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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1282-3
Swiss Army Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2797726
(State of incorporation) (I.R.S. Employer Identification No.)
One Research Drive, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 929-6391
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of registrant's Common Stock, $.10 par value,
outstanding on November 13, 2000 was 8,065,346 shares.
SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page No.
- ------------------------------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 30, 2000 (unaudited) and December 31, 1999. 3 - 4
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000
and 1999 (unaudited). 5
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the Nine Months Ended
September 30, 2000 and 1999 (unaudited). 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999
(unaudited). 7
Notes to Consolidated Financial Statements 8 - 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11 - 14
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14
Part II: OTHER INFORMATION
- ---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signatures 15
The Exhibit Index appears on page 14.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
September 30, December 31,
2000 1999
(unaudited)
Current assets:
Cash and cash equivalents $ 5,182 $ 1,302
Accounts receivable, less
allowance for doubtful accounts
of $1,060 for both periods 28,970 33,718
Inventories 41,139 30,227
Deferred income taxes 2,242 2,235
Prepaid and other 5,451 3,058
--------- ---------
Total current assets 82,984 70,540
--------- ---------
Deferred income taxes 1,460 1,474
Property, plant and equipment, net 7,077 4,856
Investments 7,308 4,476
Intangible assets, net 12,767 11,548
Other assets, net 14,915 14,710
--------- ---------
Total Assets $126,511 $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)
Liabilities and Stockholders' Equity
September 30, December 31,
2000 1999
(unaudited)
Current liabilities:
Current portion of long-term debt $ 1,473 $ 875
Accounts payable 10,767 7,732
Accrued liabilities and other 9,212 10,562
--------- ---------
Total current liabilities 21,452 19,169
--------- ---------
Long-term liabilities:
Long-term debt 19,236 11,362
Other 919 693
--------- ---------
Total Liabilities 41,607 31,224
--------- ---------
Minority interest 5,611 -
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per
share: shares authorized -2,000,000;
no shares issued - -
Common stock, par value $.10 per
share: shares authorized -
18,000,000; shares issued - 8,971,080
and 8,866,218, respectively 897 886
Additional paid-in capital 49,006 49,137
Accumulated other comprehensive
income (loss) 639 (401)
Retained earnings 36,796 35,576
--------- --------
87,338 85,198
Less: Treasury stock: 905,734 and
1,014,108, respectively (8,003) (8,711)
Deferred compensation (42) (107)
---------- --------
Total stockholders' equity 79,293 76,380
---------- --------
Total Liabilities and Stockholders' Equity $126,511 $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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net revenues $32,719 $33,026 $87,644 $86,992
Cost of sales 19,920 20,228 53,380 53,255
-------- -------- -------- --------
Gross profit 12,799 12,798 34,264 33,737
Selling, general and
administrative expenses 11,203 11,210 32,930 32,530
-------- -------- -------- --------
Operating income 1,596 1,588 1,334 1,207
Interest income
(expense), net (294) (235) (852) (371)
Investment gain (loss), net - - 1,583 (2,280)
-------- -------- -------- --------
Total other income
(expense), net (294) (235) 731 (2,651)
-------- -------- -------- --------
Income (loss) before
income taxes 1,302 1,353 2,065 (1,444)
Income tax provision 525 587 857 269
Minority interest (12) - (12) -
-------- -------- --------- --------
Net income (loss) $789 $766 $1,220 ($1,713)
======== ======== ========= ========
Earnings per share:
Basic $0.10 $0.10 $0.15 ($0.22)
===== ===== ===== =======
Diluted $0.10 $0.10 $0.15 ($0.22)
===== ===== ===== =======
Weighted average number of
shares outstanding:
Basic 8,037 7,854 7,943 7,864
====== ====== ====== ======
Diluted 8,250 8,048 8,157 7,864
====== ====== ====== ======
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands, except for share data)
Accumulated
Common Stock Additional Other
Par Value $.10 Paid-In Comprehensive Retained Treasury Comprehensive
Shares Amount Capital Income (Loss) Earnings Stock Income (Loss)
------ ------ ---------- ------------- -------- -------- -------------
BALANCE
December 31, 1998 8,858,218 $885 $46,472 $177 $35,456 ($8,194) -
Comprehensive loss:
Net loss - - - - (1,713) - ($1,713)
Change in unrealized gain
on marketable securities - - - (781) - - (781)
Foreign currency
translation adjustment - - - 155 - - 155
-------
Comprehensive loss ($2,339)
=======
Acquisition of Bear MGC
Cutlery, Inc. - - 1,500 - - -
Repurchase of
common stock - - - - - (517)
Stock options exercised 10,000 1 53 - - -
----------- ------ -------- ------- --------- --------
BALANCE
September 30, 1999
(unaudited) 8,868,218 $886 $48,025 ($449) $33,743 ($8,711)
=========== ====== ======== ======= ========= =========
BALANCE
December 31, 1999 8,866,218 $886 $49,137 ($401) $35,576 ($8,711)
Comprehensive income:
Net income - - - - 1,220 - $1,220
Foreign currency
translation adjustment - - - (208) - - (208)
Change in unrealized gain
in marketable securities - - - 1,248 - - 1,248
-------
Comprehensive income $2,260
=======
Issuance of common stock 106,112 11 (11) - - -
Acquisition of Xantia, S.A. - - (110) - - 708
Cancellation of stock grant (1,250) - (10) - - -
------------ ------ -------- -------- --------- --------
BALANCE
Septmber 30, 2000
(unaudited) 8,971,080 $ 897 $ 49,006 $639 $36,796 ($8,003)
============ ====== ========= ======== ========= ========
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)
Nine months ended
September 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income (loss) $ 1,220 ($ 1,713)
Adjustments to reconcile net income (loss) to cash
provided from (used in) operating activities:
Minority interest (12) -
Depreciation and amortization 2,330 2,389
Stock compensation expense 55 55
Deferred income taxes 7 (298)
Investment (gain) loss, net (1,583) 2,280
--------- --------
2,017 2,713
Changes in other current assets and liabilities:
Accounts receivable 5,290 3,099
Inventories (8,319) (8,147)
Prepaid and other (2,384) 2,651
Accounts payable 3,204 (5,184)
Accrued liabilities (1,581) (556)
--------- --------
Net cash used in operating activities (1,773) (5,424)
--------- --------
Cash flows from investing activities:
Acquisition of Xantia, S.A., net of cash acquired (1,296) -
Acquisition of Bear MGC Cutlery, Inc., net of
cash acquired - (7,976)
Capital expenditures (518) (1,190)
Other assets (592) (2,031)
Proceeds from sale of investment - 1,972
--------- --------
Net cash used in investing activities (2,406) (9,225)
--------- --------
Cash flows from financing activities:
Borrowings under debt agreements 45,967 47,580
Repayments under debt agreements (37,368) (33,730)
Repurchase of common stock - (517)
Proceeds from exercise of stock options - 54
--------- --------
Net cash provided from financing activities 8,599 13,387
--------- --------
Effect of exchange rate changes on cash (540) (47)
--------- --------
Net increase (decrease) in cash and cash equivalents 3,880 (1,309)
Cash and cash equivalents, beginning of period 1,302 1,309
--------- --------
Cash and cash equivalents, end of period $5,182 $ -
========= ========
Cash paid during the period:
Interest $ 782 $ 330
========= ========
Income taxes $ 300 $ 425
========= ========
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
SEPTEMBER 30, 2000 and 1999
(unaudited)
CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------
The consolidated financial statements included in this Form 10-Q have been
prepared by Swiss Army Brands, Inc. ("Swiss Army" or the "Company") without
audit. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. It is suggested that these
consolidated financial statements be read in conjunction with the 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.
ACQUISITION
- -----------
On July 24, 2000, the Company and Victorinox AG, a Swiss Corporation and a
principal supplier to and substantial shareholder of the Company ("Victorinox"),
each acquired 50% of the issued and outstanding capital stock of Xantia, S.A.
Fabrique de Montres Precision ("Xantia"), the principal manufacturer and
assembler of watches sold by the Company. The Xantia shares were acquired by
both firms from Michel and Irene Thievent (the "Sellers") pursuant to an
agreement of June 23, 2000, as amended by agreements of July 10, 2000 and July
24, 2000 (collectively the "Agreements"), which contain provisions intended to
secure ongoing control of Xantia by the Company.
Pursuant to the Agreements, the Company paid at the closing 2,250,000 Swiss
Francs ("CHF") ($1,354,500) and delivered 108,374 shares of the Company's
common stock ("Common Stock"), such shares being valued for purposes of the
Agreements at 1,000,000 CHF ($598,000). At the closing, Victorinox paid to the
Sellers 3,250,000 CHF ($1,943,500). Each of the Company and Victorinox also
agreed to pay an additional 12,000,000 CHF over the next seven years plus
interest with the total purchase price subject to upward or downward adjustment
of up to 1,000,000 CHF.
The source of funds for the acquisition by the Company was a bank line of credit
from the Company's existing lender.
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
Xantia 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, including amounts paid or owed by Victorinox and the issuance of
the Common Stock, has resulted in acquired goodwill and other intangible assets
of approximately $2.1 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..................................... $4,127
Accounts receivable...................... 2,015
Inventory................................ 3,102
Other current assets..................... 25
Plant and equipment...................... 2,808
Intangible assets and goodwill........... 2,148
Accrued expenses and other liabilities... (2,441)
--------
$11,784
========
INVESTMENTS
- -----------
Investments consist of the following:
September 30, 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) 2,832 -
Preferred units of
Victory Ventures LLC (C) 851 851
Common stock of Chaparral Resources,
Inc. (D) 12 12
-------- --------
Total investments $7,308 $4,476
======== ========
(A) Highgate Capital LLC ("Highgate"), formerly known as Hudson River Capital
LLC, is a private equity firm specializing in middle market acquisitions,
re-capitalization and expansion capital investments. In the three months ended
June 30, 1999, the Company recorded a $2.7 million non-cash write-down of the
investment in Highgate due to the other than temporary impairment in the value
of the investment. The Company accounts for this investment on the cost basis,
subject to review for permanent impairment. Since this investment does not have
a readily determinable fair value, the valuation is subject to uncertainty.
(B) In the first quarter of 2000, the Company received 95,707 shares of common
stock of John Hancock Financial Services, Inc. ("John Hancock") related to the
demutualization of John Hancock. As a result, the Company recorded an investment
gain of $1,627,000 in the first quarter of 2000. In the second quarter of 2000,
the Company received an additional 9,663 shares of common stock of John Hancock.
As a result, the Company recorded an additional gain of $164,000 in the second
quarter of 2000. The Company accounts for this investment at fair value, with
changes between cost and fair value reflected as a separate component of
stockholders' equity.
(C) Victory Ventures LLC is a private equity firm specializing in small venture
capital investments.
(D) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is an
independent oil and gas exploration and production company. At September 30,
2000, the Company owned 1,461 shares of Chapparal common stock. In the three
months ended March 31, 2000, the Company recorded a non-cash write-down of
$208,000 of its investment in Chapparal due to the other than temporary
impairment in the value of the investment.
INCOME TAXES
- ------------
Income taxes are provided at the projected annual effective tax rate. The
income tax benefit for the nine months ended September 30, 1999 is lower than
the federal statutory rate of 34% as the Company has taken limited tax benefits
on the capital loss write-down of the Hudson River investment. The income tax
provisions for the periods ended September 30, 2000 and the three month period
ended September 30, 1999, exceed the federal statutory rate of 34% due primarily
to state income taxes (net of federal benefit).
EARNINGS PER SHARE
- ------------------
For the nine month period ended September 30, 1999, the weighted average
number of shares of common stock outstanding do not include the effect of stock
options as they would have had an anti-dilutive effect.
RECENT ACCOUNTING PRONOUNCEMENT
- -------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities." This
statement standardizes the accounting and reporting standards for derivatives
and hedging activities and is effective for fiscal years beginning after June
15, 2000. The Company will adopt this statement effective January 1, 2001. The
Company is currently evaluating the impact of SFAS No. 133 on the Company's
financial position and results of operations and has yet to determine the impact
of the adoption of this statement.
LINE OF CREDIT
- --------------
In connection with the acquisition of Xantia, on July 24, 2000, the Company
amended its line of credit agreement, which among other things, added a new term
loan of $1.6 million. The term loan is repayable at $22,222 per month over a six
year period.
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
FORWARD LOOKING STATEMENTS
--------------------------
The following discussion contains, in addition, to historical information,
forward looking statements. The forward looking statements were prepared on the
basis of certain assumptions which relate, among other things, to the demand for
and cost of purchasing and marketing the Company's products; the prices at which
such products may be sold; new product development; seasonal selling trends; the
Swiss franc- U.S. dollar exchange rates; the extent to which the Company is able
to successfully hedge against foreign currency fluctuations and the Company's
anticipated credit needs and ability to obtain such credit. Even if the
assumptions upon which the projections are based prove accurate and appropriate,
the actual results of the Company's operations in the future may vary widely
from financial projections due to increased competition, changes in consumer
tastes and other factors not yet known or anticipated. Accordingly, the actual
results of the Company's operations in the future may vary widely from the
forward- looking statements included herein.
RESULTS OF OPERATIONS
---------------------
Comparison of the Three Months Ended September 30, 2000 and 1999
- ----------------------------------------------------------------
Net revenues consist of the following:
2000 1999
---- ----
Product sales, net $32,253 $33,026
Royalty income 466 -
------- -------
$32,719 $33,026
======= =======
Product sales for the three months ended September 30, 2000 were $32.3
million compared with $33.0 million for the same period in 1999, representing a
decrease of $0.8 million or 2.3%. The sales decrease was primarily due to a
decrease in watch sales, offset in part by an increase in sales of Victorinox
Original Swiss Army Knives and Victorinox SwissCards and sales related to
Xantia, in which the Company acquired a controlling interest in July 2000.
Royalty income relates to the licensing program of Victorinox Travel Gear, which
was introduced in the fourth quarter of 1999.
Gross profit of $12.8 million for the three months ended September 30, 2000
was even with the amount for the comparable period in 1999. The gross profit
margin percentage for the third quarter of 2000 of 39.1% was higher than the
gross profit margin percentage of 38.8% reported for the same period in 1999
primarily because royalty income revenues have a higher gross margin than
product sales and due to an increase in the value of the U.S. dollar versus the
Swiss franc, offset partially by unfavorable product mix. The Company's gross
profit margin is a function of both product mix (including royalty income) and
Swiss franc exchange rates.
The Company imports the majority of its products from Switzerland, its
costs are affected by both the spot rate of exchange and by its foreign currency
and hedging program. The Company enters into foreign currency contracts and
options to hedge the exposure associated with foreign currency fluctuations.
Based upon current Swiss franc requirements, the Company believes it is hedged
through the third quarter of 2001. However, such hedging activity cannot
eliminate the long-term adverse impact on the Company's competitive position and
results of operations that would result from a sustained decrease in the value
of the dollar versus the Swiss franc. These hedging transactions, which are
meant to reduce foreign currency risk, also reduce the beneficial effects to the
Company if the dollar increases relative to the Swiss franc. The Company plans
to continue to engage in hedging transactions; however, it is uncertain of the
extent to which such hedging transactions will reduce the effect of adverse
currency fluctuations.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 of $11.2 million were even with the amount for the comparable
period in 1999. As a percentage of net sales, total selling, general and
administrative expenses increased from 33.9% in 1999 to 34.2% in 2000.
Interest income (expense) and other, net was expense of $294,000 for the
three months ended September 30, 2000, compared to expense of $235,000 for the
comparable period in 1999 primarily due to increased borrowings related to the
acquisition of Xantia.
As a result of these changes, income before income taxes for the three
months ended September 30, 2000 was $1,302,000 versus $1,353,000 for the same
period in 1999, a decrease of $51,000.
Income tax expense was provided at an effective rate of 40.3% and 43.4% in
2000 and 1999, respectively.
As a result, net income for the three months ended September 30, 2000 was
$789,000 ($0.10 per share-basic and diluted) versus $766,000 ($0.10 per share
- -basic and diluted) for the same period in 1999, an increase of $23,000.
Comparison for the Nine Months Ended September 30, 2000 and 1999
- ----------------------------------------------------------------
Net revenues consist of the following:
2000 1999
---- ----
Product sales, net $86,674 $86,992
Royalty income 970 -
------- -------
$87,644 $86,992
======= =======
Product sales for the nine months ended September 30, 2000 were $86.9
million compared with $87.0 million for the same period in 1999, representing an
decrease of $0.1 million or 0.2%. The sales decrease was due to lower watch
sales, offset partially by the sales related to Bear Cutlery, Inc. ("Bear")
which was acquired in April 1999, an increase in sales of Victorinox products
and sales related to Xantia. Royalty income relates to the licensing program of
Victorinox Travel Gear, which was introduced in the fourth quarter of 1999.
Gross profit of $34.3 million for the nine months ended September 30, 2000
increased by $0.6 million or 1.6% from 1999. The gross profit margin percentage
for the nine months of 2000 of 39.1% was higher than the gross profit margin
percentage of 38.8% reported for the same period in 1999 primarily because
royalty income revenues have a higher gross margin than product sales and due to
an increase in the value of the U.S. dollar versus the Swiss franc, offset
partially by unfavorable product mix.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 of $32.9 million were $0.4 million or 1.2% higher than the
amount for the comparable period in 1999. The increase was primarily due to
operating expenses of Bear. As a percentage of net sales, total selling, general
and administrative expenses increased from 37.4% in 1999 to 37.6% in 2000.
Interest income (expense) and other, net was expense of $852,000 for the
nine months ended September 30, 2000 compared to $371,000 in the comparable
period in 1999 due to increased borrowings related to the acquisition of Bear
and Xantia.
Investment gain (loss), net was a gain of $1,583,000 due to a $1,791,000
gain from the common stock received related to the demutualization of John
Hancock Financial Services, Inc. offset in part by a $208,000 loss related to
the write-down of the Company's common stock investment in Chapparal Resources,
Inc. The investment loss in 1999 of $2,280,000 was due to a $2.7 million
non-cash write-down of the investment in Highgate Capital, LLC offset in part by
a $420,000 gain from the sale of its investment in Iron Mountain, Inc.
As a result of these changes, income (loss) before income taxes for the
nine months ended September 30, 2000 was income of $2,065,000 versus a loss of
$1,444,000 for the same period in 1999, an increase of $3,509,000.
Income tax expense (benefit) was provided at an effective rate of 41.1% and
18.6% in 2000 and 1999, respectively. The income tax benefit for 1999 was
significantly lower than the statutory rate of 34% as the Company took limited
tax benefits on the capital loss write-down of the Highgate Captial investment.
As a result, net income (loss) for the nine months ended September 30, 2000
was income of $1,220,000 ($0.15 per share - basic and diluted) versus a loss of
$1,713,000 ($0.22 per share - basic and diluted) for the same period in 1999, an
increase of $2,933,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of September 30, 2000, the Company had working capital of $61.5 million
compared with $51.4 million as of December 31, 1999, an increase of $10.1
million. The increase was primarily due to the acquisition of Xantia.
Significant uses of working capital included capital expenditures of $0.5
million and additions to other assets of $0.6 million. The Company currently has
no material commitments for capital expenditures.
Cash used in operating activities was approximately $1.8 million in the
nine months ended September 30, 2000 compared with cash used in operating
activities of $5.4 million in the comparable period in 1999. The change resulted
primarily from a larger decrease in receivables in 2000 compared to 1999, an
increase in accounts payable in 2000 as compared to a decrease in 1999, offset
partially by an increase in other current assets in 2000 versus a decrease in
1999.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its bank agreement. The
Company currently has a $16.0 million line of credit, of which $9,400,000 was
outstanding as of September 30, 2000. This line of credit expires in June 2001.
The Company expects to renew the line of credit with terms and conditions
consistent with the existing line of credit. Also, the Company has $7,849,000
outstanding under its term loans as of September 30, 2000. The Company's
short-term liquidity is affected by seasonal changes in sales and inventory
levels. The Company believes its current liquidity levels and financial
resources continue to be sufficient to meet its operating needs for the next
twelve months.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
The Company is exposed to market risk from changes in foreign exchange
rates as the Company imports the majority of 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 September 30, 2000, the
Company has entered into foreign currency contracts and options to purchase
approximately 71.9 million Swiss francs in 2000 and 2001 at a weighted average
rate $1.547 Swiss franc/dollar. At September 30, 2000, the unrealized loss on
these contracts and options was approximately $4.8 million. The Company's
ultimate unrealized gain or loss on these contracts and options will primarily
depend on the currency exchange rates in effect at the time the contracts and
options mature.
PART II OTHER INFORMATION
-------------------------
Exhibits and Reports on Form 8-K
A) Exhibits
2.1 Share Purchase Agreement, dated as of June 23, 2000 (the "Xantia
Agreement"), by and among the Company, Swiss Army Brands CH, Inc. (the "Buyer")
and Michel and Irene Thievent (collectively, the "Sellers") with respect to
Xantia, S.A. Fabrique de Montres Precision ("Xantia") ; incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on
August 7, 2000.
2.2 Amendment to the Xantia Agreement, dated as of July 10, 2000, by and among
the the Buyer, and the Sellers; incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K filed on August 7, 2000.
2.3 Second Amendment to the Xantia Agreement, dated as of July 24, 2000, by and
among the Company, the Buyer, the Sellers and Victorinox AG;.incorporated by
reference to Exhibit 2.3 to the Company's Current Report on Form 8-K filed on
August 7, 2000.
(11) Statement regarding computation of per share earnings is not required
because the relevant computation can be clearly determined from the material
contained in the Financial Statements included herein.
(27) Financial Data Schedule
B) The Company filed a report on Form 8-K on August 7,2000 and a report on Form
8K/A on October 6, 2000 related to the acquisition of Xantia for items 2 and 7,
including historical financial statemtents and pro forma financial information.
SIGNATURES:
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: November 14, 2000
By/s/Thomas M. Lupinski
Name: Thomas M. Lupinski
Title: Senior Vice President &
Chief Financial Officer, Secretary
and Treasurer