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, 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
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 non-affiliates of the
registrant on March 20, 2001, was approximately $16,300,000. On such date, the
closing price of registrant's common stock was $6.3125 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, 2001 was 8,065,346 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
24, 2001 are incorporated by reference in Part III herein.
PART I
------
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, the impact of generally adverse economic conditions 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
herein.
Item 1. Business.
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SwissArmy Brands, Inc. ("SABI" or the "Company") imports, manufactures and
distributes consumer products, including watches, pocketknives, cutlery,
multi-tools and sunglasses. 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. Also, the Company
manufactures and distributes 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 A.G. ("Victorinox"), a Swiss corporation
and Europe's largest cutlery producer. In December 2000, Victorinox and its
affiliates, long-time stockholders of the Company purchased sufficient shares of
SABI common stock in private and open market transactions to acquire majority
control of the Company. As of February 28, 2001, Victorinox owned approximately
66% of the Company's outstanding common stock. See "Victorinox Distribution
Agreements" for further information.
In July 2000, the Company purchased a controlling interest in Xantia, S.A.,
which designs and manufactures watches. Xantia is the principal supplier of
watches to the Company, and in addition they also manufacture watches for third
party customers. See Note 4 to the Company's Consolidated Financial Statements
included herein for further information.
The Company is engaged in one line of business - the importation,
manufacture and distribution of consumer products, including watches,
pocketknives, cutlery, multi-tools and sunglasses. Total SABI revenues for the
calendar years 2000, 1999 and 1998 were $132,022,000, $129,546,000, and
$127,851,000, respectively. Sales of Victorinox Original Swiss Army Knives,
Victorinox SwissTools, Victorinox SwissCards and Bear MGC products, accounted
for approximately 43% of SABI's 2000 revenues while watches and other Swiss Army
Brand products accounted for approximately 39%. Sales of professional and
consumer cutlery accounted for approximately 15% of SABI's 2000 revenues while
other products and licensing accounted for approximately 3%. No customer
accounted for more than 10% of net sales during any year in the three-year
period ended December 31, 2000. See Note 16 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, 2000, SABI and its subsidiaries had
289 full-time employees, including 10 in Canada and 35 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), with suggested retail
prices primarily in the range of $10 to $100. SABI also offers multi-function
lockblade knives designed for the hunting and outdoor market, the Victorinox
SwissCard, a credit card shaped, ten-function instrument, and the Victorinox
SwissTool, a multi-tool with 24 features, including full size pliers. In 1999,
the Company added to its product line a collection of specialty tools: the
Victorinox CyberTool, Victorinox GolfTool, Victorinox Altimeter Knife,
AutoTool and SportRatchetTool, which tools are designed for use in specific
activities.
SABI's line of Swiss Army Brand products currently includes 40 models of
Swiss Army Brand Watches with over 125 SKUs ranging from the Active Collection,
starting at a suggested retail price of $85, to the Professional Collection,
which tops out at a suggested retail price of $1,395. In July 2000, the Company
purchased a controlling interest in Xantia. The Company purchases substantially
of its Swiss Army Brand Watches from Xantia. SABI's line of Swiss Army Brand
Sunglasses includes four models with suggested retail prices ranging from $60 to
$80 and its line of Swiss Army Brand writing instruments includes six SKUs at a
suggested retail price of $95.
The Company also sells stainless steel professional cutlery products
primarily manufactured by Victorinox. The majority of SABI's professional
cutlery products are marketed under the trademarks "Forschner" and "R.H.
Forschner." 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 it has the second largest share of all professional
cutlery, foreign and domestic, sold in this country. SABI believes that it has
achieved and maintained its market share due to the quality of its products.
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 and 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.
Sales of Victorinox Original Swiss Army Knives and Swiss Army Brand
products are generally seasonal with sales typically stronger during September
through December.
3
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 pocketknives 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"), a United States based company, reflecting a prior informal
arrangement between the two companies. Under the agreement, TRG develops,
manufactures and markets a line of travel gear under the Victorinox trademark
and the famous Victorinox Crest. The collection, including luggage, backpacks
and small leather goods (wallets, PDA covers, etc.) was launched to select
department stores and specialty retailers in late 1999. The marks are
sub-licensed to TRG by the Company on a royalty basis in accordance with a
license agreement between the Company and Victorinox granting the Company the
right to utilize and sub-license the Victorinox trademarks in conjunction with
the development and international marketing of a collection of travel gear.
Victorinox Apparel
------------------
In October 2000, the Company signed a license agreement with Tropical
Sportswear International Corporation, ("TSI") a United States based company.
Under the agreement, TSI is to develop, manufacture and market a line of apparel
under the Victorinox trademark and the famous Victorinox Crest. The marks are
sub-licensed to TSI by the Company on a royalty basis in accordance with a
license agreement between the Company and Victorinox, granting the Company the
right to utilize and sub-license the Victorinox trademarks in conjunction with
the development and international marketing of a collection of Apparel.
Victorinox Apparel is a complete collection of menswear including shirts, pants,
sweaters, fleece and high performance outerwear.
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.
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.
4
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.
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 actively considers 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 any additional markets, or if entered
into, that such activities will be profitable.
If the Company's efforts to protect its owned and licensed 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. In its
capacity of licensor of certain trademarks the Company might be exposed to
additional costs should the exclusive rights to such trademarks be challenged.
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.
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
5
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. 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 rate, as defined. 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 rate, as defined, 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 work-manship 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 Distribution Agreements
----------------------------------
All of SABI's pocketknives and the majority of its cutlery, except for the
Bear MGC products, are manufactured by 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.
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:
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").
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, which were renewed 2000, 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.
6
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 2000, Victorinox agreed to
reduce the minimum purchase requirements. The Company met the
reduced minimum purchase requirements in years 1996 through 2000.
The Company is currently in negotiations with Victorinox
regarding the minimum purchase requirement for 2001.
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.
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. 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.
SABI will not sell any new cutlery items without the agreement of
Victorinox.
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"), which is controlled by Louis Marx, Jr., a
Director of SABI, in exchange for shares of the common stock of that
corporation.
In addition, pursuant to agreements between the Company and Victorinox,
Victorinox has granted the Company the right to utilize and sub-license the
Victorinox trademarks and the famous Victorinox Crest to third parties with the
development and marketing of Victorinox Travel Gear and Apparel.
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
7
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 to acquire 190,477 Series B Preferred Units of Hudson River. In 2000,
Hudson River changed its name to Highgate Capital LLC ("Highgate"). SABI's
interest in Highgate currently represents, in the aggregate, approximately 9.6%
of the equity of Highgate. Highgate is a private equity firm specializing in
middle market acquisitions, recapitalizations and expansion capital investments.
The preferred units of Highgate held by SABI carry a preference on liquidation
equal to their cost and, in certain instances, are entitled to an annual
preferred return.
In 1996, Highgate 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.
Brae Capital Corporation ("Brae Capital"), a wholly-owned subsidiary of
Brae, currently owns 490,000 of Highgate's common units and 2,279,763 of
Highgate's Series B Preferred Units (currently representing, in the aggregate,
approximately 29.9% of Highgate's outstanding equity). Mr. Marx is the owner of
700,000 plan units (representing approximately 7.5% of Highgate's outstanding
equity) issued by Highgate under its Equity Incentive Plan, which entitle Mr.
Marx to voting rights and to receive a portion of the appreciation of Highgate's
assets after the date of grant of such units under certain circumstances.
Brae Capital also currently owns 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). 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.
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 Highgate (representing approximately 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 Highgate 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 Highgate . 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 Highgate and Victory Ventures. Mr.
Robert S. Prather, Jr., a director of SABI, also serves as a director of Victory
Ventures.
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. The facility for warehousing, distribution, imprinting and assembly of
SABI is located in Shelton, Connecticut in approximately 85,000 square feet of
leased space. SABI moved into these premises in June 1991. The initial term of
the lease on this space expires on December 31, 2001, subject to renewal
options. The Company is currently reviewing its renewal options on the above
locations as well as exploring other alternatives related to the above
functions.
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 has been extended until December 31, 2001. The
Company is currently exploring its options regarding its facility needs for its
Canadian location. In 2000, SABI entered into a lease for 37.5 square meters of
space in Bienne, Switzerland for use as a distribution center. Also, the Company
leases 40,000 square feet for a building in Jacksonville, Alabama that Bear
Cutlery, Inc uses as its office, manufacturing and distribution facility. This
leases expires in April 2009. In addition, Xantia owns a building in Bienne,
Switzerland , which was constructed in 1997. The building is 1,500 square meters
and is used as the office, warehouse and manufacturing facility for Xantia.
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.
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
-------
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 1999 were as follows:
1999 2000 2001*
---- ---- ----
High Low High Low High Low
---- --- ---- --- ---- ---
First Quarter $10 1/8 $8 5/8 $8 1/2 $4 3/4 $6 11/16 $5 3/4
Second Quarter 10 7 5/8 6 7/8 5
Third Quarter 11 1/2 7 9/32 6 4 1/8
Fourth Quarter 9 1/2 6 5/8 6 7/16 5 3/16
*Through March 20, 2001.
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.
--------
On March 20, 2001, shares of Common Stock were held of record by 304
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, 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,
2000 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: 2000 1999 1998 1997(1) 1996(2)
---- ---- ---- ------- -------
Net revenues $ 132,022 $ 129,546 $127,851 $118,744 $130,030
Gross profit 50,706 50,940 49,982 42,724 40,836
Selling, general and administrative expenses 47,467 46,305 49,005 49,639 46,241
Operating income (loss) 3,239 4,635 977 (6,915) (5,405)
Investment gain (loss), net 1,508 (2,280) 1,651 398 (2,382)
Other income (expense), net (1,204) (704) 55 116 179
Income (loss) before income taxes 3,543 1,651 2,683 (6,401) (7,608)
Income tax provision (benefit) 1,579 1,531 1,220 (2,376) (2,343)
Minority interest (49) - - - -
Net income (loss) $ 2,013 $ 120 $ 1,463 ($ 4,025) ($ 5,265)
Earnings per share:
Basic $ 0.25 $ 0.02 $ 0.18 ($0.49) ($0.64)
Diluted $ 0.25 $ 0.01 $ 0.18 ($0.49) ($0.64)
Weighted average number of shares outstanding:
Basic 7,973 7,862 8,138 8,209 8,202
Diluted 8,187 8,021 8,236 8,209 8,202
Balance Sheet Data:
Current assets $ 78,612 $ 70,540 $ 70,383 $64,144 $70,933
Total assets 124,449 107,604 100,404 94,051 98,643
Current liabilities 21,002 19,169 25,210 18,343 18,787
Long-term debt 16,038 11,362 - - -
Stockholders' equity 80,684 76,380 74,598 75,708 79,856
Cash dividends per common share $ - $ - $ - $ - $ -
(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).
(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.
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operation.
- -------------
Results of Operations
The following table shows, as a percentage of net revenues, the Company's
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 2000:
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Net revenues 100.0% 100.0% 100.0%
Cost of sales 61.6 60.7 60.9
----- ----- -----
Gross profit 38.4 39.3 39.1
Selling, general and administrative
expenses 36.0 35.7 38.3
----- ----- -----
Operating income 2.4 3.6 0.8
Interest income (expense), net (0.8) (0.5) -
Investment gain (loss) , net 1.1 (1.8) 1.3
Other income, net - - -
----- ----- -----
Income before income taxes 2.7 1.3 2.1
Income tax provision 1.2 1.2 1.0
Minority interest - - -
----- ----- -----
Net income 1.5% 0.1% 1.1%
===== ===== =====
Comparison of the Years Ended December 31, 2000 and December 31, 1999
- ---------------------------------------------------------------------
Net revenues consist of the following:
2000 1999
---- ----
(in thousands)
Product sales, net $130,483 $129,452
Royalty income 1,539 94
-------- --------
$132,022 $129,546
======== ========
Product sales for the year ended December 31, 2000 were $130.5 million
compared with $129.5 million for the same period in 1999, representing an
increase of $1.0 million or 0.8%. The sales increase was primarily due to 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, offset in part by a decrease in sales of
Swiss Army Brand Watches. Royalty income relates to the licensing program of
Victorinox Travel Gear, which was introduced in the fourth quarter of 1999.
12
Gross profit for the year ended December 31, 2000 was $50.7 million, 0.5%
lower than in 1999. The decrease in gross profit was primarily due to a decrease
in Swiss Army Brand Watch sales offset in part by the increase in the value of
the U.S. dollar versus the Swiss franc, an increase in total sales and an
increase in royalty income, which has a higher gross margin than product sales.
The Company's gross profit margin is a function of both product mix and Swiss
franc exchange rates. Since the Company imports the majority of its products
from Switzerland, its costs are affected by both the spot rate of exchange and
by its foreign currency hedging program. 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 fourth
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, 2000 were $47.5 million, $1.2 million or 2.5% higher than in 1999. The
expense increase resulted primarily from increased advertising and merchandising
expense related to Swiss Army Brand Watches. As a percentage of net sales,
selling, general and administrative expenses increased to 36.0% in 2000 from
35.7% in 1999.
As a result of the above, the Company recorded operating income of
$3,239,000 for the year ended December 31, 2000 compared to $4,635,000 in 1999.
Interest expense of $1,274,000 for the year ended December 31, 2000 was
$526,000 greater than interest expense in 1999, due to the debt issued in
connection with the acquisitions of Bear in April 1999 and Xantia in July 2000.
Interest income of $43,000 for the year ended December 31, 2000 was $1,000
less than interest income in 1999.
Investment gain (loss), net for the year ended December 31, 2000 was income
of $1,508,000 compared to a loss of $2,280,000 for the year ended December 31,
1999. The gain in 2000 was due to a $1,716,000 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 Chaparral Resources, Inc. due to the other than
temporary impairment in the value of the investment. The loss in 1999 consisted
of a $2.7 million non-cash write-down of the Company's investment in Highgate
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.
As a result of the above, income before income taxes was $3,543,000 for the
year ended December 31, 2000 compared to $1,651,000 in 1999.
Income tax provision was provided at an effective rate of 44.6% for the
year ended December 31, 2000 compared to 92.7% for the year ended December 31,
1999. The change in the effective rate was the result of the Company taking
limited tax benefits in 1999 on the capital loss write-down of the Highgate
Capital LLC investment.
13
As a result of the above, the net income for the year ended December 31,
2000 was $2,013,000 ($0.25 per share-basic and diluted) compared to $120,000
($0.02 per share-basic, $0.01 per share-diluted) in 1999.
Comparison of the Years Ended December 31, 1999 and December 31, 1998
- ---------------------------------------------------------------------
Net revenues consist of the following:
1999 1998
---- ----
(in thousands)
Product sales, net $129,452 $127,851
Royalty income 94 -
-------- --------
$129,546 $127,851
======== ========
Product 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 following the acquisition of Bear Cutlery, Inc. ("Bear") in
April 1999, an increase in sales of new Victorinox products, primarily the
Victorinox CyberTool and SwissCard, 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.
Gross profit for the year ended December 31, 1999 was $50.9 million, 1.9%
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.
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 35.7% in 1999 from 38.3% in 1998.
As a result of the above, the Company recorded operating income of
$4,635,000 for the year ended December 31, 1999 compared to $977,000 in 1998.
Interest expense of $748,000 for the year ended December 31, 1999 was
$615,000 greater than interest expense in 1998 due to the debt 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 less than interest income in 1998, due to decreased cash balances
during 1999 compared to 1998.
Investment gain (loss), net 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
Highgate 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 Highgate 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 also sold its investment in
SWWT, Inc. and realized a gain of $94,000.
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 provision 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 in 1999 on the capital loss write-down of the Highgate
Capital LLC investment.
As a result of the above, the net income for the year ended December 31,
1999 was $120,000 ($0.02 per share-basic, $0.01 per share-diluted) compared to
$1.5 million ($0.18 per share-basic and diluted) in 1998.
14
Liquidity and Capital Resources
As of December 31, 2000, the Company had working capital of $57.6 million
compared with $51.4 million as of December 31, 1999, an increase of $6.2
million. Working capital increased due to the acquisition Swiss franc
requirements, of Xantia. Significant uses of working capital consisted of
additions to other assets of $2.6 million and capital expenditures of $1.4
million. The Company currently has no material commitments for capital
expenditures.
Cash provided from operating activities was approximately $4.0 million in
the year ended December 31, 2000 compared to $4.9 million in the year ended
December 31, 1999. The change primarily resulted from an increase in inventory
in 2000 compared to a decrease in 1999, an increase in prepaid and other in 2000
compared to a decrease in 1999, a decrease in accrued liabilities in 2000
compared to an increase in 1999, offset in part by an increase in accounts
payable in 2000 compared to an decrease in 1999 and a decrease in accounts
receivable in 2000 compared to an increase in 1999.
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, 2000, the Company had $6,335,000 of outstanding borrowings under
its line of credit agreement. Also, the Company has approximately $11,196,000 of
outstanding term loans and debt related to the acquisitions of Bear and Xantia.
At December 31, 2000, the Company has a $16.0 million credit line, of which
$9,665,000 is available for borrowings. The revolving credit line is due to
expire in June 2001. In March 2001, the Company received a firm commitment from
its current lender to extend the line of credit through June 2003 under similar
terms and conditions as the existing agreement. 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.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("SFAS 133"), as amended in
June 2000 by SFAS No. 138 ("SFAS 138"), "Accounting for Derivative Instruments
and Hedging Activities," which standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. This standard requires that an entity recognize those items as assets
or liabilities in the balance sheet and measure them at fair value, resulting in
an offsetting adjustment to income or other comprehensive income, depending on
effectiveness of the hedge. SFAS 133, as amended by SFAS 138, was effective for
the Company beginning January 1, 2001. The Company adopted this statement
effective January 1, 2001. Based upon the estimated fair value of the Company's
derivative instruments, at January 1, 2001 derivative liabilities of
approximately $750,000 will be recognized in the balance sheet with an
offsetting amount in other comprehensive income (loss).
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes some of the SEC staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company adopted SAB 101 in the fourth quarter 2000 without any material
impact on the Company's financial statements or results from 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
15
and recognized in cost of sales when the related inventory is sold. At December
31, 2000, the Company entered into foreign currency contracts and options to
purchase approximately 64.7 million Swiss francs in 2001 at a weighed average
rate of $1.580 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, 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. See Notes to
Consolidated Financial Statements for further discussion of the Company's
accounting policies and other information related to it foreign exchange
instruments.
Interest Rate Risk
The Company has entered into interest rate protection agreements to manage
its exposure to fluctuations in earnings related to changes in interest rates on
its variable rate debt. At December 31, 2000, a 50 basis point increase or
decrease in market interest rates, principally LIBOR, would not materially
increase or decrease interest expense or cash flows.
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. Changes In and Disagreements with Accountants on Accounting and
- ------- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
16
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 24, 2001.
Item 11. Executive Compensation
- -------- ----------------------
Incorporated herein by reference to the information under the headings
"Compensation of Directors", "Compensation Committee Interlocks and Insider
Participation", "Management Compensation", "Option Grants in Last Fiscal Year",
"Option Exercises and Year-End Value Table" and "Compensation Committee Report
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 24, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
Incorporated herein by reference to the information under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement with respect to the Company's Annual Meeting of
Stockholders scheduled to be held on May 24, 2001.
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 Stockholders
scheduled to be held May 24, 2001.
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, 2000
and 1999 F-2 to F-3
Consolidated Statements of Operations for the
Years Ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity
and Comprehensive Income for the Years Ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 to F-24
(2)
Schedule --
Schedule II -- Valuation and Qualifying Accounts
for the Years Ended December 31, 2000, 1999 and 1998 F-25
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, 2000
and 1999, 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, 2000. These financial statements and the schedule
referred to below 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, 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
March 27, 2001
F-1
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 31,
------------
2000 1999
---- ----
Current assets
Cash and cash equivalents $5,002 $1,302
Accounts receivable, less
allowance for doubtful accounts
of $1,260 and $1,060, respectively 34,173 33,718
Inventories 33,461 30,227
Deferred income taxes 1,887 2,235
Prepaid and other 4,089 3,058
------- --------
Total current assets 78,612 70,540
------- --------
Deferred income taxes 675 1,474
Property, plant and equipment, net 7,506 4,856
Investments 8,274 4,476
Intangible assets, net 12,595 11,548
Other assets, net 16,787 14,710
-------- --------
Total assets $124,449 $107,604
========= =========
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,
------------
2000 1999
---- ----
Current liabilities
Current portion of long-term debt $ 1,493 $ 875
Accounts payable 11,057 7,732
Accrued liabilities 8,452 10,562
------ ------
Total current liabilities 21,002 19,169
------ ------
Long-term liabilities
Long-term debt 16,038 11,362
Other 675 693
------- -------
Total liabilities 37,715 31,224
Minority interest 6,050 -
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 - 8,971,080
and 8,866,218, respectively 897 886
Additional paid-in capital 49,005 49,137
Accumulated other comprehensive income (loss) 1,234 (401)
Retained earnings 37,589 35,576
-------- --------
88,725 85,198
Less: Treasury stock; 905,734 and 1,014,108 shares,
respectively (8,003) (8,711)
Deferred compensation (38) (107)
-------- --------
Total stockholders' equity 80,684 76,380
-------- --------
Total liabilities and stockholders' equity $ 124,449 $ 107,604
========== ==========
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,
2000 1999 1998
---- ---- ----
Net revenues $132,022 $129,546 $127,851
Cost of sales 81,316 78,606 77,869
Gross profit 50,706 50,940 49,982
Selling, general and administrative
expenses 47,467 46,305 49,005
-------- -------- --------
Operating income 3,239 4,635 977
-------- -------- --------
Interest expense (1,274) (748) (133)
Interest income 43 44 188
Investment gain (loss), net 1,508 (2,280) 1,651
Other income, net 27 - -
-------- -------- --------
Total interest and other income
(expense), net 304 (2,984) 1,706
-------- -------- --------
Income before income taxes 3,543 1,651 2,683
Income tax provision 1,579 1,531 1,220
Minority interest (49) - -
-------- -------- --------
Net income $2,013 $ 120 $ 1,463
======== ======== ========
Earnings per share:
Basic $0.25 $0.02 $0.18
===== ===== =====
Diluted $0.25 $0.01 $0.18
===== ===== =====
Weighted average number of shares
outstanding:
Basic 7,973 7,862 8,138
===== ===== =====
Diluted 8,187 8,021 8,236
===== ===== =====
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, 2000, 1999 AND 1998
(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, 1997 8,823,718 $882 $46,186 ($240) $33,993 ($5,113)
Comprehensive Income:
Net income - - - - 1,463 - $1,463
Unrealized gain in
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)
Comprehensive Income:
Net income - - - - 2,013 - $2,013
Foreign currency
translation adjustment - - - (655) - - (655)
Unrealized gain in
marketable securities - - - 2,290 - - 2,290
---------
Comprehensive Income $3,648
=========
Issuance of common stock 106,112 11 (11) - - -
Cancellation of stock grant (1,250) - (11) - - -
Acquisition of Xantia, S.A. - - (110) - - 708
----------- ------- --------- -------- ---------- ---------
BALANCE
December 31, 2000 8,971,080 $897 $49,005 $1,234 $37,589 ($8,003)
=========== ======= ========= ======== ========== =========
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,
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 2,013 $ 120 $1,463
Adjustments to reconcile net income to cash
provided from operating activities:
Minority interest (49) - -
Depreciation and amortization 3,504 3,230 2,834
Stock compensation expense 58 73 21
Deferred income taxes 543 (435) 2,652
Investment (gain) loss, net (1,508) 2,280 (1,651)
-------- ------- -------
4,561 5,268 5,319
Changes in other current assets and liabilities:
Accounts receivable 1,625 (1,206) (3,167)
Inventories (727) 383 (1,433)
Prepaid and other (630) 3,652 (2,814)
Accounts payable 1,366 (5,030) 3,937
Accrued liabilities (2,161) 1,872 (1,661)
-------- ------- --------
Net cash provided from operating activities 4,034 4,939 181
-------- ------- --------
Cash flows from investing activities:
Acquisition of Bear MGC Cutlery, Inc., net of cash
acquired - (7,982) -
Acquisition of Xantia, S.A., net of cash acquired (1,751) - -
Capital expenditures (1,433) (1,698) (1,302)
Additions to other assets (2,605) (3,776) (2,701)
Proceeds from sales of investments - 1,972 1,949
-------- ------- --------
Net cash used for investing activities (5,789) (11,484) (2,054)
-------- -------- --------
Cash flows from financing activities:
Borrowings under bank agreements 58,103 59,440 32,914
Repayments under bank agreements (52,891) (52,343) (27,774)
Repurchase of common stock - (517) (3,081)
Proceeds from exercise of stock options and warrants - 54 70
-------- -------- --------
Net cash provided from financing activities 5,212 6,634 2,129
-------- -------- --------
Effect of exchange rate changes on cash 243 (96) (25)
Net increase (decrease) in cash and cash
equivalents 3,700 (7) 231
Cash and cash equivalents, beginning of period 1,302 1,309 1,078
-------- -------- --------
Cash and cash equivalents, end of period $5,002 $ 1,302 $ 1,309
======== ======== ========
Cash paid during the period:
Interest $1,109 $ 766 $ 102
======== ======== ========
Income taxes $1,961 $ 618 $ 1,752
======== ======== ========
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 and
Victorinox Cutlery. 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, the Company manufactures and distributes Bear MGC knives
and multi-tools. Swiss Army has only one business segment - the
importation, manufacture and distribution of consumer products,
including watches, pocketknives, cutlery, multi-tools and sunglasses.
No customer accounted for greater than 10% of net sales in any of the
three years ended December 31, 2000.
In December 2000, Victorinox A.G., a Swiss Corporation and a principal
supplier to and long time stockholder of the Company ("Victorinox"),
and its affiliates purchased sufficient shares of the Company's common
stock in private and open market transactions to acquire majority
control of the Company.
On July 24, 2000, the Company and 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. 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 subsidiaries in which it has a controlling
interest. 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. Revenues from licensing
agreements are recognized when earned.
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.
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, 2000 and 1999, the amount at which
inventories are stated would have been $4,246,000 and $3,372,000
greater, 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,
2000 1999
(in thousands)
------------------
Leasehold improvements $1,158 $1,133
Building and building
improvements 2,282 -
Equipment 9,966 8,485
Furniture and fixtures 1,635 1,458
------ ------
15,041 11,076
Accumulated depreciation (7,535) (6,220)
------ ------
$7,506 $4,856
====== ======
F-8
Depreciation is computed principally by use of the straight-line
method based on the following estimated useful lives:
Years
-----
Equipment 3 to 10
Building and building improvements 40
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, 2000, 1999, and 1998, depreciation
expense of property, plant and equipment was approximately
$1,710,000, $1,594,000, and $1,300,000, respectively.
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, 2000.
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 in fair value are reflected as a
component of stockholders' equity. Any write-down of the cost due
to impairments that are considered other than temporary 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. 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.
F-9
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, as amended in June 2000 by SFAS No. 138,
"Accounting for Derivative Instruments and Hedging Activities,"
which standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other
contracts. This standard requires that an entity recognize those
items as assets or liabilities in the balance sheet and measure
them at fair value, resulting in an offsetting adjustment to
income or other comprehensive income, depending on effectiveness
of the hedge. SFAS 133, as amended by SFAS 138, was effective for
the Company beginning January 1, 2001. The Company adopted this
statement effective January 1, 2001. Based upon the estimated
fair value of the Company's derivative instruments, at January 1,
2001 derivative liabilities of approximately $750,000 will be
recognized in the balance sheet with an offsetting amount in
other comprehensive income (loss).
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements." SAB 101 summarizes some of
the SEC staff's interpretations of the application of generally
accepted accounting principles to revenue recognition. The
Company adopted SAB 101 in the fourth quarter 2000 without any
material impact on the Company's financial statements or results
from operations.
Reclassifications
Certain reclassifications have been made to the prior year
financial statements to conform with the current year
presentation.
(3) INTANGIBLE ASSETS
Intangible assets are comprised of the following:
December 31,
2000 1999
---- ----
(in thousands)
Goodwill (A) $9,990 $8,153
Foreign distribution rights (B) 1,538 2,207
Trademark rights (C) 1,067 1,188
------ ------
$12,595 $11,548
======= =======
(A) Represents the goodwill related to the acquisition of Xantia
and 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. 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, 2000, 1999, and 1998,
amortization expense was $1,265,000, $916,000 and $674,000,
respectively.
F-10
(4) ACQUISITIONS
On July 24, 2000, the Company and Victorinox each acquired 50% of the
issued and outstanding capital stock of Xantia from its stockholders (
the "Sellers") pursuant to an agreement, dated June 23, 2000, as
amended by agreements dated July 10, 2000 and July 24, 2000
(collectively, the "Agreement"). The Agreement contains provisions
that secure ongoing control of Xantia by the Company.
Pursuant to the Agreement, at closing the Company paid 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 at
1,000,000 CHF ($598,000). At the closing, Victorinox paid to the
Sellers 3,250,000 CHF ($1,943,500). In addition, in accordance with
the Agreement, in November 2000, the Company and Victorinox each paid
an additional 500,000 CHF ($299,000) as an adjustment to the purchase
price. Each of the Company and Victorinox also agreed to pay an
additional 6,000,000 CHF ($3,670,200) over the next seven years plus
interest.
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 acquisition costs, amounts paid or owed by Victorinox and
the issuance of the Common Stock has resulted in acquired goodwill of
approximately $2.3 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 $3,724
Accounts receivable 2,015
Inventory 3,156
Other current assets 428
Plant and equipment 2,868
Goodwill 2,270
Accrued expenses and other liabilities (2,557)
--------
Total $11,904
========
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 "Bear Agreement") with Bear MGC Cutlery, Inc. ("Bear MGC") and
the shareholders (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 Bear 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
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. In addition,
pursuant to the Bear Agreement, in April 2000, Swiss Army paid $1.0
million in cash and issued $377,000 of Common Stock of Swiss Army, and
will issue an additional $377,000 of Common Stock of Swiss Army in
April 2001 and April 2002, because Bear attained certain earnings
targets for the year ended December 31, 1999.
F-11
The purchase method of accounting was used to account for the
acquisition. The aggregate purchase price, including acquisition
costs, has been allocated to the assets and liabilities of Bear based
on estimates of fair market value. 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 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, 2000, 1999 and 1998, respectively, had the acquisition of
Xantia occurred on January 1, 2000 and 1999 of the respective periods
and the acquisition of Bear occurred on January 1, 1999 and January 1,
1998 of the respective periods, 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,
2000 1999 1998
(Unaudited, in thousands
except per share data)
Net revenues $132,641 $132,953 $134,743
Net income 2,445 629 1,802
Earnings per share - basic 0.31 0.08 0.21
Earnings per share - diluted 0.30 0.07 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
Victorinox. 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 1998,
1999 and 2000, Victorinox agreed to reduce the minimum purchase
requirements and the Company met those purchase requirements. The
Company is currently in negotiations with Victorinox regarding the
2001 minimum purchase requirement. 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-12
Foreign distribution rights with Victorinox are comprised of the
following:
December 31,
2000 1999
---- ----
(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 (5,206) (4,537)
-------- -------
$1,538 $2,207
======== =======
(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 received were
awarded to Swiss Army for a fixed seven-year term, which were renewed
in December 2000, with a continuous five-year renewal arrangement upon
expiration of the fixed term 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 imports virtually all of its pocketknives, multitools,
cutlery, and watches, except for items manufactured by Bear. 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. The exclusive distributorship 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-13
(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 year ended
December 31, 1998, Swiss Army incurred fees of $174,000 relating to
these services.
Four of Swiss Army's directors serve as directors of Highgate Capital
LLC ("Highgate"), formerly known as 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 in which a Swiss Army director and
Victorinox 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,
2000, 1999 and 1998 were approximately $172,000, $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,
2000 1999
---- ----
(in thousands)
Common stock of John Hancock
Financial Services, Inc. (A) $3,798 $ -
Preferred units of Highgate
Capital LLC (B) 3,613 3,613
Preferred units of
Victory Ventures LLC (C) 851 851
Common stock of Chaparral Resources, Inc. (D) 12 12
------- -------
Total investments $8,274 $4,476
======= =======
(A) John Hancock Financial Services, Inc. ("John Hancock") a publicly
traded company, is a life insurance company. In 2000, the Company
received 100,938 shares of common stock related to the demutualization
of John Hancock. As a result, the Company recorded an investment gain
of $1,716,000. The Company accounts for this investment at fair value,
with changes in fair value reflected as a separate component of
stockholders' equity.
(B) Highgate is a private equity firm specializing in middle market
acquisitions, re-capitalization and expansion capital investments. In
January 1998, Highgate 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-for-two stock split), valued at $1,481,000, of
Iron Mountain Inc. ("Iron Mountain"). In 1998, the Company recognized
F-14
a $1.5 million gain on this cash and common stock distribution. In
1999, the Company recorded a $2.7 million write-down of its investment
in Highgate due to the other than temporary impairment in the value of
the investment. At December 31, 2000 and 1999, the Company owned
890,776 preferred units of Highgate, which represented approximately
9.6% of the outstanding equity of Highgate. The preferred units in
Highgate 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) Victory Ventures LLC ("Victory Ventures") is a private equity firm
specializing in small market venture capital investments. In 1998,
Victory distributed shares of common stock in two companies. The
Company liquidated these investments in 1998 and realized a gain of
approximately $57,000 on these investments. At December 31, 2000 and
1999, the Company owned 890,776 preferred units of Victory Ventures
which represented approximately 1.2% 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.
(D)Chaparral, a publicly traded company, is an independent oil and gas
exploration and production company. At December 31, 2000, the Company
owned 1,461 shares of common stock of Chaparral. In 2000, the Company
recorded a non-cash write-down of $208,000 of its investment in
Chaparral due to the other than temporary impairment in the value of
the investment.
(8) OTHER ASSETS
Other assets are comprised of the following :
December 31, Amortization
2000 1999 Period
(in thousands)
Cash surrender value of
life insurance (see Note 15) $16,019 $14,111 N/A
Other 3,783 3,085 1-5 years
-------- --------
Accumulated amortization (3,015) (2,486)
-------- --------
$16,787 $14,710
======== ========
For the years ended December 31, 2000, 1999 and 1998, amortization
expense related to other assets was approximately $529,000, $720,000,
and $860,000, respectively.
F-15
(9) ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
December 31,
2000 1999
(in thousands)
Sales, marketing and promotional $3,014 $3,951
Payroll related 1,499 1,353
Acquisition payment (see Note 4) - 1,000
Other 3,939 4,258
------- -------
$8,452 $10,562
======= =======
(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. In July 2000, the Company
entered into a term loan agreement with the same bank for a $1.6
million term loan related to the acquisition of Xantia. The above
borrowings carry interest 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 due to expire in June 2001. In March 2001, the Company received a
firm commitment from its current lender to extend the line of credit
through June 2003 under similar terms and conditions as the existing
agreement. 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, funded debt ratio, interest rate coverage and current ratio,
and the continuation of the exclusive distributorship arrangement with
Victorinox. At December 31, 2000, 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.
In addition, the Company has 6,000,000 CHF ($3,670,200) of debt
related to the acquisition of Xantia due to the former stockholders of
Xantia. The debt is payable over seven years and bears interest at
3.5% per annum.
The Company has entered into an interest rate cap agreement to provide
interest rate protection on $5.0 million of debt to the maximum rate
of 7.0% (before applicable margin) expiring in November 2004. Also,
the Company has entered into an interest rate collar agreement to
provide interest rate protection on $3.5 million of debt in the range
of 5.5% to 7.0% (before applicable margin) expiring in June 2006. At
December 31, 2000, the fair value of these agreements is immaterial to
the financial statements.
Scheduled principal payments due on debt in the next five years are as
follows (in thousands):
2001 $ 1,493
2002 1,539
2003 7,890
2004 4,198
2005 and thereafter 2,411
The above principal payments are based upon the Company's receipt of
the firm commitment letter from its exiting lender in March 2001.
F-16
(11) INCOME TAXES
The income tax provision (benefit) for the years ended December 31,
2000, 1999 and 1998, consists of the following:
Year Ended December 31,
2000 1999 1998
---- ---- ----
(in thousands)
Current
Federal $ 632 $1,681 ($1,662)
Foreign 99 - -
State 305 285 230
------ ------- --------
Total current 1,036 1,966 (1,432)
Deferred
Federal 492 (600) 2,294
State 51 165 358
------ ------- --------
Total deferred 543 (435) 2,652
------ ------- --------
Provision (benefit) for
income taxes $1,579 $1,531 $1,220
====== ======= ========
The significant components of the deferred tax asset as of December
31, 2000 and 1999 are as follows:
2000 1999
(in thousands)
Sales and marketing reserves $ 945 $ 940
Inventory related reserves 590 850
Depreciation and amortization 526 771
Capital gains and losses 194 919
Accrued employee benefits 270 234
Other, net 498 638
------ ------
3,023 4,352
Valuation allowance (461) (643)
------ ------
Total $2,562 $3,709
At December 31, 2000 and 1999, a valuation allowance of $461,000 and
$643,000 respectively, has been recorded against a portion of the
Company's deferred tax assets related to state and capital loss
carryfowards
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 2000, 1999 and 1998 is as follows:
2000 1999 1998
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 6.3 11.4 5.7
Foreign taxes 4.9 19.7 2.1
Valuation allowance (4.5) 38.9 -
Other 3.9 (11.3) 3.7
----- ------ ------
Effective income tax rate 44.6% 92.7% 45.5%
===== ====== ======
F-17
(12) COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) activity for the three
years ended December 31, 2000 is as follows:
Accumulated
Unrealized Gain Other
Foreign Currency (Loss) On Comprehensive
Translation Marketable Securities Income (Loss)
(in thousands)
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)
2000 activity (655) 2,290 1,635
------ ------ ------
December 31, 2000 ($848) $2,082 $1,234
====== ====== ======
(13) EMPLOYEE BENEFITS
The Company maintains a non-contributory 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 $342,000, $405,000, and
$285,000, for the years ended December 31, 2000, 1999 and 1998,
respectively. The net periodic pension cost of Swiss Army's pension
plan in 2000, 1999 and 1998 includes the following components:
2000 1999 1998
(in thousands)
Service cost - benefits earned during the period $ 326 $ 367 $286
Interest cost on projected benefit obligation 162 182 166
Expected return on assets (119) (141) (143)
Amortization of net transition asset (14) (14) (14)
Amortization of unrecognized prior service cost (13) (13) (13)
Amortization of net loss - 24 3
------ ------- -------
Net periodic pension cost $342 $405 $285
====== ======= =======
F-18
The changes in benefit obligations and plan assets and the funded
status reconciliation as of December 31, 2000 and 1999 for Swiss
Army's pension plan are shown below:
2000 1999
---- ----
(in thousands)
Change in Benefit Obligation
Benefit obligation, January 1 $2,618 $2,741
Service cost 326 367
Interest cost 162 182
Actuarial (gain) loss 116 (581)
Benefits paid - expected (98) (91)
------- -------
Benefit obligation, December 31 $3,124 $2,618
======= =======
Change in Plan Assets
Fair value of plan assets, January 1 $1,430 1,727
Actual return on plan assets 90 96
Company contributions 307 260
Benefits paid - actual (52) (653)
------- -------
Fair value of plan assets December 31 $1,775 $1,430
======= =======
Funded Status Reconciliation
Funded status, December 31 ($1,349) ($1,188)
Unrecognized (gains) losses, net 560 460
Unrecognized prior service costs (217) (230)
Unrecognized transition amount (28) (42)
-------- --------
Accrued pension cost, December 31 ($1,034) ($1,000)
======== ========
Rates used in determining the actuarial present value of the projected
benefit obligation are as follows:
December 31,
2000 1999
---- ----
Discount rate 7.00% 7.00%
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
2000, 1999 and 1998, the Company incurred expenses of approximately
$168,000, $173,000, and $161,000, respectively, related to this plan.
The Company offers no other post retirement benefits.
F-19
(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, 234,593 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, 2000, 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, 2000:
Number
of Shares Option Price
--------- ------------
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
Granted (B) 727,000 $ 4.47 - $ 6.38
Canceled (216,500) $ 6.38 - $ 14.00
-----------
Outstanding at December 31, 2000 2,744,750 $ 4.47 - $ 14.50
===========
Of the options and warrants outstanding at December 31, 2000,
2,213,000 are exercisable at a weighted average option price of $11.02
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.
(B) In 2000, the Company issued 727,000 options to purchase common
stock at a weighted average price of $6.30 per share to various
employees, directors and officers. Of these options, 105,000 options
were granted to directors and are exercisable immediately, and 622,000
options were granted to employees and officers and are exercisable in
four equal installments over three years starting with the grant date.
The weighted-average fair value of the stock options granted in 2000,
1999 and 1998 was approximately $4.04, $4.81 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 61% in 2000, 51% in 1999 and 30% in 1998;
expected life of options of six years; dividend yield of 0%; and risk
F-20
free interest rate of 6.68% in 2000, 5.26% in 1999 and 4.91% in 1998,
respectively.
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, 2000 been
determined under the principles of SFAS No. 123, the Company's net
income (loss) and earnings per share would have been the following:
2000 1999 1998
---- ---- ----
(in thousands, except per share data)
Net income (loss) As reported: $2,013 $120 $1,463
Pro forma: $1,201 ($348) $ 812
Earnings per share As reported:
Basic $0.25 $0.02 $0.18
Diluted $0.25 $0.01 $0.18
Pro forma:
Basic $0.15 ($0.04) $0.10
Diluted $0.15 ($0.04) $0.10
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 $58,000, $73,000 and $21,000 for the
years ended December 31, 2000, 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. As of December
31, 1999, the Company had completed the repurchase of 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, 2000, minimum rental payment commitments for office,
warehouse and manufacturing space leased by the Company under
operating leases were, as follows (in thousands):
2001 $1,164
2002 94
2003 94
2004 94
2005 and thereafter 391
F-21
During the years ended December 31, 2000, 1999 and 1998, rent expense
was approximately $1,508,000, $1,487,000 and $1,374,000, respectively.
At December 31, 2000, the Company has open contracts to purchase
approximately 64.7 million Swiss francs in 2001 as a hedge against
future purchase of inventories at a weighed average rate of $1.580
Swiss franc/dollar.
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,
2000, 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 $7,200,000. 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):
2001 $ 512
2002 493
2003 460
2004 460
2005 and therafter 1,740
In 1993, the Company's Board of Directors adopted a charitable
insurance program that enables the Company 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, the Company 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 Executive
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):
2001 $ 604
2002 604
2003 604
2004 604
2005 and thereafter 7,673
Under existing federal tax laws, the receipt by the Company of the
proceeds from an insurance policy upon the death of a director would
not result in regular taxable income to the Company; however, the
Company may be subject to alternative minimum tax on a portion of the
receipts. When the Company makes cash contributions to a designated
charity, it will be entitled to a tax deduction equivalent to the sum
F-22
of those contributions. The extent of the utilization of this
deduction in that year will depend upon the Company's taxable income,
since the Company 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.
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) SEGMENT REPORTING
The Company is engaged in one line of business - the importation,
manufacture and distribution of consumer products, including watches,
pocketknives, cutlery, multi-tools and sunglasses. Sumarized financial
information concerning the Company's reportable segment and geographic
areas is shown in the following table. The "Other" column includes
corporate related items.
United States Canada International Other Total
------------- ------ ------------- ----- -----
2000
----
Revenues $114,314 $8,419 $9,289 $ - $132,022
Operating
income (loss) 22,567 827 (98) (20,057) 3,239
Identifiable
assets 58,014 4,106 13,941 48,388 124,449
1999
----
Revenues $114,856 $8,573 $6,117 $ - $129,546
Operating
income (loss) 26,218 1,168 187 (22,938) 4,635
Identifiable
assets 58,045 3,557 3,376 42,626 107,604
1998
----
Sales $111,507 $8,483 $7,811 $ - $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-23
(17) QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended
(in thousands, except per share data)
-------------------------------------
March 31 June 30 September 30 December 31
2000
----
Net revenues $25,540 $29,385 $32,719 $44,378
Gross profit 9,724 11,741 12,799 16,442
Income before
income taxes 488 275 1,302 1,478
Net income 276 155 789 793
Earnings per share - basic $0.03 $0.02 $0.10 $0.10
Earnings per share - diluted $0.03 $0.02 $0.10 $0.10
March 31 June 30 September 30 December 31
1999
----
Net revenues $23,570 $30,396 $33,026 $42,554
Gross profit 8,949 11,990 12,798 17,203
Income (loss) before
income taxes (614) (2,183) 1,353 3,095
Net income (loss) (353) (2,126) 766 1,833
Earnings per share - basic ($0.04) ($0.27) $0.10 $0.23
Earnings per share - diluted ($0.04) ($0.27) $0.10 $0.22
F-24
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(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, 2000:
Allowance for Doubtful Accounts $1,060 $200 $ - $1,260
====== ===== ====== ======
Inventory Reserve
$1,215 $ - ($44) $1,171
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
====== ===== ====== ======
F-25
Exhibits.
Exhibit Title Exhibit No.
(b) Reports on Form 8-K
On October 6, 2000, the Registrant filed a Form 8-K/A that contained
financial statements and pro forma financial information with respect
to the acquisition of Xantia S.A., previously reported on Form 8-K
filed on August 7, 2000.
(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) Amended-and restated by-laws of Swiss Army Brands, Inc. as of
February 15, 1995, as further amended as of March 1, 2001.
(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,
In., 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.
19
(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.
(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 SwissConfederation represented by the Federal Military Department
represented by the Federal Defense Production Group and Swiss Army
Brands, Inc. 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., and 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 schedules
not otherwise filed herewith.)
(DD) Amended and Restated Trademark License Agreement, dated as of
February 17,2000, between the Registrant and TRG Accessories, LLC,
incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-Q for the quarter ended March 31, 2000.*
(EE) 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.; incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K filed on August 7, 2000.
(FF) 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.
(GG) 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.
* Confidential treatment have been received for portions of this
exhibit.
21
(HH) Trademark License Agreement, dated as of October 13, 2000 between
the Registrant and Tropical Sportswear International Corporation.**
(21) Subsidiaries of Registrant. 21
(23) Consent of Arthur Andersen LLP. 23
(27) Financial Data Schedule.
** Confidential treatment has been requested for portions of this
exhibit.
22
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)
/s/ J. Merrick Taggart
J. Merrick Taggart
President and Chief Executive Officer
/s/ Thomas M. Lupinski
Thomas M. Lupinski
Senior Vice President, Chief Financial Officer, Secretary, and
Treasurer
/s/ Marc A. Gold
Marc A. Gold
Vice President and Controller
Date: March 27, 2001
23
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, 2001
J. Merrick Taggart
President, Chief Executive Office, and Director
/s/ A. Clinton Allen March 27, 2001
A. Clinton Allen
Director
/s/ Clarke H. Bailey March 27, 2001
Clarke H. Bailey
Director
/s/ Vincent D. Farrell, Jr. March 27, 2001
Vincent D. Farrell, Jr.
Director
/s/ Herbert M. Friedman March 27, 2001
Herbert M. Friedman
Director
/s/ Peter W. Gilson March 27, 2001
Peter W. Gilson
Director
/s/ Louis Marx, Jr. March 27, 2001
Louis Marx, Jr.
Director
/s/ Robert S. Prather, Jr March 27, 2001
Robert S. Prather, Jr.
Director
/s/. Stanley R. Rawn, Jr March 27, 2001
Stanley R. Rawn, Jr.
Director
/s/ John Spencer March 27, 2001
John Spencer
Director
/s/ John V. Tunney March 27, 2001
John V. Tunney
Director
24