 higher than interest expense in 1998 due to the debt incurred related
to the acquisition of Bear, and the Company's repurchase of $3.6 million of its
common stock since the fourth quarter of 1998.
Interest income of $44,000 for the year ended December 31, 1999 was
$144,000 lower than interest income in 1998, due to decreased cash balances
during 1999 compared to 1998.
Gain (loss) on sale of investments was a loss of $2,280,000 for the year
ended December 31, 1999 compared to a gain of $1,651,000 in 1998. The loss in
1999 consisted of a $2.7 million non-cash write-down of the Company's investment
in Hudson River Capital LLC due to the other than temporary impairment in the
value of the investment, offset in part by a $420,000 gain related to the sale
of the Company's investment in Iron Mountain, Inc. 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; received distributions from Victory
Ventures LLC consisting of common stock in two publicly traded entities, both of
which were sold by the Company resulting in a $57,000 gain; and sold its
investment in SWWT, Inc. and realized a gain of $94,000.
13
As a result of the above, the income before income taxes was $1,651,000 for
the year ended December 31, 1999 compared to $2,683,000 in 1998.
Income tax expense (benefit) was provided at an effective rate of 92.7% for
the year ended December 31, 1999 compared to 45.5% for the year ended December
31, 1998. The change in the effective rate was the result of the Company taking
limited tax benefits on the capital loss write-down of the Hudson River Capital
LLC investment.
As a result of the above, the net income for the year ended December 31,
1999 was $120,000 ($0.01 per share-diluted, $0.02 per share-basic) compared to
$1.5 million ($0.18 per share-basic and diluted) in 1998.
Comparison of the Years Ended December 31, 1998 and December 31, 1997
- ---------------------------------------------------------------------
Net sales for the year ended December 31, 1998 were $127.9 million compared
with $118.7 million for the same period in 1997, representing an increase of
$9.1 million or 7.7%. The sales increase was due primarily to a 14.2% increase
in sales of Victorinox products, primarily the Victorinox SwissTool and
SwissCard, and an increase in sales of Swiss Army Brand Sunglasses and the
introduction of watches marketed under the St. John Timepiece Collection.
Gross profit for the year ended December 31, 1998 was $50.0 million, 17.0%
higher than in 1997. The increase in gross profit was primarily due to an
increase in net sales, an increase in the value of the U.S. dollar versus the
Swiss franc, and a $1.3 million inventory write-off in 1997.
Selling, general and administrative expenses for the year ended December
31, 1998 were $49.0 million, $0.6 million or 1.3% lower than in 1997. The
expense decrease resulted primarily from decreased advertising expense offset by
increased expenditures in the areas of product development and merchandising and
promotion. As a percentage of net sales, selling, general and administrative
expenses decreased to 38.3% in 1998 from 41.8% in 1997.
As a result of the above, the Company recorded operating income of $1.0
million for the year ended December 31, 1998 compared to an operating loss of
$6.9 million in 1997.
Interest expense of $133,000 for the year ended December 31, 1998 was
$93,000 higher than interest expense in 1997, due to higher borrowings in 1998
related to the Company's repurchase of $3.1 million of its common stock.
Interest income of $188,000 for the year ended December 31, 1998 was
$33,000 higher than interest income in 1997, due to increased invested cash
balances during the first half of 1998 compared to 1997.
The gain on sale of investments for the year ended December 31, 1998 was
$1.7 million compared to $398,000 in 1997. 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 addition, the Company received distributions
from Victory Ventures LLC consisting of common stock in two publicly traded
entities, both of which were sold by the Company resulting in a $57,000 gain;
and sold its investment in SWWT, Inc. and realized a gain of $94,000. The gain
in 1997 was due to a distribution from the Company's investment in Victory
Ventures LLC and a $112,000 recovery of a privately held entity that was
written-off in 1996.
14
As a result of the above, the income before income taxes for the year ended
December 31, 1998 was $2.7 million compared to $6.4 million loss in 1997.
Income tax expense (benefit) was provided at an effective rate of 45.5% for
the year ended December 31, 1998 compared to 37.1% for the year ended December
31, 1997. The change in the effective tax rate was due to foreign and state
income taxes.
As a result of the above, the net income for the year ended December 31,
1998 was $1.5 million ($0.18 per share) compared to $4.0 million loss ($0.49 per
share) in 1997.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1999, the Company had working capital of $51.4 million
compared with $45.2 million as of December 31, 1998, an increase of $6.2
million. Significant sources of working capital included proceeds from the sale
of long-term investments of $1.9 million and the conversion of short-term debt
to long-term debt. Also, working capital increased due to the acquisition of
Bear. Significant uses of working capital consisted of additions to other assets
of $3.8 million, capital expenditures of $1.7 million and repurchases of common
stock of $0.5 million. The Company currently has no material commitments for
capital expenditures.
Cash provided from operating activities was approximately $4.9 million in
the year ended December 31, 1999 compared to $0.2 million in the year ended
December 31, 1998. The change primarily resulted from a decrease in inventory in
1999 compared to an increase in 1998, a smaller increase in accounts receivable
in 1999 compared to 1998, a decrease in prepaid and other in 1999 compared to an
increase in 1998 and an increase in accrued liabilities in 1999 compared to a
decrease in 1998, offset in part by a decrease in accounts payable in 1999
compared to an increase in 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
December 31, 1999, the Company had $12,237,000 of outstanding borrowings under
its bank agreement. The Company currently has a $23.0 million credit line,
consisting of a $16.0 million revolving credit line and a $7.0 million term
loan. The revolving credit line expires in June 2001. 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 continue to be sufficient to meet its operating needs.
Year 2000
- ---------
The Company conducted a review of its computer systems and operations to
identify those areas that could have been affected by the "Year 2000" issue and
developed an implementation plan to minimize disruption. Based upon that
assessment, certain computer systems were vulnerable to the Year 2000 issues.
The Company modified certain software and hardware, and made investment in new
software and hardware, which successfully mitigated the effect of the Year 2000
problem as it related to its own computer systems. The Company's operations
incurred no disruption of their ability to conduct business.
The costs associated with the Year 2000 compliance were approximately
$100,000. As of December 31, 1999, all the costs have been incurred.
The Company also communicated with its significant suppliers and service
providers to ensure that those parties had appropriate plans to manage the Year
2000 issue as it relates to the Company's operations. The Company experienced no
significant problems with its key suppliers, service providers or customers as a
result of the Year 2000 issue.
15
Recently Issued Accounting Standards
- ------------------------------------
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.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
Foreign Exchange Risk
- ---------------------
The Company is exposed to significant 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 December
31, 1999, the Company entered into foreign currency contracts and options to
purchase approximately 107,000,000 Swiss francs in 2000 and 2001 at a weighted
average rate $1.509 Swiss franc/dollar. 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. At
December 31, 1999, the Company has reviewed its foreign exchange risks and based
upon its foreign currency hedging program and review of its outstanding foreign
exchange contracts, it believes that a near-term increase in the value of the
Swiss franc versus the U.S. dollar would not have a material effect on the
Company's results of operations or financial condition. See Notes to
Consolidated Financial Statements for further discussion of the Company's
accounting policies and other information related to it foreign exchange
instruments.
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
The financial information required by Item 8 is included elsewhere in this
report. See Part IV, Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure
- ------ ----------------------------------------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
Incorporated herein by reference to the information under the heading
"Election of Directors" in the Company's Proxy Statement with respect to the
Company's Annual Meeting of Stockholders scheduled to be held on May 18, 2000.
16
Item 11. Executive Compensation
- ------- ----------------------
Incorporated herein by reference to the information under the headings
"Compensation of Directors", "Compensation Committee Interlocks and Insider
Participation", "Compensation of Executive Officers", "Options" and "Report of
the Compensation Committee on Executive Compensation" in the Company's Proxy
Statement with respect to the Company's Annual Meeting of Stockholders scheduled
to be held on May 18, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
Incorporated herein by reference to the information under the headings
"Principal Shareholders" and "Security Ownership of Management" in the Company's
Proxy Statement with respect to the Company's Annual Meeting of Stockholders
scheduled to be held on May 18, 2000.
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
Incorporated herein by reference to the information under the headings
"Compensation Committee Interlocks and Insider Participation" in the Company's
Proxy Statement with respect to the Company's Annual Meeting of Stockholder's
scheduled to be held May 18, 2000.
17
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ------- ----------------------------------------------------------------
(a) Documents filed as part of this report:
Page(s)
(1)
Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets - December 31, 1999 and 1998 F-2 to F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the Years
Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 to F-23
(2)
Schedule --
Schedule II -- Valuation and Qualifying Accounts
for the Years Ended December 31, 1999, 1998 and 1997 F-24
All other schedules called for under Regulation S-X are not submitted because
they are not applicable or not required, or because the required information is
included in the financial statements or notes thereto.
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Swiss Army Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Swiss Army
Brands, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and comprehensive income, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swiss Army Brands, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)(2) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 18, 2000
F-1
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 31,
1999 1998
---- ----
Current assets
Cash and cash equivalents $1,302 $1,309
Accounts receivable, less
allowance for doubtful accounts
of $1,060 and $975, respectively 33,718 31,321
Inventories 30,227 28,890
Deferred income taxes 2,235 2,205
Prepaid and other 3,058 6,658
------ -------
Total current assets 70,540 70,383
------ -------
Deferred income taxes 1,474 1,069
Property, plant and equipment, net 4,856 3,735
Investments 4,476 9,467
Intangible assets, net 11,548 2,875
Other assets, net 14,710 12,875
------ ------
Total assets $107,604 $100,404
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
Total Liabilities 1999 1998
Current liabilities
Current portion of long-term debt $875 $5,140
Accounts payable 7,732 12,439
Accrued liabilities 10,562 7,631
------ ------
Total current liabilities 19,169 25,210
------ ------
Long-term liabilities
Long-term debt 11,362 -
Other 693 596
------ ------
31,224 25,806
Commitments and contingencies (Note 15)
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 - 8,866,218
and 8,858,218, respectively 886 885
Additional paid-in capital 49,137 46,472
Accumulated other comprehensive income (loss) (401) 177
Retained earnings 35,576 35,456
------ ------
85,198 82,990
Less: Treasury stock; 1,014,108 and
958,108 shares, respectively (8,711) (8,194)
Deferred compensation (107) (198)
------ ------
Total stockholders' equity 76,380 74,598
------ ------
Total liabilities and stockholders' equity $ 107,604 $100,404
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Net sales $129,452 $127,851 $118,744
Cost of sales 78,606 77,869 76,020
-------- -------- --------
Gross profit 50,846 49,982 42,724
Selling, general, administrative
expenses 46,305 49,005 49,639
-------- -------- --------
Operating income (loss) 4,541 977 (6,915)
-------- -------- --------
Interest expense (748) (133) (40)
Interest income 44 188 155
Gain (loss) on sale (write-down)
of investments (2,280) 1,651 398
Other income, net 94 - 1
-------- -------- --------
Total interest and other
income (expense), net (2,890) 1,706 514
-------- -------- --------
Income (loss) before income taxes 1,651 2,683 (6,401)
Income tax provision (benefit) 1,531 1,220 (2,376)
-------- -------- --------
Net income (loss) $ 120 $1,463 ($4,025)
======== ======== ========
Earnings per share:
Basic $0.02 $0.18 ($0.49)
======== ======== ========
Diluted $0.01 $0.18 ($0.49)
======== ======== ========
Weighted average number of shares
outstanding:
Basic 7,862 8,138 8,209
======== ======== ========
Diluted 8,021 8,236 8,209
======== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands, except 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)
BALANCE
December 31, 1996 8,822,968 $882 $46,182 ($113) $38,018 ($5,113)
Comprehensive Loss:
Net loss - - - - (4,025) - ($4,025)
Foreign currency
translation adjustment - - - (127) - - (127)
-------
Comprehensive Loss ($4,152)
=======
Stock options exercised 750 - 4 - - -
---------- ----- ------- ----- -------- -------
BALANCE
December 31, 1997 8,823,718 882 46,186 (240) 33,993 (5,113)
Comprehensive Income:
Net income - - - - 1,463 - $1,463
Unrealized gain on
marketable securities - - - 603 - - 603
Foreign currency
translation adjustment - - - (186) - - (186)
-------
Comprehensive Income $1,880
=======
Stock options exercised 9,500 - 70 - - -
Stock grant 25,000 3 216 - - -
Repurchase of common stock - - - - - (3,081)
---------- ------ ------- ----- -------- -------
BALANCE
December 31, 1998 8,858,218 885 46,472 177 35,456 (8,194)
Comprehensive Loss:
Net income - - - - 120 - $120
Foreign currency
translation adjustment - - - 233 - - 233
Unrealized gain in
marketable securities - - - (811) - - (811)
------
Comprehensive Loss ($458)
======
Acquisition of Bear MGC
Cutlery, Inc. - - 2,630 - - -
Stock options exercised 10,000 1 53 - - -
Cancellation of stock grant (2,000) - (18) - - -
Repurchase of common stock - - - - - (517)
---------- ------ ------- ----- -------- -------
BALANCE
December 31, 1999 8,866,218 $886 $49,137 ($401) $35,576 ($8,711)
========== ====== ======= ===== ======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 120 $1,463 ($4,025)
Adjustments to reconcile net income (loss)
to cash provided from operating activities:
Depreciation and amortization 3,230 2,834 2,709
Stock compensation expense 73 21 -
Deferred income taxes (435) 2,652 (1,034)
(Gain) loss on (sale) write-down
of investments 2,280 (1,651) (398)
------- ------- --------
5,268 5,319 (2,748)
Changes in other current assets and liabilities:
Accounts receivable (1,206) (3,167) 4,745
Inventories 383 (1,433) 2,204
Prepaid and other 3,652 (2,814) (967)
Accounts payable (5,030) 3,937 (2,462)
Accrued liabilities 1,872 (1,661) 1,880
------- ------- --------
Net cash provided from operating
activities 4,939 181 2,652
------- ------- --------
Cash flows from investing activities:
Acquisition of Bear MGC Cutlery, Inc.,
net of cash acquired (7,982) - -
Capital expenditures (1,698) (1,302) (1,056)
Additions to other assets (3,776) (2,701) (3,070)
Proceeds from sales of investments 1,972 1,949 550
------- -------- --------
Net cash used for investing activities (11,484) (2,054) (3,576)
Cash flows from financing activities:
Borrowings under bank agreements 59,440 32,914 1,930
Repayments under bank agreements (52,343) (27,774) (1,930)
Repurchase of common stock (517) (3,081) -
Proceeds from exercise of stock
options and warrants 54 70 4
-------- -------- --------
Net cash provided from financing activities 6,634 2,129 4
-------- -------- --------
Effect of exchange rate changes on cash (96) (25) (69)
Net increase (decrease) in cash and cash
equivalents (7) 231 (989)
Cash and cash equivalents, beginning
of period 1,309 1,078 2,067
-------- -------- --------
Cash and cash equivalents, end of period $ 1,302 $ 1,309 $ 1,078
======== ======== ========
Cash paid during the period:
Interest $ 766 $ 102 $ 34
======== ======== ========
Income taxes $ 618 $ 1,752 $ 321
======== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Swiss Army Brands, Inc. ("Swiss Army" or the "Company") is the
exclusive distributor in the United States, Canada (with one minor
exception for cutlery) and the Caribbean of the Victorinox Original
Swiss Army Knife, Victorinox SwissTool, Victorinox SwissCard,
Victorinox Cutlery and Victorinox Watches. Swiss Army also markets its
own line of Swiss Army Brand Watches, Swiss Army Brand Sunglasses and
Swiss Army Brand Writing Instruments under its Swiss Army Brand
worldwide. In addition, in 1999, the Company began manufacture and
distributing Bear MGC knives and multi-tools. Swiss Army has only one
business segment - the importation, manufacture and distribution of
cutlery, knives, multi-tools, watches and other consumer products. No
customer accounted for greater than 10% of net sales in any of the
three years ended December 31, 1999.
In April 1999, the Company purchased substantially all of the assets
and assumed certain liabilities of Bear MGC Cutlery, Inc., which
manufactured and distributed Bear MGC knives and multi-tools. See Note
4 for further information.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
inter-company transactions have been eliminated.
Revenue recognition
The Company recognizes revenue upon shipment of product. Net sales are
comprised of gross revenues less returns, trade discounts and customer
allowances.
Use of estimates
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 and disclosures of contingent 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.
Foreign currency translation and transactions
Assets and liabilities of the Company's foreign operations are
translated into U.S. dollars using the exchange rate in effect at the
balance sheet date. Results of operations are translated using the
average exchange rate prevailing throughout the period. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in the foreign currency
translation adjustment component of stockholders' equity, while gains
and losses resulting from foreign currency transactions are included
in net income (loss).
F-7
The vast majority of the Company's products are imported from
Switzerland and are paid for in Swiss francs. Increases in the value
of the Swiss franc versus the dollar may effectively increase the cost
of these products to the Company. The increase in the cost of products
to the Company may result in either higher prices charged to customers
or reductions in gross margin, both of which may have an adverse
effect on the Company's results of operations. The Company enters into
foreign currency contracts and options to hedge the exposure
associated with foreign currency fluctuations. 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. Gains and losses on these contracts are deferred and
recognized in cost of sales when the related inventory is sold. These
hedging transactions, which are meant to reduce foreign currency risk,
also reduce the beneficial effects to the Company of any increase in
the dollar relative to the Swiss franc. The Company plans to continue
to engage in hedging transactions; however, it is uncertain as to the
extent to which such hedging transactions will reduce the effect of
adverse currency fluctuations.
Cash and cash equivalents
Cash and cash equivalents consist of all highly liquid investments
with original maturities of three months or less. Investments with
maturities between three and twelve months are considered short-term
investments.
Inventories
Domestic inventories are valued at the lower of cost determined by the
last-in, first-out (LIFO) method or market. Had the first-in,
first-out (FIFO) method been used to value domestic inventories as of
December 31, 1999 and 1998, the amount at which inventories are stated
would have been $3,372,000 and $3,076,000 higher, respectively.
Foreign inventories are valued at the lower of cost or market
determined by the FIFO method. Inventories primarily consist of
finished goods and packaging materials.
Property, plant and equipment
Property, plant and equipment are stated at cost. Major improvements
that add to productive capacity or extend the life of an asset are
capitalized while repairs and maintenance are charged to expense as
incurred. Property, plant and equipment are comprised of the
following:
December 31,
1999 1998
(in thousands)
------------------
Leasehold improvements $1,133 $1,115
Equipment 8,485 5,966
Furniture and fixtures 1,458 1,290
------ ------
11,076 8,371
Accumulated depreciation (6,220) (4,636)
------ ------
$4,856 $3,735
====== ======
Depreciation is computed principally by use of the straight-line
method based on the following estimated useful lives:
Years
-----
Equipment 3 to 10
Furniture and fixtures 3 to 10
The provision for amortization of leasehold improvements is provided
on a straight-line basis over the estimated useful lives of the assets
or terms of the leases, whichever is shorter. For the years ended
December 31, 1999, 1998, and 1997, depreciation expense of property,
plant and equipment was approximately $1,594,000, $1,300,000 and
$1,260,000, respectively.
F-8
Long-lived assets
The Company follows Statement of Financial Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". The Company continually
reviews the recoverability of the carrying value of these assets using
the provisions of SFAS No. 121. Based upon the Company's review of its
long-lived assets, no impairment exists at December 31, 1999.
Investments
Investments in preferred units are accounted for at cost, subject to
review for impairment. Since these investments do not have a readily
determinable fair value, the valuation of these investments is subject
to uncertainty.
Investments in common stock of companies in which the Company owns
less than 20% are accounted for at fair value, subject to review for
impairment. Changes between cost and fair value are reflected as a
component of stockholders' equity. Any write-down of the cost due to
impairment is reflected in income.
Earnings per share
Basic earnings per share is computed by dividing net income (loss) by
the number of weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing net income (loss)
by the weighted average number of common shares and dilutive common
share equivalents outstanding during the period. No common share
equivalents have been included in the year ended December 31, 1997, as
they would have had an anti-dilutive effect. Common share equivalents
are calculated using the treasury stock method.
Stock-based compensation
The Company accounts for stock options and warrants under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Disclosures required by SFAS No. 123, "Accounting for
Stock-Based Compensation", are included in Note 14.
Income taxes
The provision for income taxes, as determined using the liability
method, includes deferred taxes resulting from temporary differences
in income for financial and tax purposes. Such temporary differences
primarily result from differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes.
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.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
F-9
(3) INTANGIBLE ASSETS
Intangible assets are comprised of the following:
December 31,
1999 1998
---- ----
Goodwill (A) $ 8,153 $ -
Foreign distributon rights (B) 2,207 2,875
Trademark rights (C) 1,188 -
-------- --------
$11,548 $2,875
======== ========
(A) Represents the goodwill related to the acquisition of Bear MGC
Cutlery, Inc. The goodwill is being amortized on a straight-line basis
over 20 years. See Note 4 for further discussion.
(B) Represents foreign distribution rights with Victorinox Cutlery
Company ("Victorinox"). The foreign distribution rights are being
amortized on a straight-line basis over 10 years. See Note 5 for
further discussion.
(C) On August 17, 1999, the Company purchased all the rights in and
trademarks containing Swiss Martial Terms, as defined, from S.A.W.
Company S.A. These trademark rights are being amortized as a
straight-line basis over 10 years.
For the years ended December 31, 1999, 1998, and 1997, amortization
expense was $916,000, $674 000 and $674,000, respectively.
(4) ACQUISTION
On April 16, 1999, Swiss Army and Bear Cutlery, Inc. ("Bear"), 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 its 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 December 31, 1999. Pursuant to the Agreement,
Swiss Army will also pay an additional $2,130,000 ( $1.0 million in
cash and $1.13 million in common stock of Swiss Army) because Bear
attained certain earnings targets for the year ending December 31,
1999. The cash amount is to be paid in April 2000 and has been
included in accrued liabilities and the common stock amount has been
included in additional paid-in capital as of December 31,1999.
F-10
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 based on preliminary estimates of fair
market value. Any adjustments 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 of approximately $8.4 million, which
is being amortized on a straight-line basis over 20 years. The
following is a summary of the preliminary allocation (in thousands):
Cash $ 16
Accounts receivable 1,175
Inventory 1,497
Other current assets 13
Plant and equipment 1,025
Goodwill 8,368
Accrued expenses and other liabilities 466
------
Total $11,628
======
The unaudited pro forma results of operations for the years ended
December 31, 1999 and 1998, respectively, had the acquisition of Bear
occurred at the beginning of each of the periods presented, are
provided in the following table. These pro forma results include
adjustments for depreciation and amortization of assets acquired based
on their fair market values at the acquisition date, increased
interest on debt, additional issuance of common stock, and the related
income tax effect. For purposes of computing income taxes, an
effective tax rate of 40% was used. The unaudited pro forma
information does not necessarily represent what the results of
operations would have been in such periods and is not intended to be
indicative of future results.
Year Ended December 31,
1999 1998
(Unaudited, in thousands
except per share data)
Net sales $131,398 $134,743
Net income 261 1,802
Earnings per share - basic
and diluted 0.03 0.21
(5) PRINCIPAL SUPPLIERS
Swiss Army imports for resale all of its Swiss Army Knives,
SwissTools, SwissCards and most of its other cutlery products from a
principal supplier, Victorinox, a Swiss company. Effective December
12, 1998, Swiss Army renewed a five-year agreement with Victorinox,
which appoints Swiss Army as exclusive distributor of Victorinox
Original Swiss Army Knives, Victorinox SwissTools, Victorinox
SwissCards and Victorinox Cutlery and which gives Swiss Army exclusive
rights to use Victorinox trademarks and trade names in the United
States with respect to those products. The agreement is subject to
renewal at five year intervals at the Company's option and remains in
effect as long as Swiss Army continues to purchase quantities of Swiss
Army Knives and cutlery (based on the Swiss franc purchase price) at
least equal to 85% of the maximum amount of purchases of each in any
preceding year. In the years 1998 and 1997, Victorinox agreed to
reduce the minimum purchase requirements. The Company met the reduced
minimum purchase requirements in 1998 and 1997. In 1999, the Company
met the minimum purchase requirement as set forth in the distribution
agreement. Pursuant to this agreement, Swiss Army must obtain
Victorinox's permission to sell new cutlery items. All of the Swiss
Army Knives and certain of the cutlery items that Swiss Army sells in
Canada and the Caribbean also are supplied by Victorinox.
F-11
Foreign distribution rights with Victorinox are comprised of the
following:
December 31,
1999 1998
---- ----
(in thousands)
Canadian distribution
rights (A) $3,483 $3,483
Caribbean and Victorinox Watch
distribution rights (B) 3,261 3,261
------- --------
6,744 6,744
Accumulated amortization (4,537) (3,869)
------- --------
$2,207 $2,875
======= ========
(A) In April 1992, Swiss Army entered into an agreement with
Victorinox under which it received the exclusive distribution rights
for Victorinox Original Swiss Army Knives in Canada and was appointed
the principal distributor of Victorinox professional cutlery in
Canada. In exchange for the grant of these rights, Swiss Army issued
to Victorinox 277,066 shares of its common stock from treasury. The
rights received were awarded to Swiss Army for a fixed seven-year
term, which were renewed in April 1999, with a continuous five-year
renewal arrangement upon expiration of the fixed term. Victorinox has
the right not to renew the agreement; however, should Victorinox
choose not to renew the agreement, Victorinox is required to pay Swiss
Army $3,500,000.
(B) In December 1993, Swiss Army entered into an agreement with
Victorinox under which it received the exclusive distribution rights
for Victorinox Original Swiss Army Knives and professional cutlery in
the Caribbean. Swiss Army also received the right to distribute
Victorinox Swiss-made watches in the United States, Canada and the
Caribbean and acquired the 20% share of the Company's subsidiary,
Victorinox of Switzerland, Ltd., that Victorinox owned. As part of the
agreement, Swiss Army pays Victorinox a royalty of 1% of net sales of
Victorinox Watches. The Caribbean distribution rights are for a fixed
seven-year term automatically renewable in successive five-year
periods unless either party notifies the other at least six months
prior to expiration of such period of its intent not to renew. The
term of Victorinox Watch distribution rights in each territory
coincides with the term for Victorinox cutlery products in that
territory.
The Company does not have any manufacturing facilities, except for the
facility that manufacturers Bear MGC products, and imports virtually
all of its products from independent suppliers. The Company's business
is subject to certain risks related to its arrangements with its
foreign suppliers, including possible restrictions on transfer of
funds, the risk of imposition of quotas on the amount of products that
may be imported into the United States (although no quota currently
exists), maritime union strikes and political instability. Although
the Company has exclusive distributorship agreements with Victorinox,
its principal supplier, it does not have such contractual arrangements
with its other suppliers. The agreements with Victorinox provides for
certain minimum annual purchases of products by the Company, and
failure to achieve these goals would result in Victorinox having the
right to terminate the agreements. Although the Company has a
contractual right to receive minimum quantities of Swiss Army Knives
from Victorinox, were this source of supply to fail for any reason,
the Company probably would be unable to find an alternative source.
Any termination or substantial disruption of the Company's
relationships with Victorinox would have a material adverse effect on
its operation and results. Virtually all of the Company's imported
products are subject to United States custom duties.
F-12
Although approximately 72%, or $19,700,000, of total payments for
watches and watch parts in 1999 were made to a single watch supplier,
which is responsible for the final assembly of watch components
manufactured by several manufacturers, the Company believes that
alternate watch suppliers would be available, if necessary.
Furthermore, the Company believes that the loss of this supplier of
Swiss Army Brand Watches would not have a material adverse effect on
the Company's business.
(6) RELATED PARTY TRANSACTIONS
Until 1998, one of Swiss Army's directors was a partner in a law firm
that provided legal services to the Company. For the years ended
December 31, 1998 and 1997, Swiss Army incurred fees of $174,000 and
$629,000, respectively, relating to these services.
Four of Swiss Army's directors serve as directors of Hudson River
Capital LLC, including two who serve as Co-Chairman. Five of Swiss
Army's directors serve as directors of Victory Ventures LLC, including
one who serves as Co-Chairman. See Note 7 for further discussion.
In July 1994, Swiss Army entered into a Services Agreement with Brae
Group, Inc. ("Brae"), a company that is a stockholder of Swiss Army
and in which a Swiss Army director and a principal supplier have a
controlling and non-controlling stock interest, respectively. Under
the Services Agreement, Brae agreed to provide various services to
Swiss Army for a period of four years relating to maintaining,
enhancing and expanding Swiss Army's relationship with the Company's
principal supplier. In exchange for these services, Brae received an
option to purchase 500,000 shares of Swiss Army's common stock at the
then current market price of $10.75 per share. The option vested
immediately and can be exercised for 10 years from the date of the
Services Agreement.
On May 1, 1998, the Company entered into an agreement with an
affiliated company whereby this company would supply Swiss Army with
legal services. The fees incurred for the years ended December 31,
1999 and 1998 were approximately $179,000 and $103,000, respectively.
This agreement can be terminated by either party upon thirty days
written notice.
(7) INVESTMENTS
Investments are comprised of the following:
December 31,
1999 1998
(in thousands)
Preferred units of Hudson
River Capital LLC (A) $3,613 $6,313
Preferred units of
Victory Ventures LLC (B) 851 851
Common stock of Iron Mountain, Inc. (C) - 2,273
Common stock of Chaparral Resources, Inc. (D) 12 30
------- -------
Total investments $4,476 $9,467
======= =======
F-13
(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 the
distribution of 63,019 shares of common stock (as adjusted for a three
to two stock split), valued at $1,481,000, of Iron Mountain Inc.
("Iron Mountain"). In 1998, the Company recognized a $1.5 million gain
on this cash and common stock distribution which is included in gain
on sale of investments in the accompanying financial statements. In
1999, the Company recorded a $2.7 million write-down of its investment
in Hudson River due to the other than temporary impairment in the
value of the investment. At December 31, 1999 and 1998, the Company
owned 890,776 preferred units of Hudson River which represented
approximately 9.6% of the outstanding equity of Hudson River. The
preferred units in Hudson River owned by the Company carry a
preference on liquidation equal to their per unit cost as well as, in
certain instances, an annual preferred return. The Company accounts
for this investment on the cost basis, subject to review for
impairment. Since this investment does not have a readily determinable
fair value, the valuation of this investment is subject to
uncertainty.
(B) Victory Ventures LLC ("Victory Ventures")is a private equity firm
specializing in small market venture capital investments. In 1997, the
Company received a cash distribution from Victory Ventures of
$438,000, of which $286,000 was recorded as a gain and has been
included in gain (loss) on sale (write-down) of investments. In 1997,
Victory Ventures distributed to its members its investment in
Chaparral Resources, Inc. ("Chaparral"). See (D) for further
discussion. In 1998, Victory distributed 3,053 shares of common stock
of Micromuse and 4,178 shares of common stock of FaxSav. The Company
liquidated these investments in 1998 and realized a gain of
approximately $57,000 on these investments. At December 31, 1999 and
1998, the Company owned 890,776 preferred units of Victory Ventures
which represented approximately 1.2% and 1.3% of the outstanding
equity of Victory Ventures, respectively. The preferred units in
Victory Ventures owned by the Company carry a preference on
liquidation equal to their per unit cost as well as, in certain
instances, an annual preferred return. The Company accounts for this
investment on the cost basis, subject to review for impairment. Since
this investment does not have a readily determinable fair value, the
valuation of this investment is subject to uncertainty.
(C) Iron Mountain, a publicly traded company, is a full service
provider of records management and related services. At December 31,
1998, the Company owned 63,019 shares of Iron Mountain stock valued at
$36.06 per share. The Company accounted for this investment at fair
value, with changes between cost and fair value reflected as a
component of stockholders' equity. In January 1999, the Company sold
its entire investment in Iron Mountain and recognized a gain of
approximately $420,000.
(D) Chaparral, a publicly traded company, is an independent oil and
gas exploration and production company. At December 31, 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 $7.88
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.
F-14
(8) OTHER ASSETS
Other assets are comprised of the following :
December 31, Amortization
1999 1998 Period
---- ---- ------------
(in thousands)
Cash surrender value of
life insurance (see Note 15) $14,111 $12,044 N/A
Other 3,085 2,808 1-5 years
-------- --------
Accumulated amortization (2,486) (1,977)
-------- --------
$14,710 $12,875
======== ========
For the years ended December 31, 1999, 1998 and 1997, amortization
expense related to other assets was approximately $720,000, $860,000,
and $775,000, respectively.
(9) ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
December 31,
1999 1998
---- ----
(in thousands)
Sales, marketing and promotional $3,951 $3,106
Payroll related 1,353 1,515
Acquisition payment - see Note 4 1,000 -
Other 4,258 3,010
------- --------
$10,562 $7,631
======== ========
(10) DEBT AGREEMENTS
On November 15, 1999, Swiss Army entered into a revolving credit
agreement which, among other things, states that the Company can
borrow up to $23.0 million, consisting of a $16.0 million line of
credit for working capital purposes and a $7.0 million term loan
related to the acquisition of Bear MGC, at one of three interest rate
options: (i) LIBOR plus the applicable margin; (ii) Base Rate, as
defined; or (iii) Cost of Funds rate, as defined. The interest rate
also varies dependent on the Company's financial performance. The line
of credit is secured by substantially all the assets of the Company
and the agreement requires the Company to satisfy certain financial
covenants including minimum tangible net worth, interest rate coverage
and current ratio, and to continue the exclusive distributorship
arrangement with Victorinox. At December 31, 1999, the Company is in
compliance with the covenants contained in the Agreement. The fair
value of the amount outstanding under the line of credit approximates
book value as the interest rate is adjusted on a quarterly basis.
The Company has entered into an interest rate cap agreement to
provide interest rate protection on $5.0 million of debt to the
maximum interest rate of 7.0% (before applicable margin) expiring in
November 2004.
F-15
Scheduled principal payments due on debt in the next five years are as
follows:
2000 $ 875
2001 6,185
2002 875
2003 875
2004 3,427
(11) INCOME TAXES
The income tax provision (benefit) for the years ended December 31,
1999, 1998 and 1997, consists of the following:
Year Ended December 31,
1999 1998 1997
---- ---- ----
(in thousands)
Current
Federal $1,681 ($1,662) ($1,276)
Foreign - - (280)
State 285 230 214
------ ------ -------
Total current 1,966 (1,432) (1,342)
Deferred
Federal (600) 2,294 (700)
State 165 358 (334)
------ ------- -------
Total deferred (435) 2,652 (1,034)
------ ------- -------
Provision (benefit) for
income taxes $1,531 $1,220 ($2,376)
====== ======= =======
The significant components of the deferred tax asset as of December
31, 1999 and 1998 are as follows:
1999 1998
---- ----
(in thousands)
Sales and marketing reserves $940 $888
Inventory related reserves 850 843
Depreciation and amortization 771 561
Loss carryforwards 1,329 411
Accrued employee benefits 234 363
Other, net 228 208
------ -----
4,352 3,274
Valuation allowance (643) -
------ ------
Total $3,709 $3,274
======= =======
A valuation allowance of $643,000 has been recorded against a portion
of the Company's deferred tax assets related to the capital loss
write-down of the Company's investment in Hudson River.
F-16
A reconciliation of the income tax provision (benefit) calculated at
the federal income tax statutory rate and the Company's effective
income tax rate for 1999, 1998 and 1997 is as follows:
1999 1998 1997
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% (34.0%)
State income taxes, net of
federal income tax benefit 11.4 5.7 (0.8)
Foreign taxes 19.7 2.1 (4.0)
Valuation allowance 38.9 - -
Other (11.3) 3.7 1.7
------ ----- ------
Effective income tax rate 92.7% 45.5% (37.1%)
====== ===== ======
(12) COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) activity for the three
years ended December 31, 1999 is as follows:
Foreign Currency Unrealized Gain (Loss) Accumulated Other
Translation On Marketable Securities Comprehensive Income (Loss)
---------------- ------------------------ ---------------------------
(In thousands)
January 1, 1997 ($ 113) $ - ($113)
1997 activity ( 127) - (127)
------- ------- ------
December 31, 1997 ( 240) - (240)
1998 activity ( 186) 603 417
------- ------- ------
December 31, 1998 ( 426) 603 177
1999 activity 233 (811) (578)
------- ------- ------
December 31, 1999 ($193) ($208) ($401)
======= ======= ======
(13) EMPLOYEE BENEFITS
Substantially all employees of the Company are covered by a
noncontributory defined benefit pension plan. Benefits are based on
years of service and the employee's compensation during the five
highest consecutive compensation years. Costs under the plan are
accrued and funded on the basis of accepted actuarial methods. Total
pension expense approximated $405,000, $285,000, and $336,000, for the
years ended December 31, 1999, 1998 and 1997, respectively. The net
periodic pension cost of Swiss Army's pension plan in 1999, 1998 and
1997 includes the following components:
1999 1998 1997
---- ---- ----
(in thousands)
Service cost - benefits earned during the period $367 $286 $339
Interest cost on projected benefit obligation 182 166 189
Expected return on assets (141) (143) (171)
Amortization of net transition asset (14) (14) (14)
Amortization of unrecognized prior service cost (13) (13) (13)
Amortization of net loss 24 3 6
----- ----- ------
Net periodic pension cost $405 $285 $336
===== ===== ======
F-17
The changes in benefit obligations and plan assets and the funded status
reconciliation as of December 31, 1999 and 1998 for Swiss Army's pension plan
are shown below:
1999 1998
---- ----
(in thousands)
Change in Benefit Obligation
Benefit obligation, January 1 $2,742 $3,211
Service cost 367 286
Interest cost 182 166
Actuarial (gain) loss (581) (750)
Benefits paid - expected (91) (171)
------- -------
Benefit obligation, December 31 $2,619 $2,742
======= =======
Change in Plan Assets
Fair value of plan assets, January 1 $1,726 $1,792
Actual return on plan assets 96 132
Company contributions 260 140
Benefits paid - actual (653) (338)
------- -------
Fair value of plan assets December 31 $1,429 $1,726
======= =======
Funded Status Reconciliation
Funded status, December 31 ($1,188) ($1,016)
Unrecognized (gains) losses, net 460 460
Unrecognized prior service costs (230) (243)
Unrecognized transition amount (42) (56)
------- -------
Accrued pension cost, December 31 ($1,000) ($855)
======= =======
Rates used in determining the actuarial present value of the projected
benefit obligation are as follows:
December 31,
1999 1998
---- ----
Discount rate 7.00% 6.25%
Rate of increase in future compensation levels 4.50% 4.50%
Expected long-term rate of return on plan assets 8.00% 8.00%
Plan assets consist principally of investments in fixed income
securities, short-term investments and common stock.
The Company maintains a 401(k) employee benefit plan pursuant to which
participants can defer a certain percentage of their annual
compensation in order to receive certain benefits upon retirement,
death, disability or termination of employment. The Company can elect
to make a matching contribution of up to 6% of annual eligible
compensation per employee. The determination to make a matching
contribution is made at the beginning of each fiscal year. During
1999, 1998 and 1997, the Company incurred expenses of approximately
$173,000, $161,000, and $175,000, respectively, related to this plan.
The Company offers no other post retirement benefits.
F-18
(14) STOCKHOLDERS' EQUITY
The Swiss Army Brands, Inc. 1996 Stock Option Plan provides for the
grant of options to employees, including officers of the Company, and
members of the Board of Directors. Under this plan and previous stock
option plans, 760,093 shares of common stock are reserved and
available for issuance. Options expire no later than ten years after
the date of grant. Option prices equal at least 100% of the fair
market value of Swiss Army's common stock on the date of grant. The
vesting of options is determined by the Stock Option and Compensation
Committee of the Board of Directors, which administers the plan, and
for options outstanding as of December 31, 1999, vesting ranges from
immediately upon grant to three years.
The following table summarizes stock option plan and warrant activity
for the three years ended December 31, 1999:
Number
of Shares Option Price
Outstanding at December 31, 1996 2,312,000 $ 5.25 - $14.50
Exercised (750) $ 5.25
Canceled (70,219) $ 12.25 - $14.00
----------
Outstanding at December 31, 1997 2,241,031 $ 5.25 - $14.50
Granted (A) 555,000 $ 8.75 - $10.125
Exercised (9,500) $ 5.25 - $ 8.62
Canceled (270,780) $ 8.75 - $14.00
----------
Outstanding at December 31, 1998 2,515,751 $ 5.25 - $14.50
Granted 3,000 $ 8.75
Exercised (10,000) $ 5.38
Canceled (274,501) $ 8.75 - $14.00
----------
Outstanding at December 31, 1999 2,234,250 $ 5.25 - $14.50
==========
Of the options and warrants outstanding at December 31, 1999,
2,006,750 are exercisable at a weighted average option price of $11.78
per share.
(A) In September 1998, the Company issued 505,000 options to purchase
common stock at $8.75 per share to various employees and officers.
These options are exercisable in four equal installments over three
years starting with the grant date. In November 1998, the Company
issued 50,000 options to purchase common stock at $10.125 per share to
two directors. Of these options, 25,000 options are exercisable in
four equal installments over three years starting with the grant date,
and 25,000 options are exercisable immediately.
The weighted-average fair value of the stock options granted in 1999
and 1998 was approximately $3.53 and $3.51, respectively. The
weighted-average fair value of the options was estimated using the
Black-Scholes option-pricing model with the following assumptions:
expected volatility of 30%; expected life of options of six years;
dividend yield of 0%; and risk free interest rate of 5.26% in 1999 and
4.91% in 1998, respectively.
F-19
The Company accounts for stock options and warrants under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", under which no compensation cost has been recognized. Had
compensation cost for the three years ending December 31, 1999, been
determined under the principles of SFAS No. 123, the Company's net
income (loss) and earnings per share would have been the following:
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
Net income (loss) As reported: $120 $1,463 ($4,025)
Pro forma: ($346) $ 812 ($5,320)
Earnings per share As reported:
Basic $0.02 $0.18 ($0.49)
Diluted $0.01 $0.18 ($0.49)
Pro forma:
Basic ($0.04) $0.10 ($0.65)
Diluted ($0.04) $0.10 ($0.65)
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts as SFAS No. 123 does not apply to
stock options and warrants granted prior to 1995, and additional
options and warrants may be granted in future years.
In September 1998, the Company issued 25,000 shares of its common
stock to certain employees and officers. The common stock vests in
four equal installments over three years beginning with the grant
date. The Company recognized $73,000 and $21,000 for the years ended
December 31, 1999 and 1998, respectively, in stock compensation
expense related to this grant.
On September 16, 1998, the Company's Board of Directors authorized a
repurchase of up to 400,000 shares of its common stock. Through
December 31, 1999, the Company had repurchased 400,000 shares for a
total purchase price of approximately $3,598,000.
(15) COMMITMENTS AND CONTINGENCIES
The Company has minimum purchase requirements under an agreement with
Victorinox (see Note 5).
At December 31, 1999, minimum rental payment commitments for office
and warehouse space leased by Swiss Army under operating leases were,
as follows (in thousands):
2000 $1,296
2001 828
During the years ended December 31, 1999, 1998 and 1997, rent expense
was approximately $1,487,000, $1,374,000 and $1,390,000, respectively.
At December 31, 1999, the Company has open contracts to purchase
approximately 107.0 million Swiss francs in 2000 and 2001 as a hedge
against future purchase of inventories at a weighted average rate of
$1.509 Swiss Franc/dollar.
F-20
The Company maintains split dollar life insurance agreements covering
two members of the Board of Directors. Primarily, these policies can
only be canceled upon the mutual agreement of the Company and the
insured. However, if these policies were canceled at December 31,
1999, the Company would receive in cash an amount equal to the lesser
of the cash surrender value or cumulative premiums paid to date on
these policies, which was approximately $6,300,000. Under the terms of
these life insurance policies, the Company will make approximate
future premium payments, if the policies remain in force, as follows
(in thousands):
2000 $ 873
2001 512
2002 493
2003 460
2004 and thereafter 2,200
In 1993, Swiss Army's Board of Directors adopted a charitable
insurance program that enables Swiss Army to make a commitment to the
Victorinox-Swiss Army Knife Foundation (the "Foundation"), a
foundation that engages in various charitable activities including the
promotion of athletic events for underprivileged urban youth. Under
the program, Swiss Army owns, is the beneficiary of and pays all the
premiums for life insurance policies on the lives of certain Board
members. Pursuant to the program, upon the death of each Director, the
Company retains a share of the insurance proceeds equal to the
cumulative premiums paid by the Company for the policy on that
Director's life. One half of any additional insurance proceeds
received upon the death of an insured Director will be used to fulfill
charitable pledges made to the Foundation. The remaining half of the
additional proceeds will be used to fulfill charitable pledges
recommended by the individual Directors. Swiss Army is generally bound
to continue to pay all premiums on the policies for the lives of the
insured Directors or, in the case of the Chairman of the Management
Committee, as long as he is an officer or a board member or agrees to
serve as a consultant to the Company. Swiss Army will make approximate
future premium payments related to these programs as follows (in
thousands):
2000 $1,115
2001 1,102
2002 1,102
2003 1,086
2004 and thereafter 4,914
Under existing federal tax laws, the receipt by Swiss Army of the
proceeds from an insurance policy upon the death of a director would
not result in regular taxable income to the Company; however, Swiss
Army may be subject to alternative minimum tax on a portion of the
receipts. When Swiss Army makes cash contributions to a designated
charity, it will be entitled to a tax deduction equivalent to the sum
of those contributions. The extent of the utilization of this
deduction in that year will depend upon Swiss Army's taxable income,
since Swiss Army is entitled to claim as charitable deductions only
10% of its taxable income in any year. However, these deductions may
be carried forward for tax purposes for a period of five years.
Based upon estimates prepared by the Company's insurance agent, the
anticipated earnings impact related to the policies for both the
Foundation and the two members of the Board of Directors is expected
to be insignificant.
F-21
On July 14, 1997, the Company filed with the American Arbitration
Association in New York, New York a demand for arbitration against
Precise Imports Corporation, the United States and Canadian
distributor of Swiss Army Knives manufactured by Wenger S.A., the only
company other than Victorinox supplying pocketknives to the Swiss
Armed Forces. In the demand for arbitration, the Company charged that
Precise had violated the license agreement dated June 30, 1992 between
Precise and the Company by utilizing the trademark Swiss Army in ways
prohibited by the agreement. In response, Precise alleged certain
counterclaims. These claims and counterclaims between the Company and
Precise were dismissed with prejudice on December 31, 1999 pursuant to
the terms of a November 7, 1998 stipulation since neither party
exercised its right to continue the proceeding.
In addition, the Company is involved in certain legal matters relating
to trademark, patent, and other general business matters. Management
believes that the outcome of these legal matters will not have a
material adverse effect on the financial position and results of
operations of the Company.
(16) SPECIAL CHARGES
In 1997, the Company recorded $0.8 million of restructuring costs
(included in selling, general and administrative expenses) , which
were paid in 1998, and a special charge of $1.3 million (included in
cost of sales) related to discontinued inventory. The restructuring
costs primarily consisted of severance and related expenses.
(17) SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes
standards for the reporting of information about operating segments.
The Company is engaged in one line of business - the importation,
manufacture and distribution of cutlery, knives, multi-tools, watches
and other consumer products. There were no material amounts of sales
or transactions between or among geographic areas. Summarized
financial information concerning the Company's reportable segment and
geographic areas is shown in the following table. The "Other" column
includes corporate related items and results of insignificant
operations.
United
States Canada International Other Total
1999
----
Sales $113,471 $8,573 $6,117 $ 1,291 $129,452
Operating
income (loss) 26,124 1,168 187 (22,938) 4,541
Identifiable
assets 58,045 3,557 3,376 42,626 107,604
1998
----
Sales $111,107 $8,483 $7,811 $ 450 $127,851
Operating
income (loss) 22,674 1,435 338 (23,470) 977
Identifiable
assets 52,998 3,512 4,832 39,062 100,404
F-22
(18) QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended
(in thousands, except per share data)
March 31 June 30 September 30 December 31
1999
----
Net sales $23,570 $30,396 $33,026 $42,460
Gross profit 8,949 11,990 12,798 17,109
Income (loss) before
income taxes (614) (2,183) 1,353 3,095
Net income (loss) (353) (2,126) 766 1,853
Earnings per share - basic ($0.04) ($0.27) $0.10 $0.23
Earnings per share - diluted ($0.04) ($0.27) $0.10 $0.22
1998
----
Net sales $24,610 $30,187 $31,370 $41,684
Gross profit 9,235 11,637 12,690 16,420
Income before income
taxes 480 173 806 1,224
Net income 286 103 465 609
Earnings per share $0.03 $0.01 $0.06 $0.08
There was no difference between basic and fully diluted earnings per
share for the 1998 periods presented above.
F-23
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands)
Column A Column B Column C Column D Column E
Additions
Balance At Charged to Balance At
Beginning Costs and End of
Classification of Year Expenses Deductions Year
-------------- ---------- ---------- ---------- ----------
Year Ended December 31, 1999:
Allowance for Doubtful Accounts $ 975 $ 85 $ - $1,060
======= ====== ======= =======
Inventory Reserve $ 1,163 $ 51 $ - $1,215
======= ====== ======= =======
Year Ended December 31, 1998:
Allowance for Doubtful Accounts $ 975 $ - $ - $ 975
======= ====== ======= =======
Inventory Reserve $ 2,852 $ - ($1,689) $ 1,163
======= ====== ======= =======
Year Ended December 31, 1997:
Allowance for Doubtful Accounts $ 1,032 $(57) - $ 975
======= ====== ======= =======
Inventory Reserve $ 1,950 $ 1,310 (408) $2,852
======= ====== ======= =======
F-24
Exhibits.
Exhibit Title Exhibit No.
------------- -----------
(3) (A) Articles of Incorporation, as amended, incorporated by
reference to the Exhibits to Quarterly Report on Form 10-Q for the
fiscal year ended June 30, 1997.
(B) By-laws, as amended, incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
(10) Material Contracts
(A) Letter Agreement dated December 12, 1983 between Victorinox
Cutlery Company and The Forschner Group., Inc., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
(B) Mutual Agreement dated as of October 20, 1986 between Victorinox
Cutlery Company and The Forschner Group, Inc., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
(C) Letter Agreement dated as of October 20, 1986 between Victorinox
Cutlery Company and The Forschner Group, Inc., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
(D) Life insurance agreement dated as of December 7, 1991 between The
Forschner Group, Inc. and Stanley R. Rawn, Jr., as Trustee u/a dtd.
December 9, 1986 between Louis Marx, Jr. and Stanley R. Rawn, Jr.,
incorporated by reference to the Exhibits to Annual Report on Form
10-K for the fiscal year ended December 31, 1992.
(E) License Agreement dated June 30, 1992 between The Forschner Group, Inc.
and Precise Imports Corporation, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
(F) Life insurance agreement dated December 24, 1992 between The
Forschner Group, Inc. and Louis Marx, Jr., as Trustee u/a dtd. as of
October 24, 1988 between Stanley R. Rawn, Jr. and Barbara Rawn and
Louis Marx, Jr., incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(G) Mutual Agreement dated April 6, 1992 between The Forschner Group,
Inc. and Victorinox Cutlery Company, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
(H) 1993 Stock Option Plan, incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
(I) Lease dated May 3, 1993 between One Research Drive Associates
Limited Partnership and The Forschner Group, Inc., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
19
(J) Life insurance agreement dated as of December 24, 1992 between The
Forschner Group, Inc. and Louis Marx, Jr., incorporated by reference
to the Exhibits to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
(K) Life insurance agreement dated as of September 24, 1993 between
The Forschner Group, Inc. and Louis Marx, Jr., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
(L) Life insurance agreement dated as of September 24, 1993 between
The Forschner Group, Inc. and James D. Rawn, as Trustee u/a dtd. as of
June 4, 1992 between Louis Marx, Jr., Grantor and James D. Rawn,
Trustee, incorporated by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
(M) Mutual Agreement dated December 21, 1993 between The Forschner
Group, Inc. and Victorinox Cutlery Company, incorporated by reference
to the Exhibits to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
(N) 1994 Stock Option Plan, incorporated by reference to the Exhibits
to Registration Statement on Form S-8, No. 33-87078 filed by The
Forschner Group, Inc.
(O) Services Agreement dated as of July 29, 1994 between The Forschner
Group, Inc. and Brae Group, Inc., incorporated by reference to the
Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994.
(P) Non-Incentive Stock Option Agreement dated as of July 29, 1994
between The Forschner Group, Inc. and Brae Group, Inc., incorporated
by reference to the Exhibits to Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1994.
(Q) Consulting Agreement dated as of December 7, 1991 by and between
The Forschner Group, Inc. and Louis Marx, Jr., incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
(R) First Amendment to Lease dated June 16, 1994 between The Forschner
Group, Inc. and Pefran Trap Falls Associates, incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
(S) Life insurance agreement dated as of April 15, 1994 between The
Forschner Group, Inc. and Lawrence T. Warble, as Trustee u/a dtd. as
of March 21, 1994 between Stanley R. Rawn, Jr., Grantor and Lawrence
T. Warble, Trustee, incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
(T) Employment agreement dated as of January 2, 1996 between The
Forschner Group, Inc. and James W. Kennedy, incorporated by reference
to the Exhibits to Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(U) Warrant dated as of December 13, 1995 between The Forschner Group,
Inc. and J. Merrick Taggart, incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
20
(V) Watch design and Consulting Agreement dated as January 2, 1995
between The Forschner Group, Inc., Polenberg, Inc. and Myron Polenberg
Incorporated by reference to the Exhibits to quarterly report on Form
10-Q for the fiscal quarter ended March 31, 1996.
(W) 1996 Stock Option Plan incorporated by reference to the Exhibits
on Form 10-K for the fiscal year ended December 31, 1996.
(X) Trademark Agreement dated as of December 18, 1996 by and between
the Swiss Confederation represented by the Federal Military Department
represented by the Federal Defense Production Group and Swiss Army
Brands, Inc. (confidential treatment has been granted for certain
portions of this exhibit) incorporated by reference to the Exhibits on
Form 10-K for the fiscal year ended December 31, 1996.
(Y) Asset Purchase Agreement dated January 31, 1997 among Cuisine de
France Limited, Sabatier USA, LLC, Robert P. Wolff and Robert Candler
incorporated by reference on Form 10-K for the fiscal year ended
December 31, 1996.
(Z) License Agreement dated May 15, 1997 by and between Swiss Army
Brands, Inc. and St. John Knits, Inc., incorporated by reference to
the Exhibits on Form 10-Q for the fiscal quarter ended June 30, 1997.
(AA) Letter Agreement dated September 27, 1996 between Swiss Army
Brands, Inc. and Victorinox Cutlery Company.
(BB) Asset Purchase Agreement dated April 16, 1999 by and
among Swiss Army Brands, Inc., Bear Cutlery, Inc. Bear
MGC Cutlery, Inc., and its shareholders incorporated
by reference on form 8-K dated April 16, 1999.
(CC) The 1999 Amended and Restated Commercial Loan Agreement
dated November 15, 1999 between Fleet National Bank
and Swiss Army Brands, Inc.. (A list of exhibits and
schedules to the agreement is set forth therein. The
Company agrees to furnish to the Commission supplementally,
upon request, a copy of any such exhibit or schedule not
otherwise filed herewith.) 10.1
(21) Subsidiaries of Registrant. 21
(23) Consent of Arthur Andersen LLP. 23
(27) Financial Data Schedule.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By/s/ J. Merrick Taggart
J. Merrick Taggart
President and Chief Executive Officer
By/s/ Thomas M. Lupinski
Thomas M. Lupinski
Senior Vice President, Chief Financial Officer,
Secretary, and Treasurer
By/s/ Marc A. Gold
Marc A. Gold
Vice President and Controller
Date: March 27, 2000
22
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ J. Merrick Taggart March 27, 2000
J. Merrick Taggart
President, Chief Executive Office and Director
/s/ A. Clinton Allen March 27, 2000
A. Clinton Allen
Director
/s/ Clarke H. Bailey March 27, 2000
Clarke H. Bailey
Director
/s/ Thomas A. Barron March 27, 2000
Thomas A. Barron
Director
/s/ Vincent D. Farrell, Jr. March 27, 2000
Vincent D. Farrell, Jr.
Director
/s/ Herbert M. Friedman March 27, 2000
Herbert M. Friedman
Director
/s/ Peter W. Gilson March 27, 2000
Peter W. Gilson
Director
/s/ Keith R. Lively March 27, 2000
Keith R. Lively
Director
/s/ Louis Marx, Jr. March 27, 2000
Louis Marx, Jr.
Director
/s/ Robert S. Prather, Jr. March 27, 2000
Robert S. Prather, Jr.
Director
23
/s/ Stanley R. Rawn, Jr. March 27, 2000
Stanley R. Rawn, Jr.
Director
/s/ Eric M. Reynolds March 27, 2000
Eric M. Reynolds
Director
/s/ John Spencer March 27, 2000
John Spencer
Director
/s/ John V. Tunney March 27, 2000
John V. Tunney
Director
24