SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1282-3
Swiss Army Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2797726
(State of incorporation) (I.R.S. Employer Identification No.)
One Research Drive, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 929-6391
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares of Issuer's Common Stock, $.10 par value, outstanding on
May 10, 2000, was 7,956,722 shares.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
March 31, 2000 (unaudited) and December 31, 1999. 3 - 4
Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 (unaudited). 5
Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 2000 and
1999 (unaudited). 6
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 (unaudited). 7
Notes to Consolidated Financial Statements 8 -9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10 - 11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 11
Part II: OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
Signatures 13
The Exhibit Index Appears on Page 12.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
March 31, December 31,
2000 1999
---------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 995 $ 1,302
Accounts receivable, less
allowance for doubtful accounts
of $1,060 for both periods 24,776 33,718
Inventories 38,703 30,227
Deferred income taxes 2,242 2,235
Prepaid and other 4,147 3,058
--------- ----------
Total current assets 70,863 70,540
--------- ----------
Deferred income taxes 1,460 1,474
Property, plant and equipment, net 4,752 4,856
Investments 6,204 4,476
Intangible assets, net 11,246 11,548
Other assets 14,748 14,710
--------- ----------
Total Assets $109,273 $107,604
========= ==========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Liabilities and Stockholders' Equity
March 31, December 31,
2000 1999
----------- ------------
(unaudited)
Current liabilities:
Current portion of long-term debt $ 875 $ 875
Accounts payable 11,690 7,732
Accrued liabilities 8,538 10,562
------- ---------
21,103 19,169
Long-term liabilities:
Long-term debt 10,388 11,362
Other 792 693
------- ---------
Total Liabilities 32,283 31,224
------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share:
shares authorized -2,000,000; no shares
issued - -
Common stock, par value $.10 per
share: shares authorized -
18,000,000; shares issued -
8,866,968 and 8,868,218, respectively 886 886
Additional paid-in capital 49,126 49,137
Accumulated other comprehensive
income (loss) (85) (401)
Retained earnings 35,852 35,576
-------- --------
85,779 85,198
Less: Treasury stock; 1,014,108 shares
for both periods (8,711) (8,711)
Deferred compensation (78) (107)
-------- --------
Total stockholders' equity 76,990 76,380
-------- --------
Total Liabilities and Stockholders' Equity $109,273 $107,604
========= =========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
2000 1999
---- ----
Net sales $25,310 $23,570
Cost of sales 15,769 14,621
------- -------
Gross profit 9,541 8,949
Selling, general and administrative expenses 10,485 9,990
------- -------
Operating loss (944) (1,041)
Investment gain (loss), net 1,419 420
Interest income (expense), net (214) 7
Other income 226 -
------- --------
Total other income, net 1,431 427
------- --------
Income (loss) before income taxes 487 (614)
Income tax provision (benefit) 211 (261)
------- --------
Net income (loss) $276 ($353)
======= ========
Earnings per share:
Basic $0.03 ($0.04)
======= ========
Diluted $0.03 ($0.04)
======= ========
Weighted average number of
shares outstanding:
Basic 8,169 7,885
======= ========
Diluted 8,217 7,885
======= ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(in thousands, except share data)
(unaudited)
Accumulated
Additional Other
Common Stock Paid-In Comprehensive Retained Treasury Comprehensive
Par Value $.10 Capital Income (Loss) Earnings Stock Income (Loss)
----------------- ---------- -------------- -------- -------- --------------
BALANCE
December 31, 1998 8,858,218 $885 $46,472 $177 $35,456 ($8,194)
Net loss for the
three months ended
March 31, 1999 - - - - (353) - ($353)
Change in unrealized
gain on marketable
securities - - - (788) - - (788)
Foreign currency
translation
adjustment - - - 55 - - 55
--------
Comprehensive
income ($1,086)
========
Repurchase of
common stock - - - - - (448)
Stock options
exercised 10,000 1 53 - - -
----------- ------ -------- --------- -------- --------
BALANCE
March 31, 1999 8,868,218 $886 $46,525 ($556) $35,103 ($8,642)
=========== ====== ======== ========= ======== ========
BALANCE
December 31, 1999 8,868,218 $886 $49,137 ($401) $35,576 ($8,711)
Net income for the
three months ended
March 31, 2000 - - - - 276 - $276
Change in unrealized
gain on marketable
securities - - - 101 - - 101
Reclassification
adjustment for loss
included in net income - - - 208 - - 208
Foreign currency
translation
adjustment - - - 7 - - 7
-----
Comprehensive
income $592
=====
Cancellation of
stock grant (1,250) - (11) - - -
---------- ---- -------- ----- ------- -------
BALANCE
March 31, 2000 8,866,968 $886 $49,126 ($85) $35,852 ($8,711)
========== ===== ======== ====== ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
March 31,
2000 1999
---- ----
Cash flows from operating activities:
Net income (loss) $276 ($353)
Adjustments to reconcile net income (loss) to net
cash provided from operating activities:
Stock compensation expense 18 18
Depreciation and amortization 896 720
Investment gain (loss), net (1,419) (420)
Deferred income taxes 7 (16)
------- -------
(222) (51)
Changes in other current assets and liabilities:
Accounts receivable 8,982 8,361
Inventories (8,456) (5,910)
Prepaid and other (1,091) 2,141
Accounts payable 3,928 (1,480)
Accrued liabilities (1,920) (1,194)
-------- -------
Net cash provided from operating activities 1,221 1,867
-------- -------
Cash flows from investing activities:
Capital expenditures (343) (189)
Additions to other assets (183) (350)
Sale of long-term investments - 1,972
-------- -------
Net cash provided from (used in)
investing activities (526) 1,433
-------- -------
Cash flows from financing activities:
Repurchase of common stock - (448)
Borrowings under bank agreement 12,380 10,110
Repayments under bank agreement (13,354) (9,190)
Proceeds from exercise of stock options - 54
-------- -------
Net cash provided from (used in)
financing activities (974) 526
-------- -------
Effect of exchange rate changes on cash (28) 34
-------- -------
Net increase (decrease) in cash and cash equivalents (307) 3,860
Cash and cash equivalents, beginning of period 1,302 1,309
-------- -------
Cash and cash equivalents, end of period $ 995 $ 5,169
======== =======
Cash paid during the period:
Interest $ 264 $ 27
======== =======
Income taxes $ 869 $ -
======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(unaudited)
CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------
The consolidated financial statements included in this Form 10-Q have been
prepared by Swiss Army Brands, Inc. ("Swiss Army" or the "Company") without
audit. Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999. In the opinion of management of the
Company, the interim financial statements included herein reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Due to the seasonal nature of the Company's business, the
results of operations for the interim periods presented are not necessarily
indicative of the operating results for the full year.
INVENTORIES
- -----------
Domestic inventories are stated at the lower of cost (determined by the
last-in, first-out (LIFO) method) or market. Foreign inventories are valued at
the lower of cost or market determined by the FIFO method. Inventories
principally consist of finished goods.
INVESTMENTS
- -----------
Investments consist of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
(in thousands)
Preferred units of Highgate
Capital LLC (A) $3,613 $3,613
Common stock of John Hancock Financial
Services, Inc. (B) 1,728 -
Preferred units of
Victory Ventures LLC (C) 851 851
Common stock of Chaparral Resources,
Inc.(D) 12 12
------- -------
Total investments $ 6,204 $4,476
======= =======
(A) Highgate Capital LLC, formerly known as Hudson River Capital LLC, is a
private equity firm specializing in middle market acquisitions,
re-capitalization and expansion capital investments.
(B) In January 2000, the Company received 95,707 shares of common stock of
John Hancock Financial Services, Inc. ("John Hancock") related to the
demutualization of John Hancock. As a result, the Company recorded an
investment gain of $1,627,000. The Company accounts for this investment at
fair value, with changes between cost and fair value reflected as a
separate component of stockholder's equity.
(C) Victory Ventures LLC is a private equity firm specializing in small
venture capital investments.
(D)Chaparal Resources, Inc. ("Chaparal"), a publicly traded company, is an
independent oil and gas exploration and production company. At March 31,
2000, the Company owned 87,634 shares of Chaparal common stock. In the
three months ended March 31, 2000, the Company recorded a $208,000
write-down of its investment in Chaparal due to the other than temporary
impairment in the value of the investment.
INCOME TAXES
- ------------
Income taxes are provided at the projected annual effective tax rate. The
income tax provision (benefit) for the interim 2000 and 1999 periods exceed the
federal statutory rate of 34% due primarily to state income taxes.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(unaudited)
RESULTS OF OPERATIONS
---------------------
Net sales for the three months ended March 31, 2000 were $25.3 million
compared with $23.6 million for the same period in 1999, representing an
increase of $1.7 million or 7.4%. The sales increase was due primarily to $1.6
million in sales related to Bear Cutlery, Inc. ("Bear"), which was acquired in
April 1999, and an increase in sales of Victorinox products offset in part by a
decrease in watch sales and a decrease in sales related to special promotional
programs with one customer.
Gross profit of $9.5 million for the three months ended March 31, 2000
increased $0.6 million or 6.6% from 1999. The gross profit margin percentage for
the of 2000 period of 37.7% was lower than the gross profit margin percentage of
38.0% reported for the same period in 1999, primarily due to unfavorable product
mix. The Company's gross profit margin is a function of both product mix and
Swiss franc exchange rates. Since the Company imports virtually all of its
products from Switzerland, its costs are affected by both the spot rate of
exchange and by its foreign currency hedging program. The Company enters into
foreign currency contracts and options to hedge the exposure associated with
foreign currency fluctuations. Based upon current Swiss franc requirements, the
Company believes it is hedged through the second quarter of 2001. However, such
hedging activity cannot eliminate the long-term adverse impact on the Company's
competitive position and results of operations that would result from a
sustained decrease in the value of the dollar versus the Swiss franc. These
hedging transactions, which are meant to reduce foreign currency risk, also
reduce the beneficial effects to the Company if the dollar increases relative to
the Swiss franc. The Company plans to continue to engage in hedging
transactions; however, the extent to which such hedging transactions will reduce
the effect of adverse currency fluctuations is uncertain.
Selling, general and administrative expenses for the three months ended
March 31, 2000 of $10.5 million were $0.5 million or 5.0% higher than the amount
for the comparable period in 1999. The increase was primarily due to expenses
related to Bear. As a percentage of net sales, selling general and
administrative expenses decreased from 42.4% in 1999 to 41.4% in 2000.
Investment gain (loss), net was a gain of $1,419,000 due to a $1,627,000
gain from the common stock received related to the demutualization of John
Hancock Financial Services, Inc. offset in part by a $208,000 loss related to
the write-down of the Company's common stock investment in Chaparal Resources,
Inc. The investment gain in 1999 of $420,000 was due to a sale of the Company's
investment in Iron Mountain, Inc.
Interest income (expense), net was expense of $214,000 for the three months
ended March 31, 2000 compared to income of $7,000 in 1999. The change was
primarily due to the interest expense incurred on the debt related to the
acquisition of Bear.
Other income of $226,000 represents royalty income related to the November
1999 introduction of the Victorinox Travel Gear Program.
As a result of these changes, income (loss) before income taxes for the
three months ended March 31, 2000 was income of $487,000 versus a loss of
$614,000 for the same period in 1999, a change of $1,101,000.
Income tax provision (benefit) was provided at an effective rate of 43.3%
in 2000 and 42.5% in 1999.
As a result, net income (loss) for the three months ended March 31, 2000
was income of $276,000 ($0.03 per share - basic and diluted) versus a loss of
$353,000 ($0.04 per share - basic and diluted) for the same period in 1999, a
change of $629,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of March 31, 2000, the Company had working capital of $49.8 million
compared with $51.4 million as of December 31, 1999, a decrease of $1.6 million.
Significant uses of working capital included a $0.2 million increase in other
assets, capital expenditures of $0.4 million and repayment of debt. The Company
currently has no material commitments for capital expenditures.
Cash provided from operating activities was approximately $1.2 million in
the three months ended March 31, 2000 compared with $1.9 million in the
comparable period in 1999. The change resulted primarily from a larger increase
in inventory in 2000 compared to 1999, an increase in prepaid and other in 2000
compared to a decrease in 1999, offset in part by an increase in accounts
payable in 2000 as compared to a decrease in 1999.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its revolving credit
agreement. As of March 31, 2000, the Company had $11,263,000 of outstanding
borrowings under its bank agreement. The Company has a $23.0 million credit
facility, consisting of a $16.0 million credit line and a $7.0 million term
loan. The Company's short-term liquidity is affected by seasonal changes in
inventory levels, payment terms and seasonality of sales. The Company believes
its current liquidity levels and financial resources will be sufficient to meet
its operating needs in the near-term.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Foreign Exchange Risk
The Company is exposed to market risk from changes in foreign exchange
rates as the Company imports virtually all its products from Switzerland. To
minimize the risks associated with fluctuations in the value of the Swiss franc
versus the U.S. dollar, the Company enters into foreign currency contracts and
options. Pursuant to guidelines approved by its Board of Directors, the Company
is to engage in these activities only as a hedging mechanism against foreign
exchange rate fluctuations associated with specific inventory purchase
commitments to protect gross margin and is not to engage in speculative trading.
Gains or losses on these contracts and options are deferred and recognized in
cost of sales when the related inventory is sold. At March 31, 2000, the Company
has entered into foreign currency contracts and options to purchase
approximately 90,975,000 Swiss francs in the years 2000 and 2001 at a weighted
average rate $1.537 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 March
31, 2000, 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a.) Exhibits
*(10.1) Amended and Restated Trademark License Agreement,
dated as of February 17, 2000, between the Registrant and TRG
Accessories, LLC.
(27) Financial data schedule
b.) There were no reports or exhibits on Form 8-K for the three months ended
March 31, 2000.
* Confidential treatment has been requested for portions of this Exhibit.
Pursuant to the requirements to the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Swiss Army Brands, Inc.
-----------------------
(Registrant)
Date: May 15, 2000
By /s/ Thomas M. Lupinski
-------------------------
Name: Thomas M. Lupinski
Title: Senior Vice President,
Chief Financial Officer, Secretary
and Treasurer